Recently a two-judge bench of Delhi High Court in Commissioner of Income Tax (Central) Vs. M/S Russian Technology Centre (P)Ltd. held that share application money cannot be deemed as unexplained when the payment is evident through bank details.
The assessee company is a subsidiary of M/s Russian Technology Centre Holding Ltd. (RTCHL) which had received various amounts towards share capital and increase in unsecured loans from RTCHL and M/s Protex Trading Company Ltd. For the various amounts received over the years the AO had sought details of the depositor’s bank accounts along with the cheque number and date; copy of the acknowledgment of return of income etc. To prove the genuineness and identity of the shareholders, the assessee furnished documents like FIPB Approval, Copy of certificates of incorporation of shareholders, Copy of bank statement, Copy of Form 2 filed before ROC.
The assessee also submitted that apropos squared-up loans, it accepted a loan of `5,00,000/- from M/s Tsunami Technologies India P. Ltd by a Demand Draft drawn on Union Bank of India, Vasant Vihar. The relevant documents in this regard were furnished. However, the AO, was not satisfied by the aforesaid details and proceeded to add `5,00,000/- towards the unsecured loans and `55,44,000/- towards capital loss as being unexplained.
The Commissioner of Income Tax (Appeals), [CIT(A)] disallowed the additional documents and the appeal. In doing so he relied upon the decision of the Gujarat High Court in N.B. Surti Family Trust Vs. CIT [2007] 288 ITR 523 to hold that when the evidence is new and the assessee could not give any explanation as to why the additional documents could not be produced at the earlier stages, the Tribunal would be justified in sifting out of all such evidence.
However the Tribunal noted “The FIPB authorized the assessee company to raise capital upto Rs. 600 crores without approaching it for further approvals. This approval was given vide letter dated 20.12.2005. The assessee also, filed the Certificate of Incorporation of RTCHL and a detailed confirmation by RTCHL and M/s Protex Trading Company Ltd confirming the remittance of Rs.54,44,000/- towards share capital of the assessee company. The assessee contended that the money came in through banking channels and a copy of the Foreign Inward Remittance Certificate was also filed wherein it was specifically stated that the money’s have come in towards share capital in the assessee company and the same had been remitted by RTCH”
The assessee relied on Hon’ble Supreme Court judgment in the case of Lovely Exports and the Tribunal agreed to the contentions of the assessee that the primary burden cast on the assessee while proving the share application money. Ignoring various documents procured from FIPB confirmations, ROC records, vehement insistence has been made only on the bank statements of the shareholders. According to Learned. Counsel on behalf of the assessee, when the burden of the assessee can be amply proved from the documents filed by it, cash credit/share application money cannot be held to be non-genuine without adjudicating them and picking up the non-filing of bank statements of shareholders. The assessing officer has a quasi-judicial duty to weigh the quality of evidence produced before it and if it is sufficient to discharge the burden of assessee, the same cannot be cryptically disregarded in the pretext of document which was not filed by the assessee.
The Revenue preferred appeals under Section 260-A of the Income Tax Act, 1961 against the common orders passed, whereby the Income Tax Appellate Tribunal (‘the Tribunal’) had allowed the assessee’s appeal and deleted the additions made by the Assessing Officer (‘AO’).
The main issue before the bench of High Court was whether there were any error by the Tribunal in holding that the assessee had established the genuineness of the transaction and the credit worthiness of the foreign investor?
Accepting the findings of the Tribunal, the two-judge bench comprising of Justice S. Ravindra Bhat and Justice Najmi Waziri observed “The preceding enumeration of the circumstances of the case show that the assessee had furnished all relevant data before the AO and the CIT(A), which, however, were not inquired into by the AO. Instead he obdurately adhered to his first impression and/or initial understanding that the entire transaction was neither creditworthy nor genuine. The assessee relied upon the documents to prove that the monies had been received through banking channels from its principal and other related companies…..It is only logical to expect that if the AO was not convinced about the genuineness of the said documents, he would have inquired into their veracity from the bank(s) to ascertain the truth of the assessee’s claims. Having not done so, he was not justified in disregarding the assessee’s contentions that the infusion of monies into its accounts was legitimate. Consequently, the AO was not justified in making additions of the various sums under Section 68 of the Act.”
The Court dismissed the appeals and affirmed the order of the Tribunal.
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