1 In High Court of Judicature at Madras Reserved on : 07.7.2017 & Delivered on 11/8/2017 Coram : Honourable Mr.Justice NOOTY.RAMAMOHANA RAO and Honourable Mr.Justice M.S.RAMESH TCA Nos. 435 and 436 of 2013 and MP.Nos.1 and 1 of 2014 M/s.Lalitha Jewellery Mart P. Ltd., No.123, Usman Road, Chennai-17. Appellant in Both TCAs Vs Deputy Commissioner of Income Tax, Company Circle II (4), Chennai. Respondent in TCA.No.435/2013 Assistant Commissioner of Income Tax, Company Circle II (4), Chennai. Respondent in TCA.No.436/2013 APPEALS under Section 260A of Income Tax Act against common order dated 15.4.2013 made in ITA.Nos.2180 and 1871/MDS/2010 on file of Income Tax Appellate Tribunal, C Bench, Chennai, for assessment year 2007-08. For Appellant : Mr.N.Muralikumar for M/s.McGan Law Firm For Respondents : Mr.T.R.Senthilkumar, SC http://www.judis.nic.in 2 COMMON JUDGMENT NOOTY.RAMAMOHANA RAO,J These appeals under Section 260A of Income Tax Act, 1961 (henceforth called Act) have been preferred by assessee challenging correctness of common order passed by Income Tax Appellate Tribunal, `C Bench, Chennai dated 15.4.2013 in ITA Nos.2180 and 1871/ MDS/2010. 2. following substantial questions of law have been framed while admitting TCA.No.435 of 2013 on 25.2.2014 : "(i) Whether Appellate Tribunal is correct in confirming assessment of share capital contributions as unexplained credit/ investment within scope of Section 68/69 of Act in spite of material evidence filed before them and lower authorities establishing clearly/discharging of initial burden/onus statutorily vested on appellant company to provide source ? (ii) Whether Appellate Tribunal is correct in law in confirming assessment of share capital contributions as income of appellant company even though there were no materials in their possession of respondent/Assessing Officer establishing such facts apart from mere suspicion as well as establishing perversity both on facts and in law in rendering their decision ? and http://www.judis.nic.in 3 (iii) Whether Appellate Tribunal is correct in law in sustaining assessment of share capital contributions as income of appellant company on application of deeming provisions in Section 68/69 of Act even though there was no legal mandate for appellant company to establish/prove 'source for source' ?" 3. following substantial question of law has been framed while admitting TCA.No.436 of 2013 on 25.2.2014 : Whether Appellate Tribunal is correct in law in confirming disallowance of expenses incurred on gifts and compliments for purposes of business within scope of Section 37(1) of Act for want of further evidence even though such evidence were available in records of respondent undisputably in view of impounding order passed earlier ? 4. assessee is company carrying on business in gold and manufacture of jewellery and trading. With view to expand its business by opening branches at several places, appellant company raised share capital of Rs.21,96,60,000/- from four different investors through account payee cheques or by way of transfer from one bank account or other to that of assessee. assessee has reflected increased share capital in its return for assessment year 2007-08 filed on 12.11.2007. assessment has been picked up for scrutiny under Section 143(2) of Act http://www.judis.nic.in 4 by drawing notice dated 11.9.2008. survey was also conducted under Section 133A of Act on 26.2.2009. scrutiny assessment was completed on 31.12.2009. 5. During survey operations, two gold purchase vouchers bearing Nos. 237 and 239 dated 20.2.2007 aggregating to Rs.4,90,00,000/- (Rupees four crores and ninety lakhs) have come for scrutiny and concerned purchaser Sri.Shahul Hameed was issued with summons under Section 131 of Act to appear before Assessing Officer. Sri.Shahul Hameed appeared accordingly on 7.10.2009 and gave his statement. Though, at first instance, Sri Shahul Hameed denied having purchased or sold any gold to and from assessee, but, however, later on, he furnished details of sources for purchase of gold from assessee. Rejecting claim of gold purchases made by Sri Shahul Hameed, Assessing Officer has recorded said inflated transactions as source for capital contribution aggregating to Rs.5.75 Crores by said Sri.Shahul Hameed. In so far as capital contribution made by Sri.Shahul Hameed for purchase of 35,000 shares of assessee is concerned, sum of Rs.5.25 crores has been paid through cheque Nos. 852593, 852594 and 852595 drawn at ICICI Bank, T.Nagar on 20.2.2007. For purchase of 3333 shares, sum of Rs.50 lakhs has been remitted through cheque No.833026 of State Bank of India dated 20.2.2007. In consideration of this payment, aggregating to Rs.5.75 crores, shares were allotted by assessee on 30.3.2007 to said http://www.judis.nic.in 5 Sri.Shahul Hameed. 