2006 (5) TMI 137 - AT - Income Tax

Invalid Assessment & Unjustified Addition: Appeals Allowed, Stay Petitions Dismissed

Valueline Securities (India) Limited. Versus Assistant Commissioner Of Income-tax, Circle 6(2), Hyderabad.

Valueline Securities (India) Limited. Versus Assistant Commissioner Of Income-tax, Circle 6(2), Hyderabad. - TTJ 112, 804, [2007] 108 ITD 639 (HYD.) Issues Involved:1. Validity of assessment under section 158BC or 158BD and whether the assessment is within the time allowed under section 158BE.2. Justification of addition under section 68 for unexplained share capital.Detailed Analysis:1. Validity of Assessment under Section 158BC or 158BD and Timeliness under Section 158BE:- Contention of Assessee:- The assessment should be made under section 158BC since search and seizure operations were conducted at the premises of the appellant company.- The notice under section 158BC was issued on 22-4-1996, and the assessment should have been completed by 30-4-1997. Since the assessment order was passed on 30-5-1997, it is not valid.- The notice was issued under section 158BC, not section 158BD, as evidenced by the notice itself and the order sheet entry.- The assessment order mentioned section 158BD to save the assessment from being time-barred, which is not correct.- Contention of Revenue:- The assessment was made under section 158BD, read with section 158BC, and is within the time allowed under section 158BE.- The notice was issued under section 158BD, and the assessment was made accordingly.- The intention of the Assessing Officer was to issue notice under section 158BD, and any mistake in not scoring out section 158BC in the notice is not fatal to the assessment.- The assessment order is in conformity with the intent and purpose of the Act, and procedural irregularities can be cured under section 292B.- Tribunal's Analysis:- The Panchanamas and assessment orders indicated that the search was conducted in the case of Value Line Securities (India) Ltd.- The notice under section 158BC was issued on 22-4-1996, before the conclusion of the search.- The assessment should have been completed by 30-4-1997, and since it was completed on 30-5-1997, it is barred by limitation.- The assessment in the case of Value Line Securities (India) Ltd. is invalid as it was not completed within the time allowed under section 158BE.2. Justification of Addition under Section 68 for Unexplained Share Capital:- Contention of Assessee:- The share capital was recorded in the books of account, and no adverse evidence was found during the search to suggest that the share capital represents the income of the appellant.- The identity of the shareholders was established, and the Assessing Officer received confirmations from many shareholders.- The decisions in various cases, including CIT v. Stellar Investment Ltd. and CIT v. Lanco Industries Ltd., support the view that no addition can be made in a block assessment if the share capital is recorded in the books of account and no adverse evidence is found during the search.- Contention of Revenue:- The share capital introduced in the names of relatives and friends was not genuine, and the addition was made after elaborate enquiry.- The identity of the shareholders was not established in most cases, and the share capital was rightly treated as undisclosed income.- The decisions in cases like CIT v. Sophia Finance Ltd. and CIT v. Kundan Investment Ltd. support the view that the Assessing Officer has jurisdiction to make enquiries regarding the nature and source of sums credited in the books of the assessee.- Tribunal's Analysis:- The identity of the shareholders was established, and the share capital was recorded in the books of account.- The availability of share certificates at the premises of the company or directors does not lead to the conclusion that the share capital is not genuine.- The addition under section 68 cannot be sustained as the identity of the shareholders was proved, and there was no evidence to suggest that the share capital represents the income of the appellant.- The addition in the hands of the directors on an ad hoc basis is also not justified as there was no specific finding that any particular shareholder is a benami of the directors.Conclusion:- The assessment under section 158BC was not completed within the time allowed under section 158BE, and hence it is invalid.- The addition under section 68 for unexplained share capital is not justified as the identity of the shareholders was established, and there was no evidence to suggest that the share capital represents the income of the appellant.- All the three appeals are allowed, and the stay petitions are dismissed as infructuous.