TaxTMI 
TaxTMI 
1990 (10) TMI 130
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....ived income of Rs. 1,30,321 from interest and Rs. 15,348 from commission and discounting of bills. The details regarding these receipts and expenditure were also furnished before the ITO. 3. The subscribed capital of this company was Rs. 20 lakhs. A list of persons who had been allotted shares was furnished. Confirmations were also on record from the shareholders. The ITO after considering all the materials placed before him accepted the return furnished. 4. The Commissioner was of opinion that the order passed by the ITO was erroneous and prejudicial to the revenue. This was on the basis that necessary and proper enquiries were not made in regard to the share capital raised by this company. He pointed out that the ITO has taken up the hearing for the first time on 28-5-1986 and completed it on 11-6-1986. This itself would show, according to the Commissioner, that no worthwhile enquiry was done. Although details were filed by the assessee, the ITO did not make any cross-verification or enquiry. In view of this the Commissioner was of opinion that he could invoke the powers under section 263. In support of this he referred to the decision of the Delhi High Court in the case of....
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....holders holding more than 1,000 shares were furnished to him along with the share application forms itself. The share application forms gave the full address and wherever they are assessed their GIR or PAN numbers. He then submitted that the companies cannot enquire from the shareholders the sources of funds for their share application money. For this proposition he relied on the decision of the Delhi Bench of the Tribunal in the case of Standard Cylinders (P.) Ltd. v. ITO [1988] 24 ITD 504. He then referred to the decision of the Rajasthan High Court in the case of CIT v. Trustees Anupam Charitable Trust [1987] 167 ITR 129 and submitted that the Commissioner before interfering an assessment order should be satisfied that there was an error in fact or in law. No such finding has been arrived at in this case. He then pointed out that the entire transactions are by cheque and, therefore, it was possible for the Department to trace the sources through the bank. For this purpose he relied on the decision of the Patna High Court in the case of Addl. CII v. Bahri Bros. (P.) Ltd. [1985] 154 ITR 244. He then submitted that there was no error at all in the order of the Tribunal and, therefo....
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....ssioner that in this case prima facie enquiry is called for. It is an admitted position that a large number of investment and finance companies are floated with considerable amount of share capital and the purpose of floating these companies was only to bring into open the unaccounted income. The Department was a little late in being alive to these developments. But having found that investment companies are used as tools for laundering black money, it is very necessary for every ITO coming across a return filed by an investment company to enquire into the share capital. 9. Having found that there was a need to make enquiries, we must go into the issue whether the ITO had made such an enquiry. I am satisfied that the ITO has made the enquiry which he could do under the circumstances. Along with the return filed by the assessee on 27-5-1986 a large number of enclosures were sent. This contained the list of shareholders holding more than 1,000 shares. The name of the applicant for shares along with the application forms themselves were given to the ITO. These forms contained the full address of the party. Photostat copies of allotment letters had also been furnished. Share issue e....
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....s income and had brought it into account as share capital there is no case of this Rs. 20 lakhs being treated as the income from other sources of the company. The Commissioner had made reference to section 68. No doubt section 68 might apply even in the case of a company on par with cash credits. There are certain arguments against considering the share capital as a cash credit for the purpose of section 68. Even assuming that those arguments can be ignored the fact that the company was incorporated and these monies were received immediately on incorporation are facts which cannot be ignored. Even under section 68 on these facts no assessment could be made in the hands of the company. In this connection we may refer to the decision of Kerala High Court in the case of CIT v. Smt. P.K. Noorjehan [1980] 123 ITR 3. That was a case where a property was purchased in the name of an illiterate Muslim woman who had no ostensible source of income. Naturally no satisfactory explanation for the purchase consideration was given and Department treated the purchase consideration as income from other sources under section 69. This was deleted. The High Court pointed out at page 6 that the unsatisf....
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....iry. The Commissioner found several mistakes therein. The officer had no jurisdiction over the assessee, enquiries showed there was no business done by the assessee and the assessee's father-in-law and other sons were doing business. It is on these facts that an order was passed by the Commissioner setting aside the assessments. The Supreme Court has upheld the same on the ground that there was ample material to show that the assessments made were in haste or without any evidence or enquiry. In the second case, i.e., Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 the Supreme Court had widened the meaning to be given to the expression " prejudicial to interest of revenue ". They have held that where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amount, an assessment so made will be erroneous and prejudicial to revenue. The Commissioner had jurisdiction to cancel the assessment and proceedings for an assessment to be initiated against some other assessee who would be liable for the income thereof. It will be noticed that although th....