TaxTMI 
TaxTMI 
2000 (1) TMI 150
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....arious heads including interest payment of Rs.1500. This order of assessment was revised by CIT-III, New Delhi after due notice to the assessee by setting aside the assessment order with the direction that assessment be reframed after making proper and appropriate enquiries in the light of facts and circumstances discussed by him vide order dated 11-2-1988. Consequent upon setting aside of the order of assessment the Assessing Officer initiated fresh proceedings. During the course of hearing assessee was required to file the addresses, copy of share application forms and banks' scroll. Apart from this other details were also stated to have been filed before the Assessing Officer. These details were required in connection with the subscribed position of the capital which was found by the Assessing Officer as under: ---------------------------------------------------------------------------- No. of shares  ....
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....ess of the shareholdings in respect of public issue of Rs.13,37,000 on random basis to the following shareholders: --------------------------------------------------------------------------------- S. NO. Name of the share- No. of shares Results of holders held Inquiries --------------------------------------------------------------------------------- 1. Bimla Devi Pungalia, 50 No reply received Suraj Udyog, Rani Bazar, Bik....
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....ned unserved H-55, Sarojini Nagar, New Delhi. 7. Phool Bani Sayed, 300 -do- Swiss Watch No. Station Road, Bikaner. 8. S.C. Jain, 500 -do- Hindustan Electro, 44-41, Community Centre,  ....
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....d paid up. Assessing Officer sent query letters to 12 parties and not to all the persons numbering about 600. These letters were sent by registered post. The same were received back from parties mostly unserved or no replies were received. In view of these facts and citing the case of McDowell & Co. Ltd v. CTO [1985] 154 ITR 148/22 Taxman 11 (SC), the entire amount of share capital was treated as income from undisclosed sources under section 68 of the Income-tax Act. 5. Aggrieved by this action of Assessing Officer assessee preferred appeal and it was pleaded before the first appellate authority that the act of Assessing Officer in picking up only 12 out of around 600 shareholders is not a true sample of the basic mass. It was also submitted that in fact company is juristic person which is based on incorporation and registration under Companies Act, 1956. It is different from an individual or a partnership. A company vis-a-vis its shareholders is not what a partnership is vis-a-vis its partners under sections 41, 146 and 150 of Indian Companies Act entails, the need maintaining register of shareholders and of making an annual return incorporating the changes in the register to the....
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....ibed to the shares in their names and if they could not deny, it was for them and not for the company to account for the source of investment in their own assessment proceedings and not in the assessment proceedings of the company. The Hon'ble Members of ITAT also held that consideration of section 68 does not affect the finding that enquiry from the company about the source of investment of its shareholders in the shares of the company was unauthorised and uncalled for in the assessment of the company. it was also submitted before the first appellate authority that order of CIT passed u/s 263 cancelling the assessment, was made without a correct appraisal of facts and was cancelled by ITAT in the above noted case. 7. CIT(A) while accepting the plea of the assessee has observed in para 5 of her order that assessee has tried to give as many details as was practically possible for him to file before the Assessing Officer. Keeping in view the finding of ITAT's order as referred to supra it was held by the first appellate authority that source of source cannot be looked into by Assessing Officer. It was also observed that in case of an unexplained investment made by the shareholders, ....
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....e shareholders was held to be justified in treating such investment as income of the assessee u/s 68 of the Income-tax Act. 9. Learned counsel for the assessee, on the other hand, strongly supported the order of CIT(A) and pleaded that every possible detail, whatsoever was asked for, was filed with the Assessing Officer at the time of making original assessment and necessary copies of documents as demanded were also filed and after having been satisfied with the documentary evidence filed for the investment in share application money was accepted and CIT was not justified at all in setting aside the said order u/s 263 or to direct the Assessing Officer to make proper and appropriate enquiries. It was submitted that neither the action of CIT in invoking section 263 was proper nor action of Assessing Officer pursuant to said order of CIT u/s 263 was justified because copy of list of shareholders was duly submitted along with letter of the assessee dated7-2-1989. It was also submitted that at the time of original assessment detail of 52 shareholders out of public issue as selected by the then Assessing Officer was submitted along with their confirmations. Photocopies of letters of al....
