TaxTMI 
TaxTMI 
2006 (5) TMI 137
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....During the course of search, Shri B.P. Gupta offered Rs. 50,00,000 under section 132(4) in the hands of the company and its directors. Later, Shri Y. Ravi Prasad and others retracted the admission by filing a letter dated 21-3-1996. However, before conclusion of the search, four affidavits dated 4-4-1996 were filed by Smt. B. Prabhavathi, wife of Shri B.P. Gupta, Shri Y. Ravi Prasad, Shri Y. Mahadev (Promoter) and Shri M.N.S. Venkateshawar Rao, admitting total undisclosed income of Rs. 40 lakhs. As per the Assessing Officer, the search operations were initiated mainly to unearth unaccounted money earned by rigging the prices of shares of Valueline Securities (India) Ltd., after the public issue during July 1995. 3. In response to notice under section 158BD, the company filed block return disclosing total undisclosed income at Nil. The assessment was made on 30-5-1997 determining the total undisclosed income at Rs. 38,64,000 which comprised of the following amounts:- &nb....
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....; --------- The Assessing Officer has mentioned in the assessment order that Rs. 38,64,000 is added in the hands of the assessee-company under section 68 treating the same as unexplained credit, notwithstanding the fact that the same amount was added in the hands of the directors viz., Shri B.P. Gupta and Shri Y. Ravi Prasad in their block assessments dated 30-1-1997 treating this amount as benami investments of these two directors and that the tax on such undisclosed income would, however, be enforced for collection either in the case of assessee-company or in the case of the two directors depending on the finality of such assessments. 4. In the case of Shri Y. Ravi Prasad and Shri B.P. Gupta, the Assessing Officer completed the assessment on 31-1-1997 by determining the undisclosed income at Rs. 44,02,000 and Rs. 34,00,050 respectively, including Rs. 28,02,000 in each case towards unexplained investment as main promoter of Valueline Securities (India) Ltd. 5. The i....
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....fied that any undisclosed income belonging to any other person other than the person with respect to whom the search was made under section 132 or whose books of account or other documents were requisitioned under section 132A, then the Assessing Officer having jurisdiction over such other person shall proceed against such other person under the provisions of Chapter XIV-B by invoking the provisions of section 158BD of the Act. (The amendment to section 158BD by inserting the words "under section 158BC" is with effect from 1-6-2002 and such amended provision was not available at the time when the notice was issued to the appellant and the provisions of section 158BD for the purpose of assessment should be read without the words "under section 158BC".) (2) The time-limit for completion of the assessment is prescribed under section 158BE of the Income-tax Act. According to the said section, an order of assessment contemplated under section 158BC shall be passed within one year from the end of the month in which the last of the authorizations for search under section 132 was executed. Sub-section (2) of section 158BE provides that the period of limitation in the case of the person ....
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....ppellant before conducting search. The Panchanamas clearly indicate that there were warrants of authorization for conducting search and seizure operations at the premises of the appellant. (6) The learned DR filed paper book dated 5-8-2004 which is at page 15 of the consolidated paper book prepared by the appellant. At page No. 15 therein is a letter dated 25-8-2003 of the Asstt. DIT forwarding certified copies of the warrants to the DR. Copy of the letter is extracted hereunder: "Office of the Assistant Director of Income-Tax (Inv.) Unit-1(3), Hyderabad &nb....
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...."CIT, A.P.I, order under section 127(2)(a), dated 11-3-1996 in S&P/Jurn/CIT, A.P.I/95-96 (BLOCK PERIOD ASSESSMENT) is received and filed. As per the notification, in the above case Notice under section 158BC put up." It is clear from the above noting that the communication received from the Commissioner of Income-tax indicated issue of notice under section 158BC of the Act. A notice under section 158BC was put up by the Assistant and the Assessing Officer signed the notice. The said notice is at page 1 of the Consolidated paper book. (8) It can be seen from the order sheet submitted by the learned DR that the following matter is inserted above the typed note on the order sheet: "The materials gathered during search operations revealed that the genuineness of promoters equity of the company was not substantiated. I have perused the materials gathered and satisfied. Issue notice under section 158BD. &....
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....s and documents clearly indicate that the Income-tax authorities conducted search and seizure operations at the premises of the appellant and that a notice under section 158BC was issued to the appellant, the learned departmental representative in his consolidated written submissions mentioned that a notice under section 158BD was issued and the assessment was made under section 158BD read with section 158BC of the Income-tax Act. The learned DR is of the view that the order under section 158BD is in substance and effect in conformity with the intent and purpose of the Act and, therefore, the assessment may be treated as valid without considering the trivialities in the process of making assessment. 9. The learned counsel for the assessee further submitted that even on merits the Assessing Officer is not justified in making the addition under section 68 of the Act for the following reasons:- The appellant is a company in which the public are substantially interested and during the previous year relevant for the assessment year 1996-97, it issued the shares to the public. The total share capital of the company as on 31-3-1996 was Rs. 3,24,98,500., Out of the said amount, the A....
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.... 22,44,000 5. The Assessing Officer also treated the amounts in respect of the share certificates seized from the Registered Office of Valueline Securities at Page 25 of the Assessment Order and aggregate of the amount 2,55,000 --------- Total: 38,64,000  ....
