This appeal by assessee against order dt. 10th Aug., 2004 of learned CIT (A)-XI, New Delhi, raises following grounds: "1. That learned CIT(A) has erred both in law and on facts in confirming addition of Rs. 7 lakhs made by AO under s. 68 of IT Act on account of alleged share application money received by assessee company from different parties failing to appreciate that provisions of s. 68 of IT Act were wholly inapplicable on facts of instant case and in light of judgment of Hon ble Delhi High Court in case of CIT vs. Sophia Finance Ltd. (1993) 113 CTR (Del)(FB) 472: (1994) 205 ITR 98 (Del)(FB). That learned CIT(A) while confirming aforesaid addition has failed t o appreciate that assessment had not been completed by AO in accordance with directions issued by Hon ble Tribunal vide its order dt. 4th Feb., 2003 and as such in absence of no enquiry having been conducted by AO either at fresh assessment stage or while sending report before CIT(A), addition made was wholly arbitrary and unsustainable. That learned CIT(A) has erred in relying upon and denying statement of persons who invested share application money and ignoring their handwritten statements and other evidence furnished by assessee before him, which too remained undisputed by AO. That learned CIT(A) has erred in confirming interest charged by AO under ss. 234A and 234B holding same to be mandatory." Briefly, facts are that assessment in this case was originally completed on 23rd Feb., 2001 by making addition of Rs. 15 lakhs in share capital of company. assessment stood set aside by order of Tribunal in ITA No. 3545/Del/2002, dt. 4th Feb., 2003, by observing "it appears that various details submitted by assessee were not taken on record by AO which proved identity and creditworthiness of various shareholders. These records include bank accounts maintained by them, application/allotment money, evidences for filing return of income and other evidences. examination of these documents was very vital for deciding issue. We, therefore, set aside order of AO/CIT(A) and restore issue back to file of AO to scrutinize various documents which may be produced by assessee to prove its claim. For this purpose, AO will allow reasonable opportunity to assessee to file various documents. orders of lower authorities are, therefore, set aside". AO in set aside proceedings issued notice under s. 133(6) to same shareholders who have contributed share capital for Rs. 8 lakhs and being satisfied about nature and source of credit accepted addition in share capital to that extent. As regards addition of Rs. 7 lakhs, assessee placed copies of affidavits filed during original assessment proceedings. These persons had denied of making any contribution in original assessment and as assessee did not adduce any additional evidence, AO did not give any weight to copies of such affidavits filed again in set aside proceedings. He, therefore, held that assessee could not establish genuineness of investment of Rs. 7 lakhs and accordingly proceeded to make addition under s. 68 of Act. Before learned CIT(A), assessee filed fresh affidavits along with statements in their own handwriting which were accompanied with share certificates allotted to them, acknowledgement of IT returns filed by them and PAN card/income-tax card, bank statement, ration card, etc., wherever available and detailed in order of learned CIT(A) at internal pp. 8 and 9. application for admission of additional evidence was made in respect of such documents of shareholding of following seven persons: Smt. Sushila Mohata Rs. 1,00,000 Shri Om Parkash Malpani Rs. 1,00,000 Shri Rajesh Prajapat Rs. 1,00,000 Shri Vijay Kumar Mohata Rs. 1,00,000 Shri Vinod Kumar Malpani Rs. 1,00,000 Shri Baldev Kumar Mohata Rs. 1,00,000 Shri Gaurab Shakya Rs. 1,00,000 payments from all above creditors/shareholders were received through account-payee cheques drawn on their respective bank accounts for which necessary details were also furnished. learned CIT(A) sought remand report from assessing authority who objected to admission of additional evidence by stating as under: "The AO also issued notices under s. 133(6) to all investors who had denied for investment before then AO. As directed by Hon ble Tribunal to examine documents filed by persons, and after examining documents for Rs. 8 lakhs allowed out of Rs.15 lakhs, AO did not think fit to re-examine persons who had already denied their investments stated vide their letters. copies of these letters are attached herewith for your kind perusal. From perusal of these letters, it is clearly apparent that assessee has manipulated its own money through these poor people who even did not know whereabout of assessee company. Since those alleged investors had given their earlier denial letters voluntarily, therefore, their contention regarding duress, etc. is not correct." learned CIT(A), however, after taking rejoinder from assessee observed that sustaining addition merely on ground that evidence furnished by assessee in form of affidavit and that AO having maintained that evidence furnished by assessee in form of affidavit from contributors of share capital for Rs. 7 lakhs were not considered earlier also in wake of fact that these persons had denied in writing to any contribution on account of share application money and no other additional evidence filed by assessee necessitating any change in decision, does not appear to be proper. He should have scrutinized evidence along with written statements of contributors before arriving at any conclusion. He, accordingly, proceeded to admit additional evidence. After appreciating material so