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....ended that the Assessing Officer was justified in treating the investment in share capital as income of the assessee from undisclosed sources. Reliance was placed on CITv. United Commercial & Industrial Co. (P.) Ltd [1991] 187 ITR 596/56 Taxman 304 (Cal.) and it was urged for restoration of order of Assessing Officer. It was also submitted that assessee is challenging the action of CIT in setting aside the order of original assessment while invoking section 263 whereas assessee has not preferred any appeal against such order. So in a way finding of CIT, has become final that proper enquiries have not been made and in view of reasoning and basis as given by Assessing Officer in order pursuant to section 263, same is a proper order and requires to be restored. 10. We have heard rival submissions, perused the record, gone through the orders of authorities below and the case law as cited by both parties. We have also gone through the documents to which our attention was drawn by the parties. From the documentary evidence as placed by the assessee it makes is amply clear that necessary details were furnished by the assessee at the time of original assessment as well as in the course of....
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....t Assessing Officer was not justified in making disallowance of an amount of Rs.24,80,000 as unexplained income of the assessee from undisclosed sources is justified and his order is free from any infirmity, therefore, calls for no interference at our hands. Therefore, his action is confirmed and this appeal of the revenue, gets dismissed. 11. In the result, appeal is dismissed. Per Nathu Ram, A.M. - I have carefully gone through the order proposed by the learned Judicial Member but I have not been able to persuade myself to concur with the conclusion reached in upholding the order of the CIT(Appeals) deleting the addition of Rs.24,80,000. I would appraise the relevant facts for proper appreciation of the issue involved. 2. Briefly stated, the assessee-company was incorporated on23rd October, 1982as per certificate issued by the Registrar of Companies. A certificate for commencement of business was obtained from9th December, 1982. It is a financing company. The assessment year involved is 1984-85 for which the accounting period ended on31st March, 1983. The assessee filed a return for the current assessment year on6th May, 1984showing a loss of Rs.31,361. The return filed was ac....
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....t were well-known. Subsequently, a large number of such companies surrendered part of their capital under Amnesty Scheme during the year. 1986-87. In respect of many other such companies enquiries revealed that either the shareholders did not exist at the addresses given or that they were mere name lenders. In such circumstances it was the duty of the ITO to have made enquiries in regard to the share capital raised by the assessee-company through the device of promoters quota and public issue. This enquiry was relevant both from the point of view of finding out whether the moneys introduced in the company were properly explained and also to ascertain true status of the company, namely, as to whether it was in actuality a public limited company or not, the ITO before making the assessment has to satisfy himself about the status of the company. It is obvious from the records of the ITO that no such enquiry was made by the ITO to find out as to whether the so-called shareholders were actually in existence or not. Apart from the status of the company the enquiry in regard to the shareholders and their source of income was required to be done to ascertain: '(a) whether the money introd....
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....ntioned above, I am of the view that the ITO failed to make basic enquiries in this case before completing the assessment. Such lack of enquiries by the ITO made the assessment erroneous and prejudicial to the interests of revenue." 2.2 The assessee has not challenged the order of the CIT passed under section 263 before the Tribunal and the same has thus become final. 2.3 The Assessing Officer in consequence to the direction given by the CIT in the order under section 263 took up the reassessment proceedings. He noted that the position of the capital subscribed is as under: ---------------------------------------------------------------------------- No. of shares Amount ---------------------------------------------------------------------------- 1. Subscribers &....
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....g Officer made enquiries from 12 shareholders taken up at randum by writing them directly. The notices issued were received back unserved in the case of eight shareholders; three did not reply and one sought extension of time for reply. The result of such enquiry was brought to the notice of the assessee and required the assessee to show cause why the entire shareholding should not be considered as not genuine and the paid up share capital of Rs.24,80,000 be not treated as income from undisclosed sources. The assessee in spite of various opportunities given, faded to comply with the terms of the notice satisfactorily. The Assessing Officer, therefore, decided the matter on merits on the basis of the material available on records. The Assessing Officer considered the modus operandi adopted as pointed out by the CIT in his order under section 263. There was a sum of Rs.24,80,000 credited in the account of the assessee-company and the onus was on the assessee as per provision of section 68 of the Income-tax Act to prove the genuineness of the shareholding. He, therefore, placing reliance on the decisions reported in P.V. Raghava Reddi v. CIT [1956] 29 ITR 942 (AP); Orient Trading Co. ....