6. Similarly, in case of Sri.Prakash Chand Jain, who has also been allotted shares by assessee company, sources of said individual for contributing to share capital of assessee company have been explained. Sri.Prakash Chand Jain was allotted 33333 shares for Rs.5 crores, whereas Heritage Creations, Nehru Palace, New Delhi was allotted 65333 shares for Rs.9,80,00,000/- (Rupees nine crores and eighty lakhs only). Another individual Smt.Savitri of Royapet, Chennai was allotted 9440 shares for Rs.1,41,60,000/- (Rupees one crore forty one lakhs and sixty thousand only). 7. Assessing Officer has held that though monies were routed through banking channels, explanation offered by assessee company is not acceptable, as said explanation was not convincing and satisfactory. In so far as said Sri.Shahul Hameed is concerned, Assessing Officer has noticed that said individual initially purchased gold through one of his firms and later on, sold gold again to assessee company and thereafter, sale proceeds were paid over for acquiring shares. This sort of cycling and re-cycling of funds does not carry any conviction and hence, addition to share capital has been treated as `income in hands of assessee. 8. assessee carried matter in appeal before Commissioner http://www.judis.nic.in 6 of Income Tax (Appeals) [henceforth called CIT (Appeals)]. CIT (Appeals) has found that all investors have been identified and that transactions have been carried on through banking channels. Therefore, CIT (Appeals) had arrived at conclusion that assessee had discharged onus cast on it under Section 68 of Act and that they had received money from those persons, against which payment, respective shares were allotted and hence, it may not be concern of Assessing Officer to find out as to why investors have chosen to invest in assessee company. Hence, CIT (Appeals) has deleted addition of amount aggregating to Rs.21,96,60,000/- (Rupees twenty one crores ninety six lakhs and sixty thousand only) contributed by four individual members towards share capital of company from computation of income of assessee. 9. Aggrieved by this decision of CIT (Appeals), Revenue preferred second appeal before Income Tax Appellate Tribunal. 10. While making assessment order, further sum of Rs.10,45,913/- (Rupees ten lakhs forty five thousand nine hundred and thirteen only) was added towards income by disallowing expenditure said to have been incurred by assessee in buying compliments and gift articles to be presented to it's customers. Assessing Officer has disallowed claim, as no evidence to support purchase of such gift articles has been brought before it. CIT (Appeals) has also held that http://www.judis.nic.in 7 assessee has not produced any evidence to support claim of expenditure for gift articles and hence, he did not find any error in order of Assessing Officer disallowing said expenditure and then adding it to income of assessee. To this extent of denial of expenditure incurred towards purchase of gift articles to be presented to customers, other appeal has been preferred by assessee before Income Tax Appellate Tribunal. 11. Both appeals have been heard by Income Tax Appellate Tribunal and by common impugned order dated 15.4.2013, Tribunal allowed appeal of Revenue and dismissed appeal of assessee. It was urged before Tribunal that by methodical cycling and re-cycling, funds have been brought in to show as if contribution was made to share capital of assessee company whereas truth of it being that this is actual income of assessee, which is sought to be camouflaged by devising scheme of contribution to capital. It was urged, for instance, that M/s.Heritage Creations Private Limited invested substantial amount for purchasing shares of assessee company. But, said M/s.Heritage Creations Private Limited immediately sold shares to another concern viz., M/s.AK Exports. M/s.AK Exports is owned by Managing Director of assesee company. sale of shares of assessee company to M/s.AK Exports has resulted in huge loss of Rs. 8.82 Crores to M/s.Heritage Creations Private Limited and business sense in incurring such huge http://www.judis.nic.in 8 loss in short span of time remained unexplained and hence, transactions are all 'make believe management practices', rather than being cases of genuine transactions of investment. 12. principal contention of assessee in answer thereto was that two of investors are from Delhi and officers of Income Tax Department at Delhi made necessary enquiries about them and no adverse report has been made by Income Tax Department at Delhi against those two investors. Since all investments are made through banking channels, assessee has discharged onus that was lying on it for purposes of proving sources of its sources. When once source of its sources has been explained, it is no concern of assessee company to go further and establish genuineness or credit worthiness of sources of assessee. In other words, when once investors of assessee company are traced out and monies have been shown to have been received by assessee through banking channels from them and those sources have identified their respective sources and they were also investigated for while by Department, but having found no adverse material against them, cannot now disallow said investment received by assessee on one ground or other. According to learned counsel for appellant, assessee is only required to explain sources of investment and when once that gets established, it is for Department to proceed against investors in case those investors have not properly explained their own http://www.judis.nic.in 9 resources for investing in assessee company. It was further urged that it is not concern of assessee company to find out as to why investors have chosen to invest in assessee company. It is also equally not concern of Department as to why fabulous amount of premium has been paid for acquiring shares of face value of Rs.10/-, in as much as valuation of shares of assessee compay is altogether different matter and Income tax Department has no regulatory control in that regard. 13. Before proceeding further, it is only appropriate to notice contents of Section 68 of Act. It reads as under : 68. Where any sum is found credited in books of assessee maintained for any previous year, and assessee offers no explanation about nature and source thereof or explanation offered by him is not, in opinion of Assessing Officer, satisfactory, sum so credited may be charged to income-tax as income of assessee of that previous year : Provided that where assessee is company (not being company in which public are substantially interested), and sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless http://www.judis.nic.in 10 (a) person, being resident in whose name such credit is recorded in books of such company also offers explanation about nature and source of such sum so credited; and (b) such explanation in opinion of Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in first proviso shall apply if person, in whose name sum referred to therein is recorded, is venture capital fund or venture capital company as referred to in Clause (23FB) of Section 10. 14. It is clear from above provision that burden, initially, is cast upon assessee to offer explanation about nature and source of money found credited in its books of account and if that explanation is not satisfactory in opinion of Assessing Officer, sum so credited be charged as income for previous year. Similarly, if assessee is company and sum is credited, consisting of share application money or share capital or share premium or any such amount, assessee is required to offer satisfactory explanation about nature and source of sum credited to its book of account. 15. To understand rationale behind this provision, it is only apt to refer to judgment of Supreme Court rendered in case of Commissioner of Income Tax (Central), Calcutta v Daulat Ram Rawatmull [reported in (1973) Vol.87 ITR 349], it has been set out http://www.judis.nic.in 11 therein as under: Before dealing with facts of this case, we may advert to principles which should govern decisions of court in such like cases. Findings on questions of pure fact arrived at by Tribunal are not to be disturbed by High Court on reference unless it appears that there was no evidence before Tribunal upon which they, as reasonable men, could come to conclusion to which they have come; and this is so, even though High Court would on evidence have come to conclusion entirely different from that of Tribunal. In other words, such finding can be reviewed only on ground that there is no evidence to support it or that it is perverse. Further, when conclusion has been reached on appreciation of number of facts, whether that is sound or not must be determined, not by considering weight to be attached to each single fact in isolation, but by assessing cumulative effect of all facts in their setting as whole [Sree Meenakshi Mills Ltd. Vs. Commissioner of Income-Tax [1957] 31 ITR 28 : [1956] SCR 691 (SC)]." 16. When Court of fact acts on material partly relevant and partly irrelevant, it is impossible to say to what extent mind of Court was affected by irrelevant material used by it in arriving at its finding. Such finding is vitiated because of use of inadmissible material and thereby http://www.judis.nic.in 12 issue of law arises. Likewise, if Court of fact bases its decision partly on conjectures, surmises and suspicions and partly on evidence, in such situation, issue of law arises [Dhirajlal Girdharilal Vs. CIT [1954] 26 ITR 736 (SC)]. Court went on to hold that person can still be held to be owner of sum of money even though explanation furnished by him regarding source of that money is found to be not correct. Thus, explanation regarding source of money furnished by person was not satisfactory does not automatically lead to conclusion that that money does not belong to that particular person, but belongs to other automatically. 17. More importantly, Supreme Court, in Daulat Ram, has laid down following principle, which has direct bearing upon controversy at issue and it reads as under: onus to prove that apparent is not real is on party who claims it to be so. As it was department which claimed that amount of fixed deposit receipt belonged to respondent firm even though receipt had been issued in name of Biswanath, burden lay on department to prove that respondent was owner of amount despite fact that receipt was in name of Biswanath. simple way of discharging onus and resolving controversy was to trace source and origin of amount and find out its ultimate http://www.judis.nic.in 13 destination .. (Emphasis is mine) 18. Similarly, in case of CIT, Orissa Vs. Orissa Corporation P. Ltd. [reported in (1986) Vol.159 ITR 78], Supreme Court has held as under: To what extent assessee had obligation to discharge burden of proving that these were genuine incomes has been considered by this court in Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288. This court was concerned there with encashment of high denomination notes. In that case, some unexplained high denomination notes were treated as undisclosed income of assessee. This court held that when court of fact arrives at its decision by considering material which is irrelevant to enquiry, or acts on material, partly relevant and partly irrelevant, and it is impossible to say to what extent mind of court was affected by irrelevant material used by it in arriving at its decision, question of law arises, whether finding of court is not vitiated by reason of its having relied upon conjectures, surmises and suspicions not supported by any evidence on record or partly upon evidence and partly upon inadmissible material. On no account whatever should Tribunal base its findings on suspicions, conjectures or surmises, nor should it act on no http://www.judis.nic.in 14 evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures and surmises. In that case, so-called hundi racket in which assessee was alleged to have been involved was not proved. That was only suspicion of Revenue. 19. It would also be appropriate to notice observation of Supreme Court in case of Orissa Corporation P.Ltd., at page 83, as under : "In Sreelekha Banerjee Vs. CIT [1963] 49 ITR 112, this Court held that if there was entry in account books of assessee which showed receipt of sum on conversion of high denomination notes tendered for conversion by assesssee himself, it is necessary for assessee to establish, if asked, what source of that money was and to prove that it was not income. Department was not at that stage required to prove anything. It could ask assessee to produce any books of account or other documents or evidence pertinent to explanation if one was furnished and examine evidence and explanation. If explanation showed that receipt was not of income nature, Department could not act unreasonably and reject that explanation to hold that it was income. If, however, evidence was http://www.judis.nic.in 15 unconvincing, then such rejection could be made. Department cannot by merely rejecting good explanation unreasonably, convert good proof into no proof." 20. Again in case of Sumati Dayal Vs. CIT [reported in 214 ITR 801], at page 805, Supreme Court has clearly explained point of approach to be followed both by assessee and Department, in context of Section 68 of Act, in following words : "It is no doubt true that in all cases, in which, receipt is sought to be taxed as income, burden lies upon Department to prove that it is within taxing provision and if receipt is in nature of income, burden of proving that it is not taxable because it falls within exemption provided by Act lies upon assessee [Parimisetti Seetharamamma [1965] 57 ITR 532 at page 536]. But, in view of Section 68 of Act, where any sum is found credited in books of assessee for any previous year, same may be charged to income tax as income of assessee of that previous year if explanation offered by assessee about nature and source thereof is, in opinion of Assessing Officer, not satisfactory. In such case there is, prima facie, evidence against assessee viz. receipt of money and if he fails to rebut it, said evidence being unrebutted, can be used against him by holding that it was http://www.judis.nic.in 16 receipt of income nature. While considering explanation of assessee, Department cannot, however, act unreasonably [Sreelekha Banerjee's case (1963) 49 ITR (SC) 112 at page 120]. " 21. Division Bench of Delhi High Court in case of CIT Vs. Stellar Investment Ltd., [reported in 192 ITR 2870, has pointed out approach to be adopted in this type of matters, as under : "It is evident that even if it be assumed that subscribers to increased share capital were not genuine, nevertheless, under no circumstances, can amount of share capital be regarded as undisclosed income of assessee. It may be that there are some bogus shareholders in whose names shares had been issued and money may have been provided by some other persons. If assessment of persons who are alleged to have really advanced 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 hands of company itself." 22. above view on point of approach to subject has been approved by Supreme Court in CIT Vs. Stellar Investment Ltd., on 20.7.2000, in Civil Appeal No.7968 of 1996. 23. Applying legal principles noticed supra, let us examine as to http://www.judis.nic.in 17 how issue has been handled by Assessing Officer at first instance. Assessing Officer disallowed investments made towards share capital of assessee. As was noticed supra, three individuals and one company claimed to have made contributions to capital. Each of these investments has been faulted by Assessing Officer. Assessing Officer has essentially based his findings on certain information gathered during survey. During said survey operations, two purchase vouchers bearing Nos.237 and 239 were found and voucher No.237 relates to purchase of gold jewellery for amount of Rs.1,72,30,572/- and voucher No.239 relates to purchase of fine gold worth Rs.3,17,69,428/-. Both vouchers, put together, accounted for sum of Rs.4.90 Crores. 24. name of seller was noted as M/s.Sun Land Properties Private Limited. Hence, statement of Managing Director of said company was obtained for ostensible purpose of verifying genuineness of purchases made by assessee. Sri.Shahul Hameed, Managing Director of said company, appears to have categorically rejected that he ever had any purchase or sale transaction with assessee either in bullion or in old gold jewellery. 25. Thereafter, Managing Director of assessee company has been confronted with that rejection of transaction by Managing Director of M/s.Sun Land Properties and Managing Director of assessee company has confirmed purchases made by assessee and he, in turn, http://www.judis.nic.in 18 rejected statement of Sri.Shahul Hameed as to why he has been denying sale made by him in spite of vouchers containing his (Shahul Hameed) signature as proof of sale of gold by him to assessee company. 26. It is worthy to notice that in profit and loss account, assessee company has debited sum of Rs.5,11,04,113/- towards purchase of old gold jewellery. Further, for verifying apparent contradictions, summons were issued to Sri.Shahul Hameed on 15.9.2009, in response to which, he appeared on 07.10.2009. sworn statement was taken from him. He clearly stated that earlier they had purchased gold jewellery and fine gold from assessee and they were again sold in same year for short term gain. When he was specifically confronted with regard to purchase vouchers bearing Nos.237 and 239 dated 20.2.2007, Sri.Shahul Hameed had categorically stated that M/s.Sun Land Properties Private Limited purchased and sold jewellery and bullion from and to assessee during that period. He was also asked to furnish necessary details. He also furnished all details relating to purchase of gold by M/s.AK Exports and assessee company. 27. Assessing Officer then asked said Sri.Shahul Hameed to produce his accounts and he also produced his sources of payments, as they (M/s.Sun Land) received substantial sums of money from various contracting parties of theirs between 18.7.2007 and 04.10.2007. Thereafter, Assessing Officer assigned following reasons for not believing http://www.judis.nic.in 19 statement of Sri.Shahul Hameed : By going through above details, anyone can understand that submission by Sri.Shahul Hameed does not rescue case due to firstly not producing any of above parties from whom money was received by him and further even if for sake of argument we accept that receipt was there, question still remains that how money received during period 18.7.2007 and 01.10.2007 can be used for purchase of standard gold and new jewellery during 18.11.2006 to 20.2.2007, which was at least five months prior to date of alleged receipts. 28. Assessing Officer, in spite of tracing investor of assessee and in spite of said source of assessee explaining its own sources, which run to several crores of rupees, prefers to reject it on ground that Sri.Shahul Hameed has not produced parties, who paid his firm monies. It is clear perverse view. It is plainly unthinkable that assessee should have secured presence of contracting parties of its investors. assessee, being business enterprise, can trust credit worthiness of its investors and not unduly worry as to whether investor has been properly maintaining its books of accounts and is managing its affairs prudently. It is all more so, when assessee receives money through approved Banking channel. It is clear that Assessing Officer is indulging in surmises and conjectures. It is plainly obvious that Assessing http://www.judis.nic.in 20 Officer has concentrated all his energies to discredit credit worthiness of said Sri.Shahul Hameed. More importantly, Assessing Officer has glossed over fact that Sri Shahul Hameed invested sum of Rs.5.75 Crores, whereas Vourchers 237 and 239 cover sum of Rs.4.9 Crores only. difference in between two is no less significant amount, running to Rs.85.00 lakhs. Similarly, when it came to investment made by Sri.Prakash Chand Jain, this is what has been set