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.... be considered as not genuine. He submitted that the Assessing Officer himself issued letters and received the letters of confirmation from some of the persons. The Assessing Officer required the shareholders to submit the details as per the proforma provided by him. This is clear from the letters of confirmation submitted by some of the shareholders, which are submitted in the paper book, the details of which are as under: ------------------------------------------------------------- Sl. Page No. Name of the Shareholder Amount Date on No. of the Invested which Paper letter Book &nb....
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....rayana Murthy 56,000 24.04.1997 ------------------------------------------------------------- 10. 88 Devarakonda Nageswara Rao 42,000 11.02.1997 ------------------------------------------------------------- 11. 92 G. Rama Devi 25,000 24.04.1997 ------------------------------------------------------------- 12. 94 G.K. Narayana Rao 25,000 24.04.1997 ------------------------------------------------------------- 13. 98 Subba Reddy Bolla 25,000 06.03.1997 ------------------------------------------------------------- 14. 101 M. Srinivas &nbs....
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....nbsp; 25,000 28.02.1997 ------------------------------------------------------------- 26. 151 Ravikanti Padmavathi 1,00,000 03.03.1997 ------------------------------------------------------------- 27. 154 G.V. Kanaka Durga 25,000 24.04.1997 ------------------------------------------------------------- 28. 156 Y.V. Nagalaxmi 25,000 24.04.1997 ------------------------------------------------------------- 29. 164 V.C. Bhadraiah 50,000 ------------------------------------------------------------- 30. 168 V. Murugesan 45,000 01.04.1997 ------------------------------------....
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....--------------------------------------------- 41. 227 K. Padma 25,000 08.03.1997 ------------------------------------------------------------- 42. K. Kalpana 25,000 22.01.1997 ------------------------------------------------------------- 43. Jugal Kishore Nagala 25,000 24.04.1997 ------------------------------------------------------------- He submitted that from the letters of confirmation directly addressed to the Asstt. Commissioner of Income-tax, it is clear that the Assessing Officer himself addressed letters under section 133(6) of the Act requiring the shareholders to furnish the details of investment with the appellant company. They have responded and furnished the details as required by the Assessing Officer. N....
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....sing Officer is not justified in making any addition under section 68 of the Act. 14. The learned counsel further submitted that the Assessing Officer, while treating the amount of Rs. 7,64,000 as the income of the appellant, mentioned that the onus of proving the identity of the investors is on the appellant. The Assessing Officer also relied on the decision of the Delhi High Court in the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 98. The Assessing Officer also relied on various other judgments. It is mentioned by the Assessing Officer that in spite of the letters of enquiry under section 133(6) having been duly served, the investors failed to furnish letters of confirmation and therefore, the existence of the investors has not been proved. Finally, the Assessing Officer observed that it is clear that the names of friends and relatives of the assessee-company were used as a camouflage by the appellant company to put through its unaccounted money in the shape of share capital. He submitted that the appellant furnished detailed addresses of the shareholders. At page 13 of the assessment order it is mentioned by the Assessing Officer that "in the instant case, the enquiry l....
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....er submitted that the Assessing Officer in Table 2 in para 11.4 listed the shareholders where the covers sent were returned unserved. The list of the shareholders consists of 12 names (there is a mistake in the assessment order: the actual number of persons is only 11; S. No. 8 is omitted). In respect of the said eleven persons, the appellant provided the list of the investors. The said list consists of documents submitted in support of the investments made. It can be seen that in respect of the shareholders the appellant filed application forms for shares. In respect of item No. 4, i.e. Subhasini Katpally, the shareholder sent a letter of confirmation to the Assessing Officer and copy of the same is sent to the appellant. It is further submitted that item 12 mentioned by the Assessing Officer is with regard to late K. Venkateswera Rao represented by his son. The amount is Rs. 45,000. This is once again included in the table 4 as item No. 53 wherein the Assessing Officer mentioned that the evidence is not enough to prove the sources. Therefore, it is not correct for the Assessing Officer to mention that the notice issued to Venkateswera Rao was not served as his representative resp....
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....that the replies provided by the shareholders are not complete. Further, in view of the decision of the Hon'ble Supreme Court in the case of CIT v. Stellar Investment Ltd. [2001] 251 ITR 263 and the decision of the Hon'ble A.P. High Court in the case of CIT v. Lanco Industries Ltd. [2000] 242 ITR 357, the Assessing Officer is not justified in making the addition. 19. During the course of search and seizure operations, the Income-tax authorities found share certificates at the Regd. Office of the appellant. The list of the share certificates as annexed to the panchnama is at pages 9 to 11 of the consolidated paper book filed by the appellant. The learned counsel for the assessee submitted that the reasons as to why the share certificates were available in the Regd. Office of the appellant-company were that the certificates are available either for despatch or as the shareholders are close relatives of the directors and that in the Regd. Office of the company, the directors have their own chambers and the share certificates found in their chambers are also considered as available with the company. The reasons for non-delivery of the share certificates and the reasons for availabil....
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....nbsp; Prasad ------------------------------------------------------------ 12. D. Satyalaxmi Sister-in-law of director Y. Ravi Prasad ------------------------------------------------------------ 13. Suryanarayana Under dispatch Murthy ------------------------------------------------------------ 14. