1992 (11) TMI 134 - AT - Income Tax

Tribunal cancels tax addition and penalty, overturns lower decisions.

SUSHILA FORGING (P) LTD. Versus DEPUTY COMMISSIONER OF INCOME TAX.

The Tribunal set aside the CIT(A) order and canceled the addition of Rs. 1,72,500 made by the AO in the Quantum Appeal. The penalty of Rs. 1,25,000 ... - Issues Involved:1. Quantum Appeal (ITA No. 2371 (Del)/91)2. Levy of Penalty under Section 271(1)(c)Issue 1: Quantum Appeal (ITA No. 2371 (Del)/91)Facts:The appellant, a Private Ltd. Company, issued fresh share capital amounting to Rs. 10 lakhs during the assessment year 1986-87. The subscribers included six individuals whose investments were scrutinized by the Assessing Officer (AO).Assessment by AO:- Shri Ashok Arora: The AO found that he was a man of no means, earning a livelihood as a hawker, with no bank account or books of account. The payment for shares was made in cash. The AO treated Rs. 25,000 attributed to him as the income of the assessee from undisclosed sources.- Shri Satish Chopra: The AO concluded that he was not in a position to possess Rs. 45,000, being a salaried employee with a monthly salary of Rs. 2,000. The amount was advanced in cash and added as income from undisclosed sources.- Other Four Subscribers: The AO noted that these individuals were not produced for examination despite opportunities given. The evidence provided (copy of khasra) was rejected. The AO added Rs. 1,02,500 attributed to these individuals as income from undisclosed sources, totaling Rs. 1,72,500.CIT(A) Decision:The CIT(A) confirmed the addition, agreeing with the AO's observations and reasons.Appellant's Arguments:- Affidavits were filed by all six individuals detailing their sources of income and fund advances.- Summons under Section 131 were issued to Ashok Arora and Satish Chopra, who confirmed the advances.- The AO did not issue summons to the other four individuals from Benares nor enforced their attendance.- The onus on the assessee was discharged as the individuals confirmed the purchase of shares and explained their sources of funds.- It was not incumbent upon the company to ascertain the sources of funds from its shareholders.- The money given by the individuals could not be said to be the company's income from undisclosed sources.Department's Arguments:- The AO made relevant inquiries and, being dissatisfied with the explanations, made the additions.- Mere filing of affidavits was insufficient; the individuals had to be produced before the AO.- The CIT(A) order should be confirmed.Tribunal's Analysis:- The Tribunal examined the affidavits, statements, application forms, account copies, and Form No. 2 filed with the Registrar of Companies.- The AO did not issue summons to the four individuals from Benares, and their affidavits were not discredited.- The Tribunal referred to relevant decisions, particularly the Delhi High Court's decision in CIT vs. Steller Investments Ltd., which held that the share capital could not be regarded as the company's undisclosed income even if the subscribers were not genuine.- The Tribunal concluded that the obligation to ascertain the source of funds did not lie with the company.- The Tribunal held that without cogent evidence proving the funds represented the company's undisclosed income, no addition could be made.Decision:The Tribunal set aside the CIT(A) order and canceled the addition of Rs. 1,72,500 made by the AO.Issue 2: Levy of Penalty under Section 271(1)(c)Facts:The penalty of Rs. 1,25,000 was imposed on the assessee-company in relation to the addition of Rs. 1,72,500.Tribunal's Analysis:Since the addition of Rs. 1,72,500 was deleted in the quantum appeal, the penalty under Section 271(1)(c) would not survive.Decision:The penalty was canceled.Conclusion:The appeals were allowed, and the additions and penalties imposed by the AO and confirmed by the CIT(A) were canceled.