What exactly do I have to file to discharge my onus on share application money under section 68, and what happens once I have filed it?
It depends on what you can produce. The Delhi High Court set out the initial onus as three ingredients — identity of the shareholder, genuineness of the transaction and creditworthiness of the shareholder — and held that for a corporate subscriber, PAN, acknowledgement of the return, the bank statement for the relevant period and confirmations discharge it. Once they are filed the onus shifts to the Assessing Officer, who must have cogent material and cannot act on suspicion. But where the assessee produces only names and the persons produced are shown to have no capacity, the onus is not discharged. Three appeals went for the assessees and one against.
Decided by the High Court (High Court of Delhi — A.K. Sikri and M.L. Mehta JJ (judgment by Sikri J)) on 2011-01-31, reported as ITA Nos. 2093, 2094, 2095 of 2010, 514 of 2007 and 539 of 2008 (Delhi High Court). It bears on section 68, section 148, section 271(1)(c) of the Income Tax Act 1961, in Cash Credits & Unexplained Money and Evidence & Burden of Proof matters.
This is the checklist case. It states what documents satisfy the initial onus for each type of subscriber, when the burden shifts, and what the Assessing Officer must then do — and it decides five appeals on different facts so a practitioner can see the line. Two further points do real work. Where the Assessing Officer relies on an investigation report about entry operators, he must investigate whether that modus operandi existed in this case and must confront the assessee with the material and allow cross-examination; a general description of how entry providers work is not enough. And where the subscriber's own bank account shows questionable cash, the remedy lies in reopening the subscriber's assessment, as Lovely Exports says, not in taxing the recipient. The judgment also holds that failure to discharge the onus is not by itself concealment for penalty.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Five appeals raising the same question of law on additions for unexplained share application money were decided together. In ITA Nos. 2093 and 2095 of 2010 the same assessee had received share application money of Rs 3 lakh each from six private limited companies, leading to reassessment under section 148 for assessment year 2003-04 and a protective addition of Rs 18 lakh in 2004-05. The Investigation Wing had reported that the six investors belonged to the Mahesh Garg group, carried on no real business and provided accommodation entries, and the assessment order set out at length the usual modus operandi of entry operators. The assessee filed PAN cards, acknowledgements of the investors' returns and their bank statements for the period when the cheques cleared, but did not produce the directors despite direction. In ITA No. 2094 of 2010 the assessee had received Rs 99.18 lakh from thirty share applicants and filed their confirmations and income tax particulars; notices under section 133(6) went unserved on twenty-two, the remaining eight did not respond, an Inspector's local enquiry found the parties absent from the given addresses, the bank records differed from the statements filed, and no party was produced, so Rs 99.18 lakh and a further Rs 3.10 lakh were added. The Commissioner (Appeals) deleted those additions and the Tribunal affirmed. In ITA No. 514 of 2007 the assessee, Vijay Power Generators Ltd, had shown Rs 25,23,500 of share money for assessment year 1997-98; five persons produced were agriculturists of ordinary status who supported their statements with no document at all, and the Assessing Officer's remand report recorded that none of the alleged shareholders produced anything to establish identity, that they were not assessed to tax, and that even basic share capital particulars and the assessee's own bank account had not been furnished. ITA No. 539 of 2008 was the Revenue's appeal against deletion of the penalty imposed on the same assessee.
The Revenue's appeals in ITA Nos. 2093, 2094 and 2095 of 2010 were dismissed, the first two at the admission stage. The assessee's appeal in ITA No. 514 of 2007 was dismissed and the addition upheld. The Revenue's penalty appeal in ITA No. 539 of 2008 was also dismissed. The initial burden is on the assessee to explain the nature and source of the share application money by proving the identity of the shareholder, the genuineness of the transaction and the creditworthiness of the shareholder. For an individual subscriber, documents must be filed or the subscriber produced; for a company, registered address or PAN identity and similar details suffice. Genuineness is shown by demonstrating that the money in fact came from the coffers of that shareholder, which payment by cheque through banking channels establishes, supported by the shareholders' register, share application forms and share transfer register. Creditworthiness can be proved by the subscriber's bank statement showing sufficient balance. Once those documents are produced the onus is discharged and it is for the Assessing Officer to scrutinise them and probe further, but to discredit them he must have cogent reasons and material and cannot enter the realm of suspicion. In the Oasis appeals the primary onus was discharged by PAN, bank accounts and copies of the investors' returns; the Assessing Officer was influenced by the Investigation Wing's general account of entry operators without investigating whether that modus operandi existed in this case, and without confronting the assessee with the material or allowing cross-examination of the persons whose statements were recorded. In ITA No. 2094 the requisite documents showed the shareholders existed and were assessed to tax, and if their own bank accounts showed questionable cash the remedy lay in reopening their assessments. In ITA No. 514 the assessee produced only names, the persons produced were of no proved capacity, and the concurrent findings of fact were not perverse. On penalty, an assessee who could not discharge the onus after a lapse of years is not thereby shown to have concealed income.
