Commissioner of Income Tax vs Ujala Dyeing and Printing Mills P. Ltd.

K.A. Puj, J.—Heard Mrs. Mauna M. Bhatt, learned standing counsel appearing for the Revenue.

The Revenue has filed this tax appeal u/s 260A of the Income Tax Act, 1961 ("the Act" for short) for the assessment year 2002-03 proposing to formulate the following substantial questions of law for the determination and consideration of this Court:

(A) Whether from the facts and circumstances of the case the Assessee discharged the onus as per the provisions of Section 68 of the Income Tax Act for the cash credits ?

(B) Whether on the facts and circumstances of the case the Tribunal was justified in law to delete the addition on account of cash credits of Rs. 50,00,000 u/s 68 of the Income Tax Act without considering the evidence on record and on the basis of incorrect interpretation and application of law ?

The brief facts giving rise to the present appeal are that the return of income was filed by the Assessee on October 31, 2002, declaring total income of Rs. 3,00,210. The assessment u/s 143(3) of the Act was completed on March 30, 2005, determining the total income of Rs. 54,47,370 including additions made on account of unexplained cash credit of Rs. 50,00,000 and 1/5th of motor car depreciation and the tax payable was worked out at Rs. 24,65,711.

During the course of assessment proceedings, it was noticed by the Assessing Officer that the company had received a sum of Rs. 50,00,000 from five parties on account of share application money. There was no due compliance from these creditors to the notices issued u/s 133(6) of the Act. However, at the end of assessment proceedings, all these five parties filed their confirmations along with their bank statements. An inquiry was also conducted by the Assessing Officer. At the end of inquiry, the Assessing Officer passed an order and made addition of Rs. 50,00,000 u/s 68 of the Act.

Being aggrieved by the said order of the Assessing Officer, an appeal was filed before the Commissioner of Income Tax (Appeals)-II, Ahmedabad, who had confirmed the said additions.

Being further aggrieved by the order of the Commissioner of Income Tax (Appeals), the Assessee took up the matter before the Income Tax Appellate Tribunal and the Tribunal has deleted the additions of Rs. 50 lakhs.

In the above factual background, the present tax appeal is filed by the Revenue.

Mrs. Mauna Bhatt, learned standing counsel for the Revenue, has submitted that both the Assessing Officer as well as the learned Commissioner of Income Tax (Appeals) considered the facts and circumstances of the case and the addition of Rs. 50 lakhs made by the Assessing Officer on account of cash credit u/s 68 of the Act was upheld by the Commissioner of Income Tax (Appeals). She has further submitted that, while reversing the finding given by the Assessing Officer and the Commissioner of Income Tax (Appeals), the Tribunal has not considered the relevant issues and without dealing with those findings straightaway deleted the additions. She has, therefore, submitted that the same is contrary to the law laid down by this Court in the case of Rameshchandra M. Luthra Vs. Assistant Commissioner of Income Tax, She has further submitted that creditworthiness of the five companies was not established and, hence, additions were wrongly deleted by the Tribunal. She has, therefore, submitted that the substantial question of law arises out of the order of the Tribunal.

We have considered the submissions made by the learned standing counsel for the Revenue and we have also perused the orders passed by the authorities.

It is pertinent to note that right from the assessment stage, all relevant details were furnished by the Assessee in pursuance of the inquiry conducted by the Assessing Officer with regard to cash credit of Rs. 50 lakhs. The Assessing Officer had inquired about the share application money and the following documents were submitted during the course of assessment proceedings:

(i) Confirmation of all five share applicant-companies;

(ii) Permanent Account Number (PAN);

(iii) Resolution passed by all the five applicants for investment in M/s. Ujala Dyeing and Printing Mills Pvt. Ltd.

(iv) Details of D. D. through which amounts were invested;

(v) Acknowledgment of return of income held by all the five share applicant-companies for the assessment year 2002-03;

(vi) Duly audited balance-sheet of all the five share applicant-companies for the financial year 2001-02 along with the audit report.

On making independent inquiry by the Assessing Officer by issuing notice u/s 133(6) to all the five share applicant-companies, the following further details were supplied by them;

(a) Covering letter in reply to the said notice by speed post;

(b) Explanation of the sources from which investments were made by the respective companies;

(c) Copy of the bank statement showing the aforesaid transaction.

The following facts are apparent on record to establish the creditworthiness of the share applicant-companies:

(i) All the applicant-companies are 9 to 10 years old companies as can be verified from the date of incorporation written on the return of income;

(ii) All the share applicant-companies are having authorized and paid up share capital ranging from 50 lakhs to 65 lakhs;

(iii) All the share applicant companies are non-banking finance companies registered with the Reserve Bank of India to carry on the business of non-banking financial institution;

(iv) All the companies have substantial investments ranging from Rs. 65.10 lakhs to Rs. 96.16 lakhs in other companies;

(v) Annexures of investment shows the name of M/s. Ujala Dyeing and Printing Mills Pvt. Ltd. in whose share capital those companies have made investment;

(vi) All the applicant-companies are assessed to tax and assessment order has been received by them for the relevant assessment year 2002-03.

On the basis of the aforesaid details, the Assessing Officer has accepted the proof of identity of the companies, which had made share application in the Assessee-company. The Assessing Officer has also accepted that all the companies were having regular bank accounts from which DDs for share application money were issued. However, the Assessing Officer has not found the creditworthiness of the five companies and on that count, additions were made. Even while appreciating the evidence, the learned Commissioner of Income Tax (Appeals) has observed in his order that the Assessing Officer has made intensive inquiry to unearth the Assessee''s own money coming in the form of share application money from such companies which do not have source. He has further observed that the three ingredients, namely: (1) identity of the creditor; (2) his creditworthiness; and (3) genuineness of the transactions, are not fulfilled. He had, therefore, confirmed the additions made by the Assessing Officer. On these very materials, the Tribunal has come to a finding that the Assessee has clearly discharged its onus of proving identity of parties, genuineness of transaction and creditworthiness of share applications inasmuch as evidently their returns of income, assessment orders, balance-sheets showing investment, explanation regarding how they raised funds have been submitted before the lower authorities. The Tribunal has also found that the adverse inference drawn by the Assessing Officer is misplaced as their expectations from the Assessee travelled beyond the ingredients of onus as prescribed by Section 68 of the Act. After giving this factual finding, the Tribunal has referred to the decision of this Court in the case of The Commissioner of Income Tax Vs. Pragati Co. Op. Bank Ltd., and held that the Assessing Officer has gone beyond the same on assumption and also observed that though all assessments were finalized, the Assessing Officer has doubted certain sale of shares made by these parties.

From the aforesaid facts, we are of the view that the Tribunal has considered each and every finding recorded by the Assessing Officer as well as the Commissioner of Income Tax (Appeals), Ahmedabad and it cannot be said that the points raised before the Assessing Officer as well as the first appellate authority were not dealt with by the Tribunal. Hence, reliance placed on the decision of this Court in the case of Rameshchandra M. Luthra Vs. Assistant Commissioner of Income Tax, by the learned standing counsel for the Revenue is uncalled for. Since the Tribunal has recorded findings of fact and after appreciation of the evidence has come to the correct conclusion, we are of the view that no substantial question of law arises out of the order of the Tribunal. We, therefore, dismiss the appeal.