placed on record by way of additional evidence, learned CIT(A) also noted that there are two contradictory statements from same persons. Only one statement can be accepted and has to be examined with reference to provisions of IT Act, 1961. He, however, accepted that appellant has been able to prove only identity of alleged contributors to share capital. appellant has miserably failed to prove capacity/creditworthiness of seven persons as bank accounts reveal that sum of Rs. 1 lakh was deposited just before encashment of cheque towards share application money and coupled with initial statement of these persons, he held view that amounts so introduced in their names remain unexplained and credits are hit by provision of s. 68 of IT Act, 1961. This has been so done by further holding that additional evidence in shape of affidavits and handwritten statements retracting earlier statements are of no help to appellant. Accordingly, addition of Rs. 7 lakhs stood upheld by learned CIT(A). While assailing order of learned CIT(A), assessee s counsel, Shri Sharma, contended that learned CIT(A) has erred in confirming addition of Rs. 7 lakhs made by AO under s. 68 of Act without any material evidence to justify that capacity or creditworthiness of seven persons has not been proved. He has also erred in placing undue weight to initial statements made by these persons in original assessment proceedings. That statements were taken behind back of assessee. Without taking on record documents which proved identity and creditworthiness of various shareholders and as statements were recorded without providing any opportunity to assessee to cross-examine such persons, decision based on such statements stood set aside. After Tribunal has set aside original assessment order assessing authority did nothing to examine facts deposed in affidavit, filed before AO. Even after learned CIT(A) took decision for admission of additional evidence, learned assessing authority did not examine any of such seven shareholders, though complete particulars of payments made by such shareholders through normal banking channel from their respective accounts were also processed. All these persons were also assessed to income-tax and necessary evidence had been filed in shape of additional evidence. There were affidavits confirming investment with assessee and confirmation for holding of shares with company by these persons were also filed. All these persons had also given certificates/letters written in their own handwriting and retracting from statements taken by assessing authority under duress in original proceedings. assessee had thus proved identity and genuineness by filing sufficient material evidence and thus initial burden that lay upon him stood discharged. entire amount has been received by assessee company through account-payee cheques. Since identity was established and transaction is through banking channel, identity and genuineness of transaction falls into oblivion. This has so been held by Hon ble Patna High Court in Addl. CIT vs. Hanuman Agarwal (1984) 40 CTR (Pat) 15: (1985) 151 ITR 150 (Pat). Reliance has also been placed on decision of Gauhati High Court in case of Nemi Chand Kothari vs. CIT (2003) 185 CTR (Gau) 635: (2003) 264 ITR 254 (Gau) where it has been held that when assessee established identity of creditors and amounts received by way of cheques, assessee must be taken to have proved that creditor had creditworthiness. Hon ble Rajasthan High Court in case of CIT vs. Shree Barkha Synthetics Ltd. (2003) 182 CTR (Raj) 175: (2003) 131 TAXMAN 114 (Raj) has held that where in regard to share application money assessee had discharged initial burden and further enquiry has not been pursed by Revenue, it could not be said that any substantial question of law arose for consideration. Besides this reference was also made to various decisions relied upon by assessee as are listed in order of learned CIT(A) from pp. 10 to 15 inter alia including decision of Hon ble Delhi High Court in case of CIT vs. Steller Investment Ltd. (1991) 99 CTR (Del) 40: (1991) 192 ITR 287 (Del), which stood confirmed by Hon ble Supreme Court in case of CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287: (2001) 251 ITR 263 (SC) and also decision in case of CIT vs. Sophia Finance Ltd. (1993) 113 CTR (Del)(FB) 472: (1994) 205 ITR 98, 99 (Del)(FB). Further reference was also made to decision of Apex Court in case of Kishinchand Chellaram vs. CIT (1980) 19 CTR (SC) 360: (1980) 125 ITR 713 (SC) in support of plea that without examining credits, veracity in affidavits given by shareholders/creditors does not constitute material evidence. There remains thus no material evidence to support finding that creditworthiness of seven shareholders has not been satisfied moreso when initial statement made by these persons without giving opportunity to assessee to cross-examine them was of no evidentiary value. It was, therefore, contended that learned CIT(A) has grossly erred in sustaining addition without discharging burden that lay upon Revenue. addition so made therefore needs to be deleted. On other hand, learned Departmental Representative placed k reliance on decisions of authorities below. It was contended that once seven shareholders had denied of making any investment with assessee, no useful purpose could be served by examining those persons again pursuant to affidavits filed by them. In response to direction of Tribunal, assessment record was also produced. It shows that no fresh notice or summons were issued to these seven shareholders after assessment was set aside by Tribunal vide its order dt. 