The Court first set out the law, taking the seven propositions distilled in the Division Bench judgment later carried to the Supreme Court in Lovely Exports: the assessee must prima facie prove identity, genuineness through banking or other indisputable channels, and creditworthiness; address or PAN details with the shareholders' register, share application forms and share transfer register constitute acceptable proof; the Department is not justified in drawing an adverse inference only because a subscriber fails to respond to its notices; the onus is not discharged if the subscriber repudiates the transaction, but the Assessing Officer must not take repudiation at face value; and he is duty-bound to investigate creditworthiness, genuineness and the veracity of any repudiation. The Supreme Court's dismissal of the special leave petition in Lovely Exports added that where the names of alleged bogus shareholders are given to the Assessing Officer, the Department is free to reopen their individual assessments. The Court then collected the High Court decisions on what happens when subscribers cannot be traced — Creative World Telefilms, where the Assessing Officer was expected to reach the shareholders through their PAN and bank details rather than stop at summons returned 'not traceable'; Madhuri Investments, where a company cannot be blamed for an applicant's changed address; Arunananda Textiles; and AKJ Granites on benami allegations — together with Dolphin Canpack and K.C. Fibers, the latter holding it strange to fasten the recipient with liability for the subscriber's own sources without enquiry into the subscriber. Against that it noted the reasoning approved on the facts of the Vijay Power appeal, that where an issue is not quoted on a stock exchange the presumption is strong that subscription came from persons closely connected with the assessee, so the onus to prove identity and creditworthiness is a real one. The Court then applied the law appeal by appeal, emphasising that a ratio cannot be applied mechanically and that the facts of each case must be weighed.
However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials for the AO and he cannot go into the realm of suspicion.
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Handle my notice → Ask a CA on WhatsAppIt depends on what you can produce. The Delhi High Court set out the initial onus as three ingredients — identity of the shareholder, genuineness of the transaction and creditworthiness of the shareholder — and held that for a corporate subscriber, PAN, acknowledgement of the return, the bank statement for the relevant period and confirmations discharge it. Once they are filed the onus shifts to the Assessing Officer, who must have cogent material and cannot act on suspicion. But where the assessee produces only names and the persons produced are shown to have no capacity, the onus is not discharged. Three appeals went for the assessees and one against. This was decided by the High Court (High Court of Delhi — A.K. Sikri and M.L. Mehta JJ (judgment by Sikri J)) and bears on section 68, section 148, section 271(1)(c) of the Income Tax Act 1961. It is reported as ITA Nos. 2093, 2094, 2095 of 2010, 514 of 2007 and 539 of 2008 (Delhi High Court). This is the checklist case. It states what documents satisfy the initial onus for each type of subscriber, when the burden shifts, and what the Assessing Officer must then do — and it decides five appeals on different facts so a practitioner can see the line. Two further points do real work. Where the Assessing Officer relies on an investigation report about entry operators, he must investigate whether that modus operandi existed in this case and must confront the assessee with the material and allow cross-examination; a general description of how entry providers work is not enough. And where the subscriber's own bank account shows questionable cash, the remedy lies in reopening the subscriber's assessment, as Lovely Exports says, not in taxing the recipient. The judgment also holds that failure to discharge the onus is not by itself concealment for penalty. If it applies to you, the first step is this: File the full set at assessment stage for each subscriber — PAN, return acknowledgement, confirmation, bank statement covering the period the cheques cleared, share application form, allotment record and Registrar of Companies intimation.
