R.N. Sinha, J. - (1.) This appeal was admitted on the question whether, on the facts and circumstances of the case, section 68 of the Income-tax Act, 1961, could be invoked against the company floating the shares even if it is on the facts found that the applicants who had been allotted shares are not genuine inasmuch as the applicant or the person who had paid the money would be the person against whom section 68 would be invoked not the assessee until the link between the assessee-company and the shareholders' unaccounted money is established and thus it could not be regarded as undisclosed income of the assessee. The assessee-company during the financial year 1995-96 relating to the accounting year 1996-97 introduced share capital to the tune of Rs. 29/54/000. Most of the share applicants are of rural areas of Burdwan district in West Bengal. The Assessing Officer proceeded to verify the genuineness of such huge share capital introduced. He issued summons under section 131 of the Income-tax Act to several shareholders. Most of them appeared in response to the summons. In the course of examination the Assessing Officer found that: (a) most of the share applicants were farmers with negligible agricultural land having no other business or source of income ; (b) they are mostly potato growers and used to sell and keep potatoes in the cold storage of the appellant; (c) bank accounts were opened in their names on a single day just to deposit a huge sum of money and withdraw it in the next cheque for investment as share capital in the assessee-company ; (d) even the number of bank drafts were in serial order ; (e) none of the parties summoned could produce original share certificate nor even the bank pass-books at the time of deposition ; (f) most of the applicants have filed Form No, 4A on payment of income-tax amounting to Rs. 1,400 showing an annual income of Rs. 8,000 to Rs. 10/000, even though agricultural income was exempted from income-tax. On the aforesaid materials, the Assessing Officer disbelieved the credit-worthiness of these subscribers inasmuch as it is unbelievable that these persons could keep such huge sum of money at home in the form of cash just for investment in share capital at a later date. The assessee-company and its influential directors influenced the farmers by compelling them to lend name for the huge share capital introduced in a single year. Accordingly, the total amount of Rs. 29/54,000 was added back under the head as "Income from undisclosed sources" under section 68 of the Income-tax Act. On appeal the Commissioner found that the particulars of the share applicants including their names and address, occupations, date of entry in the cash book/cheque book, the draft numbers, the amount deposited, etc., such details also contained some income-tax file number of the applicants where the files existed and where such files did not exist particulars of Form No, 4A were submitted by those persons. In the course of hearing, the minutes books of the company were produced and from the analysis of the evidence produced before the Assessing Officer and before the Commissioner it appeared that a large number of rural shareholders who were generally potato growers formed themselves together and decided to take controlling interest in the running of the said cold storage which was their access to the life-line for survival. He accordingly ordered deletion of the addition. On further appeal before the Tribunal by the Department, the Tribunal by its order dated June 26, 2002, held inter alia, that the onus to prove the genuineness of the transaction of subscription to capital lay on the assessee. The assessee could not satisfactorily discharge the onus which lay upon the asses-see. On the materials available accordingly it was held that the inquiry in the instant case conducted by the Assessing Officer does not prove beyond doubt the identity, genuineness and creditworthiness of the parties. Reliance was placed by the Tribunal on a reported decision of CIT v. Durga Prasad More [1971] 82 ITR 540 wherein the apex court held that the taxing authorities were entitled to look into the surrounding circumstances to find out the validity of such transactions. Reliance was also placed on CIT v. Precision Finance Pvt. Ltd. wherein it was categorically mentioned that mere furnishing of particulars was not enough.
(2.) Mr. Dutta, learned counsel for the assessee, had relied on the decision in Hindusthan Tea Trading Co. Ltd. v. CIT [2003] 263 ITR 289, a decision on this point rendered by this particular Bench, Mr. Dutta goes on arguing that in the aforesaid decision it was so held that the power of the Assessing Officer under section 68 is not an absolute one. It is subject to its satisfaction where an explanation is offered. The power is absolute where the assessee offers no explanation. The satisfaction with regard to explanation is in effect an in-built safeguard in section 68 protecting the interest of the assessee. Once it is explained, it is incumbent on the Assessing Officer to consider the same and form an opinion whether the explanation is satisfactory or not. It has further been held that in the process of inquiry by the Assessing Officer the assessee has no right of hearing. But the assessee has a right to challenge the conclusion arrived at on the basis of the enquiry made. The assessee may point out the perversity in the finding. It may question the validity of the process undertaken or it may point out that a particular material was not considered and only then the onus is shifted to the Revenue to scrutinise the material and form an opinion on the basis thereof whatever may be the modes by invoking section 131 or under section 133 of the Act itself. Mr. Dutta, the learned advocate for the assessee, has further urged that where details of the income-tax file were given those are to be checked and/or scrutinised, which in this case was not done. Mr. Shome, the learned advocate for the Revenue, had urged that nowhere a finding was so arrived about finding of the income-tax file details as were submitted on behalf of the assessee. Mr. Shome relied on CIT v. Steller Investment Ltd. which was affirmed by the apex court reported in [2001] 251 ITR 263.
(3.) Mr. Shome contended that the materials furnished by the assessee and the information found by the Assessing Officer on enquiry were such that no further enquiry was needed to be made. In case further opportunity was offered to the assessee, the same would be an empty formality. Inasmuch as there was no material on which a reasonable man can hold that the assessee was able to prove and establish the genuineness of the transaction and creditworthiness of the investors, though, however, the identity of the investors were established. According to him, it was very difficult to believe that a farmer having negligible quantum of agricultural land growing potatoes and keeping potatoes in the cold storage having no other source of income and alleged to be earning Rs. 8,000 to Rs. 10/000 a year, paying income-tax of a sum of Rs. 1,400 through Form No. 4A could keep such huge amount at home for being invested at a later date. According to him, if the income was Rs. 8/000 to Rs. 10/000 a year after meeting the expenses for his livelihood, what amount would he be able to save and for what length of period to accumulate such huge amount, which were never invested. At the same time, the bank account was opened on the same date only for the purpose of utilising the amount deposited on the very date for purchasing bank drafts and the bank drafts obtained by all the applicants bore the serial numbers in order and that none or these applicants could produce the share certificate or any other document to established that the transaction was genuine and the money belonged to them. The materials were such that no reasonable man could presume the genuineness of the transaction. Nowhere from the record did it appear that any income-tax file number was disclosed. On the other hand, the particulars of filing of Form No. 4A for that particular previous year were furnished. Furnishing particulars of Form No, 4A would not establish the creditworthiness of the investor in a case where the income earned by the applicants were alleged to have been earned from agriculture outside the purview of the Income-tax Act. It was not known why persons earning between Rs. 8/000 to Rs, 10/000 would submit Form No. 4A for the assessment year 1996-97 when the income exigible to tax under the Income-tax Act, 1961, was far above Rs. 10/000. This clearly indicated a very futile attempt to paint the colour of creditworthiness of the investors. Therefore, the ratio decided in any of the decisions cited by Mr. Dutta to support his contention would not be applicable in this case.;