The burden of proof lies on the Department to show that the money invested by the shareholders belongs to the appellant-company. Shares cannot be issued in the name of non-existing persons.

1. This appeal is preferred by the assessee against the order of the Income-tax Appellate Tribunal, Jodhpur Bench, Jodhpur, dated November 28, 2001, relating to the assessment year 1997-98. Against the very same judgment of the Tribunal, the Revenue had also preferred an Income-tax Appeal No. 09/2003 which has been decided on May 1, 2003 (CIT v. Shree Barkha Synthetics Ltd. (2004) 270 ITR 477 (Raj)) by holding that no substantial question of law arose in the case by adverting to the contentions raised before the Tribunal and the facts of the case.

2. In the present case, the Assessing Officer reached his conclusion that in the previous year relating to the assessment year, there has been increase in the share capital of the assessee-company on account of issue of shares. The shares have been issued to limited companies as well as individuals on the basis of receipt of share applications through banking channels.

3. The Tribunal has noticed the break-up of share application money, which has been added by the Assessing Officer in the taxable income of the assessee as unexplained cash credits, by invoking section 68 of the Income-tax Act, 1961.

4. The aforesaid amount has been added by the Assessing Officer primarily for the reason because he was of the opinion that the applicant’s creditworthiness has not been proved.

5. In appeal, the additions made on the aforesaid account were affirmed by the Commissioner of Income-tax (Appeals).

6. However, the Tribunal found that out of the seven companies from which the share application money has been received, six are genuinely existing and no enquiry has been conducted in respect of their source of share application money received at the time of making of the investment in the company. The assessee has discharged his initial burden and the Revenue has failed to discharge its burden as it did not hold any enquiry into the genuineness of those transactions. However, the Tribunal found that the genuineness of the transactions with the Westbury Invest Trade P. Ltd. viz., receipt of Rs. 2 lakhs by way of share application money was not established by the assessee because no confirmation from Westbury Invest Trade P. Ltd. was produced by the assessee and, therefore, the additions of the said Rs. 2 lakhs received from share application money from the company were sustained.

7. Amongst individuals, the share application money alleged to have been received from one Umesh Kumar amounting to Rs. 1 lakh was found to be not genuine, inter alia, on the ground that on enquiry, the said Umesh Kumar has denied to have made any such investment in the shares of the company. On this basis, the addition of Rs. 1 lakh was made in the income of the assessee from undisclosed sources under section 68 of the Income-tax Act which was sustained.

8. The Revenue had filed Income-tax Appeal No. 9 of 2003 (see (2004) 270 ITR 477 (Raj))to the extent it was aggrieved with deleting the additions made by the Assessing Officer on account of increase in share capital relating to six companies and individuals other than Umesh Kumar. The said appeal has since been dismissed.

9. The aforesaid two additions are the subject-matter of this appeal by the assessee.

10. The following substantial questions of law were framed at the time of the admission by the court :

“Question No. 1. Whether the Income-tax Appellate Tribunal has failed to appreciate the burden of proof lies on the Department to show that the money invested by the shareholders in question belongs to the appellant-company and whether such onus stood discharged by the Department ?

Question No. 2. Whether the Income-tax Appellate Tribunal has fallen into error in observing that confirmation of investment in share capital by M/s. Westbury Investment Trade P. Ltd. was not filed whereas it was actually furnished, as is evident from the assessment order itself ?”

11. The principle which the Tribunal has applied in reaching its conclusion in deleting the additions made by the