Five appeals raising the same question of law on additions for unexplained share application money were decided together. In ITA Nos. 2093 and 2095 of 2010 the same assessee had received share application money of Rs 3 lakh each from six private limited companies, leading to reassessment under section 148 for assessment year 2003-04 and a protective addition of Rs 18 lakh in 2004-05. The Investigation Wing had reported that the six investors belonged to the Mahesh Garg group, carried on no real business and provided accommodation entries, and the assessment order set out at length the usual modus operandi of entry operators. The assessee filed PAN cards, acknowledgements of the investors' returns and their bank statements for the period when the cheques cleared, but did not produce the directors despite direction. In ITA No. 2094 of 2010 the assessee had received Rs 99.18 lakh from thirty share applicants and filed their confirmations and income tax particulars; notices under section 133(6) went unserved on twenty-two, the remaining eight did not respond, an Inspector's local enquiry found the parties absent from the given addresses, the bank records differed from the statements filed, and no party was produced, so Rs 99.18 lakh and a further Rs 3.10 lakh were added. The Commissioner (Appeals) deleted those additions and the Tribunal affirmed. In ITA No. 514 of 2007 the assessee, Vijay Power Generators Ltd, had shown Rs 25,23,500 of share money for assessment year 1997-98; five persons produced were agriculturists of ordinary status who supported their statements with no document at all, and the Assessing Officer's remand report recorded that none of the alleged shareholders produced anything to establish identity, that they were not assessed to tax, and that even basic share capital particulars and the assessee's own bank account had not been furnished. ITA No. 539 of 2008 was the Revenue's appeal against deletion of the penalty imposed on the same assessee. The matter was decided on 2011-01-31 by the High Court (High Court of Delhi — A.K. Sikri and M.L. Mehta JJ (judgment by Sikri J)). On those facts the High Court held as follows. The Revenue's appeals in ITA Nos. 2093, 2094 and 2095 of 2010 were dismissed, the first two at the admission stage. The assessee's appeal in ITA No. 514 of 2007 was dismissed and the addition upheld. The Revenue's penalty appeal in ITA No. 539 of 2008 was also dismissed. The initial burden is on the assessee to explain the nature and source of the share application money by proving the identity of the shareholder, the genuineness of the transaction and the creditworthiness of the shareholder. For an individual subscriber, documents must be filed or the subscriber produced; for a company, registered address or PAN identity and similar details suffice. Genuineness is shown by demonstrating that the money in fact came from the coffers of that shareholder, which payment by cheque through banking channels establishes, supported by the shareholders' register, share application forms and share transfer register. Creditworthiness can be proved by the subscriber's bank statement showing sufficient balance. Once those documents are produced the onus is discharged and it is for the Assessing Officer to scrutinise them and probe further, but to discredit them he must have cogent reasons and material and cannot enter the realm of suspicion. In the Oasis appeals the primary onus was discharged by PAN, bank accounts and copies of the investors' returns; the Assessing Officer was influenced by the Investigation Wing's general account of entry operators without investigating whether that modus operandi existed in this case, and without confronting the assessee with the material or allowing cross-examination of the persons whose statements were recorded. In ITA No. 2094 the requisite documents showed the shareholders existed and were assessed to tax, and if their own bank accounts showed questionable cash the remedy lay in reopening their assessments. In ITA No. 514 the assessee produced only names, the persons produced were of no proved capacity, and the concurrent findings of fact were not perverse. On penalty, an assessee who could not discharge the onus after a lapse of years is not thereby shown to have concealed income.
The Court first set out the law, taking the seven propositions distilled in the Division Bench judgment later carried to the Supreme Court in Lovely Exports: the assessee must prima facie prove identity, genuineness through banking or other indisputable channels, and creditworthiness; address or PAN details with the shareholders' register, share application forms and share transfer register constitute acceptable proof; the Department is not justified in drawing an adverse inference only because a subscriber fails to respond to its notices; the onus is not discharged if the subscriber repudiates the transaction, but the Assessing Officer must not take repudiation at face value; and he is duty-bound to investigate creditworthiness, genuineness and the veracity of any repudiation. The Supreme Court's dismissal of the special leave petition in Lovely Exports added that where the names of alleged bogus shareholders are given to the Assessing Officer, the Department is free to reopen their individual assessments. The Court then collected the High Court decisions on what happens when subscribers cannot be traced — Creative World Telefilms, where the Assessing Officer was expected to reach the shareholders through their PAN and bank details rather than stop at summons returned 'not traceable'; Madhuri Investments, where a company cannot be blamed for an applicant's changed address; Arunananda Textiles; and AKJ Granites on benami allegations — together with Dolphin Canpack and K.C. Fibers, the latter holding it strange to fasten the recipient with liability for the subscriber's own sources without enquiry into the subscriber. Against that it noted the reasoning approved on the facts of the Vijay Power appeal, that where an issue is not quoted on a stock exchange the presumption is strong that subscription came from persons closely connected with the assessee, so the onus to prove identity and creditworthiness is a real one. The Court then applied the law appeal by appeal, emphasising that a ratio cannot be applied mechanically and that the facts of each case must be weighed. In the words reproduced by the source cited on this page: "However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials for the AO and he cannot go into the realm of suspicion."
It was decided by the High Court on 2011-01-31 and is reported as ITA Nos. 2093, 2094, 2095 of 2010, 514 of 2007 and 539 of 2008 (Delhi High Court). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 68, section 148, section 271(1)(c), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The Revenue's appeals in ITA Nos. 2093, 2094 and 2095 of 2010 were dismissed, the first two at the admission stage. The assessee's appeal in ITA No. 514 of 2007 was dismissed and the addition upheld. The Revenue's penalty appeal in ITA No. 539 of 2008 was also dismissed. The initial burden is on the assessee to explain the nature and source of the share application money by proving the identity of the shareholder, the genuineness of the transaction and the creditworthiness of the shareholder. For an individual subscriber, documents must be filed or the subscriber produced; for a company, registered address or PAN identity and similar details suffice. Genuineness is shown by demonstrating that the money in fact came from the coffers of that shareholder, which payment by cheque through banking channels establishes, supported by the shareholders' register, share application forms and share transfer register. Creditworthiness can be proved by the subscriber's bank statement showing sufficient balance. Once those documents are produced the onus is discharged and it is for the Assessing Officer to scrutinise them and probe further, but to discredit them he must have cogent reasons and material and cannot enter the realm of suspicion. In the Oasis appeals the primary onus was discharged by PAN, bank accounts and copies of the investors' returns; the Assessing Officer was influenced by the Investigation Wing's general account of entry operators without investigating whether that modus operandi existed in this case, and without confronting the assessee with the material or allowing cross-examination of the persons whose statements were recorded. In ITA No. 2094 the requisite documents showed the shareholders existed and were assessed to tax, and if their own bank accounts showed questionable cash the remedy lay in reopening their assessments. In ITA No. 514 the assessee produced only names, the persons produced were of no proved capacity, and the concurrent findings of fact were not perverse. On penalty, an assessee who could not discharge the onus after a lapse of years is not thereby shown to have concealed income. It arises in Cash Credits & Unexplained Money and Evidence & Burden of Proof matters, on section 68, section 148, section 271(1)(c) of the Income Tax Act 1961, and was decided by High Court of Delhi — A.K. Sikri and M.L. Mehta JJ (judgment by Sikri J). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If discrepancies in the bank statements are raised, insist on being confronted with what the Assessing Officer obtained directly, since the assessee here was never put on notice of them. Where a wing report on entry operators is used, demand the material and cross-examination, and point out that a general modus operandi is not a finding about your case. Keep the penalty argument separate: this judgment holds that an assessee who could not prove creditworthiness after a lapse of years was not thereby guilty of concealment.
Validity check could not be completed. Heavily cited — the source page records nearly 200 citing decisions — and it applies the Lovely Exports line rather than departing from it. But the Delhi High Court itself later qualified the effect of incorporation and PAN documents where the subscriber is shown to be a paper company, in Nova Promoters, N.R. Portfolio and Navodaya Castles, and section 68 has since been amended by the proviso inserted with effect from 1 April 2013 requiring a closely held company's share applicant to explain its own source. Neither the later cases nor the amendment was examined here; no later authority was read. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The harvested text is clipped: about 6,300 characters from the middle are missing, covering part of the survey of authorities including the discussion of Steller Investment. All five appeals, the statement of law and every operative conclusion are present, so the holdings are secure. The outcomes differ across the appeals, so the case cannot be cited for a single proposition either way. The batch line lists section 153A; nothing in the text read concerns it — the reassessment in the Oasis appeals was under section 148 — so it has been dropped from the sections list. No reporter citation is carried by the source, so the appeal numbers are given instead. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeals in ITA Nos. 2093, 2094 and 2095 of 2010 were dismissed, the first two at the admission stage. The assessee's appeal in ITA No. 514 of 2007 was dismissed and the addition upheld. The Revenue's penalty appeal in ITA No. 539 of 2008 was also dismissed. The initial burden is on the assessee to explain the nature and source of the share application money by proving the identity of the shareholder, the genuineness of the transaction and the creditworthiness of the shareholder. For an individual subscriber, documents must be filed or the subscriber produced; for a company, registered address or PAN identity and similar details suffice. Genuineness is shown by demonstrating that the money in fact came from the coffers of that shareholder, which payment by cheque through banking channels establishes, supported by the shareholders' register, share application forms and share transfer register. Creditworthiness can be proved by the subscriber's bank statement showing sufficient balance. Once those documents are produced the onus is discharged and it is for the Assessing Officer to scrutinise them and probe further, but to discredit them he must have cogent reasons and material and cannot enter the realm of suspicion. In the Oasis appeals the primary onus was discharged by PAN, bank accounts and copies of the investors' returns; the Assessing Officer was influenced by the Investigation Wing's general account of entry operators without investigating whether that modus operandi existed in this case, and without confronting the assessee with the material or allowing cross-examination of the persons whose statements were recorded. In ITA No. 2094 the requisite documents showed the shareholders existed and were assessed to tax, and if their own bank accounts showed questionable cash the remedy lay in reopening their assessments. In ITA No. 514 the assessee produced only names, the persons produced were of no proved capacity, and the concurrent findings of fact were not perverse. On penalty, an assessee who could not discharge the onus after a lapse of years is not thereby shown to have concealed income.
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My return was only processed under 143(1). Does that stop the department reopening it later?
How much am I actually required to disclose — and can they reopen because the officer drew the wrong conclusion?
The sanctioning authority just wrote 'yes' and signed. Is that a sanction?
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