out by Assessing Officer in paragraphs 2.8.3 and 2.8.4 : In meantime, based on survey information, further enquiries were done through office of Additional Director of Investigation, New Delhi with respect to alleged investment in case of Sri.Prakash Chand Jain in assessee company. enquiry revealed that in response to summons issued by O/O ITO (Inv.) Unit III, Delhi, on behalf of him, one Sri.K.V.S.Gupta, FCA appeared with power of authorization and gave following information. Through enquiries, it was gathered that Sri.Prakash Chand Jain is non resident Indian stationed in Dubai, engaged in business of jewellery in name and style of M/s.Al Mowaiji Jewellers LLC in Dubai. He is being assessed in India for his income earned in India to tax with ITO, Ward 19(2) and New Delhi. He had filed return to Department for assessment years 2007-08 and 2008-09 declaring taxable income of http://www.judis.nic.in 21 Rs.1,84,730/- and Rs.3,97,680/- respectively. However, payment for investment was shown to have been made from Dubai by withdrawing amount in bank account of AL Mowaiji Jewellers LLC with Standard Chartered Bank, Deira Branch, Dubai vide bank draft No. DDD219070321009 dated 21.3.2007 favouring M/s.Lalitha Jewellery Mart Private Limited. Except only information available on record that one Sri.Prakash Chand Jain has applied for shares in assessee company and got allotted with shares, nothing is available to prove further. By above observation of Assessing Officer, it is clear that he is looking for proof of resources of investors of assessee and such proof is beyond realm of possibility of production by assessee. Assessing Officer has adopted totally unreasonable attitude and was acting unreasonably. That was exactly what was frowned upon by Supreme Court in Sreelekha Banerjea's case, (1963) 49 ITR (SC) 112. 29. When it came to M/s.Heritage Creations Private Limited, in paragraph 2.9.2, it has been noted as under : During survey in statement recorded, CMD of assessee company stated that investment was actually made by one http://www.judis.nic.in 22 Sri.Sanjay, who was said to be his friend, through company M/s.Heritage Creations Private Limited, Delhi. In meantime, based on survey information, further enquiries were done through office of Additional Director of Investigation, New Delhi with respect to investment in case of M/s.Heritage Creations Private Limited in assessee company. enquiry revealed that in response to summons issued by O/O ITO (Inv.), Unit III, Delhi, nobody has appeared to office, however, reply letter was filed in above mentioned office. Through enquiry it was gathered that company has shown major portion of income by job work and minor portion of it by sale and purchase of assets and investments. company operates bank account with Centurion Bank of Punjab, Nehru Place, New Delhi with account No.12CA11101371. As per information filed by company, it has been shown that it has invested in shares of assessee company during March 2007 to extent of Rs.9,80,00,000/- with premium. As explanation to source, it has shown advances received in respect of IMT/Manesar Project from ITC Limited vide MOU/agreement dated 23.8.2007, for which, company had furnished copies of bank account, MOU, etc. Further, as per submission, it was also in receipt of share application money from AEZ http://www.judis.nic.in 23 Infratech Private Limited during financial year 2006-07. As per submissions, following were receipts from ITC Ltd to party : Date Ch.No. Amount Bank 8.2.2007 953586 1,51,00,000 HDFC Bank 19.3.2007 955019 9,74,00,000 HDFC Bank 19.3.2007 955018 1,00,00,000 HDFC Bank 19.3.2007 955017 2,00,00,000 HDFC Bank 19.3.2007 955016 25,00,000 HDFC Bank Total 14,50,00,000 HDFC Bank Even when investor of assessee demonstrated its resources, Assessing Officer still has suspicion. 30. When it came to investment made by Smt.Savithri, it was explained by assessee company that her husband Sri.M.S.Kandasamy was Director of assessee company till his death and therefore, legal heirs of M.S.Kandasamy agreed and instructed assessee company that amounts due to Sri.Kandasamy may be paid to their mother Smt.K.Savithri and that they have no objection for any such payment made to her. That was reason why sum of Rs.65,61,374/- was claimed as due and payable to Sri.Kandasamy by date of his death on 1.8.2005. It is Smt.Savithri, who favoured allotment of shares instead and accordingly http://www.judis.nic.in 24 applied for allotment of 4,374 shares. She also applied for balance of 5,166 shares duly making payment through cheques drawn at ICICI Bank, T.Nagar. 