4th Feb., 2003. However, learned Departmental Representative maintains that these persons had deposited amount in their bank accounts just before encashment of cheques towards share application money. As such, creditworthiness of seven shareholders has not been proved. learned CIT(A) therefore cannot be said to have erred in confirming addition under s. 68 of Act. We have heard parties with reference to material on record and precedents referred. It is admitted that seven shareholders on whose accounts addition of Rs. 7 lakhs under s. 68 has been made were examined by assessing authority in original assessment proceedings behind back of assessee. No opportunity to cross-examine such shareholders was given. These are: Smt. Sushila Mohta Shri Om Parkash Malpani Shri Rajesh Prajapat Shri Vijay Kumar Mohta Shri Vinod Kumar Malpani Shri Baldev Kumar Mohta Shri Gaurab Shakya. Tribunal after taking note of fact vide para 5 of its order found that AO has not taken on record details which go to prove identity and creditworthiness of various shareholders and thus set aside assessment with direction to scrutinize various documents which may be produced by assessee to prove its claim. assessee has also filed complete details with respect to payments made by all these seven persons by account-payee cheques which were drawn on their respective bank accounts and other details like copy of application made for share allotment, fresh affidavits, letters written in their own hand writing retracting statements given in original statements alleging that same were recorded under duress. Besides this bank account, acknowledgement for filing of IT return as evidence of their being regular assessees, identity card/ration card/PAN, etc. were also furnished. assessing authority as well as learned CIT(A) did not examine said creditors nor made any verification before drawing any adverse inference. They also did not give any weight to such evidence by saying that same is of no help to appellant. only material that appears to have been taken as basis for coming to such conclusion is initial statements made in original assessment by these seven persons and fact of making deposits in their respective bank accounts just before encashment of cheques issued by these persons for making share application money to assessee. This has led to conclusion by learned CIT(A) that creditworthiness of these seven persons has not been proved by assessee and as such addition of Rs. 7 lakhs made under s. 68 of Act stood confirmed by him. learned CIT(A) is thus found to have acted in sustaining addition in respect of seven shareholders without there being any material evidence in his possession to justify finding that creditworthiness of such seven persons has not been proved. They had also given letters written in their own hand- writing retracting statements which were taken under duress by assessing authority. There was affidavits of these seven persons confirming investments made by them from their explained sources, inter alia, giving complete particulars of cheques, bank accounts on which such cheques were drawn and assessment particulars also had been given. This constituted material evidence furnished by appellant to discharge burden that lay upon him. Both learned assessing authority and learned CIT(A) did nothing for holding that affidavits and handwritten statements retracting earlier statements are of no help to appellant. approach taken by authorities below is therefore legally not tenable as statements given in original assessment and relied upon by learned CIT(A) for sustaining addition in itself did not constitute any material evidence particularly when such statements were recorded behind back of assessee and same was not produced before it so that assessee could controvert by cross-examination of all such shareholders. Now, it is difficult to say how these statement made in original assessment could at all be relied upon by learned CIT(A) as material piece of evidence supportive of its such finding. In first place these statements stood retracted through letters written in their own handwriting by all these seven shareholders confirming that statements were recorded by assessing authority under duress. Once this allegation had come, it was imperative on assessing authority to find out truthfulness of statements when case was remanded to him before admission of additional evidence. Secondly, also fresh affidavit had come which, inter alia, contended complete particulars explaining nature and source of credit and also creditworthiness of such shareholders, on basis of which assessee could be held to have discharged initial onus that lay upon him. burden had shifted on Revenue to show that contents of affidavits and statements made therein are not correct on facts. This has not been done either by assessing authority or by learned CIT(A) even though payments were received through normal banking channels and all persons were regularly assessed to income-tax as w s disclosed through affidavits filed by them. Thirdly, original assessment was completed by another AO, Shri K.K. Dureja, on 23rd Feb., 2001 on strength of denial made by seven shareholders before him while assessment consequent to set aside proceedings was made by Shri R.N. Dixit, another AO on 16th Jan., 2004 who cannot be said to have any personal knowledge to fact as to whether statements were recorded under duress or otherwise same were voluntary. learned CIT(A), therefore, has erred in giving undue weight to such statements recorded in original assessment proceedings which in fact had no evidentiary value in eyes of