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....he company. Respectfully following the same, I hold that the Assessing Officer was not justified in making the disallowance of the amount of Rs.24,80,000 as unexplained income of the appellant company from other sources. The addition so made, is hereby deleted." 3. The learned D.R. made a submission that the share capital amount of Rs.24,80,000 was found credited in the books of account of the assessee-company and as per provisions of section 68, the Assessing Officer was within his powers to enquire about the identity of the shareholders, their capacity to invest and genuineness of the transactions and the onus cast upon the assessee-company in this behalf has not been discharged to the satisfaction of the Assessing Officer. 3.1 He further submitted that the original order of assessment accepting the share capital of Rs.24,80,000 was found erroneous insofar as prejudicial to the interest of the revenue by the CIT on examination of the records and the assessment made was accordingly set aside to be made de novo after making due enquiries as per directions given in order under section 263. This order of the CIT has been accepted by the assessee-company and has not gone in appeal b....
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....sion of the Hon'ble Delhi High Court in the case of Sophia Finance Ltd. The learned D.R., therefore, pleaded that the order of the CIT(Appeals) being not in consonance with the ratio of the decision of the Hon'ble Delhi High Court in the case of Sophia Finance Ltd deserves to be vacated and that of the Assessing Officer restored. 4. The learned counsel of the assessee has made a submission that the assessee-company raised public issue for allotment of shares and in response the investors made application for allotment of shares and the share application money was received through the bank. The assessee-company furnished necessary details of shareholders as per the shareholder register maintained along with their complete address and also filed confirmations of the shareholders of the category of promoters and others at randam as required by the Assessing Officer. The assessee-company received the payment of share application money from the bank acting as agent of the shareholders and the same has been duly accounted for in its books. Most of the shareholders from the promoters quota are existing assessees and they have given their GIR/PAN numbers with confirmations filed. The asse....
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....representing the value of preferential shares as income of the assessee under section 68 of the Income-tax Act. The assessee-company was not required to produce the bank records of the shareholders for verification. This could be collected by the Assessing Officer otherwise. The matter was remanded to the Assessing Officer for fresh consideration. 4.1 The learned counsel has, therefore, pleaded that looking to the facts and circumstances discussed and ratio of the decisions cited, the onus cast upon the assessee-company to establish the identity of the shareholders has been fully discharged as per the ratio of the decision of the Hon'ble Delhi High Court in the case of Sophia Finance Ltd and the CIT(Appeals) was fully justified in deleting the addition. 5. I have considered all relevant facts, material brought on records and rival submissions made. I have also perused the various documents placed in the paper book of the assessee-company to which attention of Bench was drawn during the course of hearing and also the various decisions cited. I find from the details given that 97,300 shares were allotted to promoters; 300 to subscribers and the remaining 1,50,000 were allotted to s....
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....w cause why the paid up capital amount of Rs.24,80,000 be not treated as deemed income. The assessee-company in response failed to produce any further evidence to establish the identity of any of the shareholders. 5.2 The CIT(Appeals) has deleted the addition made of Rs.24,80,000 deemed income under section 68 of the Income-tax Act placing reliance on the Tribunal's decision in the case of Standard Cylinders (P.) Ltd. 5.3 In the case of Standard Cylinders (P.) Ltd., assessment was completed for the assessment year 1980-81. The CIT initiated proceedings under section 263 and held that the assessment made was erroneous and prejudicial to the interest of Revenue as the Assessing Officer failed to make any enquiry from the registered shareholders about the source of investment made by them in shares. The Tribunal set aside the order of the CIT passed under section 263 with the following observations: "The onus regarding funds credited in its books got fully discharged if those funds represented funds for investment made in its shares. The shareholders whose names were duly registered in the register after having made the investment, could not deny that they had not subscribed to the....
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....areholders within the meaning of the ratio laid down by the Hon'ble Delhi High Court. It has been settled by the Hon'ble Delhi High Court that section 68 of the Income-tax Act applies to the credit shown in the books on account of share capital amount and the onus to prove and establish the identity of the shareholders ties upon the assessee-company. The Assessing Officer during the course of reassessment proceedings considered the genuineness of the credit in the books of the assessee-company and on the independent enquiries made by way of seeking confirmation under section 133(6) of the Income-tax Act from 12 shareholders selected at random found that notices sent to 8 shareholders at the address given through registered A.D. came back unserved. The Assessing Officer confronted the assessee-company with the result of the enquiries so made from 12 shareholders and intended to treat whole of share capital amount of Rs.24,80,000 as deemed income of the assessee-company under section 68 of the Income-tax Act. The assessee-company made no efforts to prove and establish the identity of majority of the shareholders apart from whom confirmation had been filed during the course of origina....