31. Thus, assessee company has completely explained sources of investments received by it. It has also disclosed identity of such investors. Assessing Officer traced out and reached all four investors of assessee. He also found as fact that all payments have been received through banking channels. Hence, burden cast on assessee stood discharged. But yet, Assessing Officer disallowed and added amount to income of assessee. In this context, it is apt to take note of crisply worded order of Supreme Court in case of CIT Vs. Lovely Exports (P) Ltd. [reported in (2008) 216 CTR 195 (SC)], which runs as follows : Can amount of share money be regarded as undisclosed income under Section 68 of IT Act, 1961 ? We find no merit in this special leave petition for simple reason that if share application money is received by assessee company from alleged bogus shareholders, whose names are given to Assessing Officer, then Department is free to proceed to reopen their individual assessments in accordance with law. That is precise reason as to why Appellate Commissioner CIT (Appeals) allowed appeal of assessee. http://www.judis.nic.in 25 32. Now, let us examine order passed by Tribunal. In paragraph 26, Tribunal declined to give credence to payments received by assessee through banking channels in following words : It is true that all transactions doubted by Assessing Officer were made through banking channels. This is anchor of arguments advanced by assessee before lower authorities. We also do agree that making payment of money through cheques, demand drafts and bank transfers, is one of ingredients to prove genuineness of payment. But, at same time, we have to be cautious to fact that such transactions made through banks do not conclusively prove that those transactions have been entered in same way explained by assessee. fact that payment has been made by cheque or draft by itself does not conclusively prove that person making such payment had enough resources in his hands to make such payment. It is always possible to transact through banking channels and still manipulate original character of amount as to whom it belonged and how it was earned. Therefore, we cannot decide this appeal only on ground that payments objected in this case have been effected through banking channels. 33. In paragraph 27, Tribunal proceeded to examine absence of commercial wisdom of investors in purchasing shares of assessee http://www.judis.nic.in 26 company for two fold reasons. first one was that Managing Director and his wife hold 98.5% of share capital of assessee company and consequently, it is completely family held concern. Therefore, investors will not be able to gain any control over affairs of assessee company, by their investment. second is that there is no reason set forth as to why assessee company s shares should be picked up at higher premium of Rs.1,490/-. reason assigned by Tribunal in concluding part of paragraph 27 reads thus : They are all business people. Therefore, decision of those business people to invest in share capital of assessee company by paying such huge premium needs to be reasonably demonstrated before Assessing Officer. explanation offered by assessee is not convincing at all. 34. In paragraph 28, it went into dynamics of financial capacity of Sri.Shahul Hameed to invest in assessee company and it has arrived at finding that at time when Sri.Shahul Hameed purchased jewellery and gold, funds are not available with him. It concluded their enquiry in paragraph 30 in following terms : It is very difficult to accept contentions of Sri.Shahul Hameed as genuine when we go through long journey of exercise carried out by him to raise funds, thereafter to purchase gold, again thereafter to sell gold and then invest in http://www.judis.nic.in 27 shares, etc. explanation offered by assessee is very incredible. It is not at all convincing. 35. When it came to investments made by Smt.Savithri, finding of Tribunal is to following effect : Here also flow of fund is very circular. It first goes from books of assessee company, and then it comes to assessee company through medium of Smt.Savithri. We are of view that Smt.Savithri might be convenient name lender in whole exercise carried out by assessee company. It is also to be seen that she did not appear before Assessing Officer. 36. When it came to Sri.Prakash Chand Jain, issue is concluded in paragraph 32 in following words : Except address provided in paper, there was nothing available before Assessing Officer to verify genuineness of investments made by so called parties. It is stated that Shri.Prakash Chand Jain is big businessman in Dubai. Of course money came through his bank account. But, there is no other communication from him. 37. In case of M/s.Heritage Creations Private Limited, issue is concluded on strength and basis that shares of assessee company have been sold within year to M/s.AK Exports, which is http://www.judis.nic.in 28 proprietary concern of Managing Director of assessee company and in that process, sustained loss of Rs.8.82 Crores and hence, Tribunal concluded issue holding that Assessing Officer has rightly held that amounts brought in by assessee company into its share capital and share premium accounts are unexplained and they have to be treated as income of assessee company and accordingly reversed order of CIT (Appeals). 