law. In celebrated judgment of apex Court in case of Kishinchand Chellaram (supra), assessee had denied remittances of two telegraphic transfers from Madras to Bombay through bank. ITO wrote two letters to manager of bank making enquiries regarding remittances. These two letters were not disclosed to assessee. There was another letter addressed by bank to assessee wherein it was stated by manager that bank had received telegraphic transfer from Madras. In copy of this letter forwarded to ITO, there was endorsement referring to summon issued by ITO which was also not disclosed to assessee. Relying on these letters, addition of sum of Rs. 1,07,350 was made as undisclosed income of assessee for reasons that assessee could not show that amount did not belong to it. Tribunal as well as High Court confirmed addition. On appeal, Supreme Court reversed decision of High Court by holding that two letters did not constitute any material evidence which Tribunal could take into account for purpose of arriving at finding that sum of Rs. 1,07,350 was remitted by assessee from Madras and if these two letters were eliminated, there was no material evidence at all which could support its findings. statement of manager in those letters was based on some information and in absence of any evidence, which could not be taken that he must have been co-ordinated with Madras office so as to have personal knowledge of fact, Department ought to have called upon manager to produce documents and papers on basis of which he made statement and confronted assessee with those documents and papers. It was true that proceedings under IT law were not governed by strict rules of evidence and, therefore, it might be said that even without calling manager of bank in evidence to prove letter dt. 18th Feb., 1955, it could be taken into account as evidence. But, before income-tax authorities could rely upon it, they were bound to produce it before assessee so that assessee could controvert statements contained in it by asking for opportunity to cross-examine manager of bank with reference to statements made by him. Nor was there any explanation regarding what happened when manager appeared in obedience to summons referred to in letter dt. 9th March, 1957 and what statement he had made. That even assuming that two letters were to be taken into account, those letters would at highest establish that T, employee, remitted amount from Madras and N. another employee, received it at Bombay. From this it did not follow that remittance was made at Madras and received it at Bombay on behalf of assessee. burden was on Department to show that money belonged to assessee by bringing proper evidence on record and assessee could not be expected to call T and N in evidence to help Department to discharge burden that lay upon it. That there was no evidence on basis of which Tribunal would come to finding that sum of Rs. 1,07,350 was remitted by assessee and that it represented undisclosed income of assessee. appellant also relied on aforesaid decision of apex Court in Kishinchand Chellaram s case (supra) before first appellate authority but learned CIT(A) appears to have ignored particulars laid therein and brushed aside material evidence which assessee had brought on record for discharging burden that lay upon it. After assessee had discharged its burden, it was duty of Department to bring proper evidence on record to show that creditworthiness of creditors had not been proved. Revenue had, however, miserably failed to bring any material evidence to support its findings and merely that amounts were deposited just before encashment of cheques towards share application money entertained suspicion and thus proceeded to hold that capacity is not proved. Hon ble Patna High Court in case of Addl. CIT vs. Hanuman Agarwal (supra) has held that when transaction was through banking channel, identity and genuineness of transaction fall into oblivion. In this case, learned CIT(A) himself admits that identity of creditors has been established. amounts so received by appellant are by way of cheques. assessee, therefore, must be taken to have proved that creditors had creditworthiness, particularly when they were assessed to income-tax. This view finds support from judgment of Gauhati High Court in case of Nemi Chand Kothari vs. CIT (supra) kly relied upon by assessee s counsel. Even jurisdictional High Court in case of CIT vs. Sophia Finance Ltd. (supra) has held that if shareholders are identified and it is established that they have invested money in purchase of shares then amount received by company would be regarded as capital receipts and to that extent observations in CIT vs. Steller Investment Ltd. (supra) were held as correct. decision of Steller Investment Ltd. s case (supra) stands approved by subsequent decision of apex Court in CIT vs. Steller Investment Ltd. (supra). jurisdictional High Court at Delhi had also taken similar view in subsequent decision in case of CIT vs. Achal Investment Ltd. (2004) 187 CTR (Del) 475: (2004) 268 ITR 211 (Del) which also supports our view that nature and source of credit stood established by assessee. We, therefore, hold that learned CIT(A) has erred in recording finding that assessee has failed to prove capacity or creditworthiness of these seven persons and also that additional evidence in shape of affidavits and written statements retracting statements are of no help to appellant. Accordingly, addition so sustained is without any justifiable reasons or material evidence on record. same is therefore directed to be deleted. *** SHIVADITYA INDUSTRIES (P) LTD. v. INCOME TAX OFFICER