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....mental appeal is treated to be allowed for statistical purposes. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Per U.B.S. Bedi - Since in the above captioned appeal we have difference of opinion on the following point, the matter is submitted to the Hon'ble President for reference to the Third Member: "Whether, on the facts and in the circumstances of the case, the order of learned CIT(A) should be upheld or it should be set aside and restored on the file of the Assessing Officer to be made de novo?" ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Per Nathu Ram - Since in the above captioned appeal we have difference of opinion on the following point, the matter is submitted to the Hon'ble President for reference to the Third Member: "Whether, on the facts and circumstances of the case, the order of the CIT(Appeals) based on the Tribunal's decision in the case of Standard Cylinders Pvt. Ltd. be upheld as proposed by the Judicial Member or the matter be restored to the Assessing Officer for readjudication in light of Jurisdictional High Court decision in the case of Sophia Finance Co. as viewed by the Accountant Member." THIRD MEMBER ORDER Per Krishan Swar....
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....; Shares -------------------------------------------------------------------------------------- (1) Initial subscribers 700 7,000 (2) Promoters Quota 97300 9,73,000 (3) Public Issue ------------- (A) Over 500 Shares 16300 1,63,000 (B) Below 500 Shares  ....
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....oss of Rs.29,898 on28th February, 1986under section 143(3)." 4.4 The ld. CIT, Delhi-III,New Delhi, however, set aside this assessment vide order under section 263, dated11-2-1988. The relevant portion from his order has been reproduced in para 2.1 of the order of the ld. A.M. It would be appropriate to extract below the portion of the order of the ld. CIT summing up his order:-- "It is no doubt true that the company is a juristic person separate and distinct from the shareholders. But this fact cannot be made the ground or justification for non-enquiry in regard to the genuineness and credit worthiness of the shareholders because it is quite possible for a company to launder unaccounted money and introduce the same in the books of account of the company in the garb of share subscription received from the so-called shareholders. A separate and distinct corporate existence cannot be made a medium for introducing unaccounted money in the books of account of the company. In such a case it is the duty of the ITO to pierce the corporate veil and to bring to tax such unaccounted money without taking into account the fine or artificial distinction of separate corporate existence vis-a-vi....
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....nuine. You are, therefore, given show cause opportunity by the entire amount of issued, subscribed and paid up capital of Rs.24,80,000 be not treated as the assessee coys, income from un explained sources." (iii) After the issue of the above letter and after holding discussion on certain dates with the representative of the assessee-company and pointing out to the failure of the assessee to appear on certain dates, the Assessing Officer concluded that the assessee had nothing to prove the genuineness of the share capital and had failed to discharge the burden of proof that lay on it under section 68 of the I.T. Act. By referring to certain judicial decisions on this aspect, including the decision of theApex Courtin the case of McDowell & Co. Ltd, the Assessing Officer held that the entire amount of the share capital of Rs.24,80,000 remained unexplained within the terms of section 68 and was liable to be assessed as assessee's income. 6. In appeal, the ld. CIT(A) observed that "the appellant has tried to give as many details as was practically possible for him to file before the Assessing Officer". Keeping in view this fact and the decision of the ITAT Delhi Bench in the case of S....
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....firmation from shareholders of categories (1), (2) and (3A) were filed by the assessee vide letter dated 16-3 1985. On17-9-1985, it had further submitted 52 confirmations in respect of shareholders under category 3B selected by the Income tax Department. Further to this letter, allotment letters in all the 52 cases had also been furnished. Thus, the assessee had tried to give as many details as were practically possible for it. 8. The ld. AM has, however, concluded as under:-- "Thus, looking to all the facts and circumstances discussed I do feel that the assessee-company failed to discharge its onus cast to establish the identity of all shareholders nor the Assessing Officer made due and valid enquiries about the identity of remaining shareholders. It would, therefore, be fit and proper if the matter is restored to the file of the Assessing Officer for fresh adjudication. I, accordingly, vacate the appellate order as well as the assessment order and restore the matter to the file of the Assessing Officer for fresh adjudication. The Assessing Officer is directed to deal with the issue in fight of the ratio of the decision of the Hon'ble jurisdictional Delhi High Court in the case ....
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....33(6) of the Act but the Assessing Officer made no efforts to make similar enquiries about other shareholders. 9. In the background of the facts of the case narrated above, I have first to determine as to what is the real point of difference of opinion. From the question suggested by the ld. AM, it is quite evident that he has gone by the fact that the order of the ld. CIT(A) was based on the Tribunal's decision in the case of Standard Cylinders (P.) Ltd. This may be true but then the ld. CIT(A) has also recorded a finding of fact that the assessee had tried to give as many details as was practically possible for it to file in connection with the issue of shares. A significant aspect is that even if the ld. CIT(A) had decided the issue in the light of Tribunal's decision in the case of Standard Cylinders (P.) Ltd, the Tribunal was legally bound to decide the issue in the light of Jurisdictional High Court decision in the case of Sophia Finance Ltd, which has, in fact, been referred to by both the Ld. Members. It is pertinent to point out that the ld. AM has not held that in view of the aforesaid Jurisdictional High Court decision, the order of the ld. CIT(A) could be reversed. He ....
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....n if the Assessing Officer had failed to make certain enquiries, as is pointed out by the ld. AM, he could not be allowed to make good of the deficiencies of his case. The ld. counsel thus supported the order of the ld. JM. 12. I have given my utmost consideration to the entire gamut of facts and circumstances of the case and the detailed submissions made before me by the representatives of the rival parties. I have also carefully gone through the orders passed by the ld. Members alongwith material on record to which my attention was invited. In my view, there is no justification forrestoring the matter to the file of Assessing Officer and the Revenue's appeal needs to be dismissed, for reasons ascribed hereinafter. (1) It is, no doubt, true that after the Full Bench decision of the Hon'ble Delhi High Court in the case of Sophia Finance Ltd, the ITAT's decision in the case of Standard Cylinders (P.) Ltd no longer holds the field but then this decision cannot be said to be laying down a universal rule that where share capital money has been received by a Company, it should be treated as company's income, discarding or disregarding the evidence produced by the Company, on some pre-....
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....4.3 above, shares worth Rs.9,73,000 were allotted under promoters quota and the Assessing Officer had observed that shareholders of this category were Income Tax assessees and their confirmations were filed. Obviously, there is no ground to say that such shareholders did not exist. The Assessing Officer had also observed that shares of Rs.1,63,000 were held by 7 persons who were also existing assessees and their confirmations were filed. Hence, the existence of these shareholders was also proved. Thus, for the subscribed capital to the extent of Rs.11,36,000, no addition could be made even as per the decision in Sophia Finance Ltd case. During the course of reassessment proceedings, the Assessing Officer had not communicated anything to the assessee-company as to why he was going back from his earlier findings. Letters were not issued to all the shareholders falling in the public category. All that the Assessing Officer has stated in para 5 of the order is that:-- "On25-1-1989, Sh. K.R. Agarwal, CA/AR attended and on point of share on loss he wanted time upto 20th February. In the meanwhile, the case was to be discussed on6-2-1989regarding promoters quota and public issue. (See or....
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....ho chose to enquire about 12 shareholders only. (e) The observation of the ld. AM that the Assessing Officer also neither made any verification about the confirmations filed nor doubted their genuineness nor he required the assessee company to produce them for examination nor he made direct enquiries about them, cannot be held against the assessee. For Assessing Officer's failure to do his job properly, when he had full opportunity to do so, he cannot be given a third inning by restoring back the matter to him. Similarly, the observation that only 12 shareholders were selected at random for seeking information as per the provisions of section 133(6) of the Act and the Assessing Officer made no efforts to make similar enquiries about other shareholders cannot be a ground for restoring the matter to the Assessing Officer because nothing prevented the Assessing Officer from enlarging his area of enquiries. 13. The powers of the ITAT in the matter of setting aside an assessment are large and wide, but these cannot be exercised to allow the Assessing Officer an opportunity to patch up the weak part of his case and to fill up the omission. In my opinion, a party guilty of remissness an....