38. Tribunal has also rejected appeal preferred by assessee with regard to rejection of expenditure incurred by it for purchase of gifts and compliments to be given to customers. Though for company of having turnover of Rs.150 Crores expenditure incurred towards purchase of gifts and compliments amounting to Rs.10,45,913/- is reasonable amount, but on ground that vouchers have not been produced before Assessing Officer, expenditure in that regard was disallowed. 39. assessee pointed out that vouchers are impounded by Assessing Officer and hence, they were prevented from producing same before Assessing Officer. Tribunal noted that assessee was not without any remedy and that they could have secured copies of vouchers, which are impounded by Assessing Officer and thus, assessee could have established genuineness of expenditure incurred. This concurrent finding of fact could not have been challenged without producing any reasonably acceptable evidence that expenditure http://www.judis.nic.in 29 claimed was truly incurred. fact that assessee has reported turnover of Rs.150.00 crores is no proof of actual expenditure it claimed to have indulged in buying articles of gifts or complimentaries. 40. We agree that if assessee is in position to produce copies of vouchers for expenditure incurred by it towards purchase of gifts and compliments, failure to produce evidence in support of expenditure is justifiable reason for Assessing Officer to disallow expenditure claim. 41. However, main theme, upon which, Assessing Officer as well as Tribunal proceeded to discredit investors of assessee is completely erroneous. They are both looking for proof beyond doubt. They are proceeding on element of suspicion that amounts of investments are really those of assessee, which have been ploughed back by assessee, whereas settled principle of law is that any amount of suspicion, however strong it might be as well, is no substitute for proof. Suspicion is not sufficient enough to lead to conclusion that investments received by assessee company are all manipulated receipts and on that basis, recorded finding that explanation of assessee is not satisfactory. 42. On other hand, legal principle enunciated by Supreme Court, as noticed supra by us, is that so long as proof and identity of investor and payment received from him is through doubtless channel http://www.judis.nic.in 30 like that of banking channel, receipt in hands of assessee towards share capital or share premium does not change its colour. money so invested in assessee company would still be money available and belonging to investors. consistent principle followed is that investors sources and credit worthiness cannot be explained by assessee. If Department has doubt about genuineness of investors capacity, it is open to it to proceed against those investors. Without taking such course of action, Assessing Officer and Tribunal are proceeding on conjectures that assessee has, in fact, ploughed back money. very approach of Assessing Officer and Tribunal are completely opposed to settled legal principles enunciated and they have arrived at conclusions contrary to legal principles on subject. Further, they are finding fault with assessee for alleged failure of it's investors in proving beyond doubt that they have capacity to invest at moment they did in assessee company. That is clearly perverse view, as assessing officer is not expected to perform near impossibility. assessee cannot call upon its investors to disclose all such business transactions thay carried on in immediate past and as to how much they made from their respective business enterprises. assessee cannot also call upon its investors to prove their good business sense in investing in assessee company, as such investors cannot gain any controlling stake. http://www.judis.nic.in 31 43. In result, questions of law framed in TCA.No.435 of 2013 are answered in favour of assessee and against Revenue. Hence, TCA.No.435 of 2013 is allowed. Consequently, MP.No.1 of 2014 is closed. 44. question of law framed in TCA.No.436 of 2013 is answered in favour of Revenue and against assessee. Hence, it is dismissed with costs. Consequently, MP.No.1 of 2014 is also dismissed. 45. It is seen that on 25.2.2014, vide orders passed in MP.Nos.1 and 1 of 2014, it was recorded that sum of Rs.4 crores was already remitted by appellant company. In view of common judgment rendered in these appeals, said sum of Rs.4 Crores be adjusted towards any other dues of appellant company for subsequent assessment years . 11/8/2017 Speaking Order Index : Yes Internet : Yes To 1.The Deputy Commissioner of Income Tax, Company Circle II (4), Chennai. 2.The Assistant Commissioner of Income Tax, Company Circle II (4), Chennai. dixit/rs http://www.judis.nic.in 32 NOOTY.RAMAMOHANA RAO,J AND M.S.RAMESH,J dixit/rs P.D.Common Judgment in TCA.Nos.435 & 436 of 2013 of 2014 & MP.Nos.1 and 1 of 2014 11/8/2017 http://www.judis.nic.in Lalitha Jewellery Mart P. Ltd. v. Deputy Commissioner of Income-tax, Company Circle II (4), Chennai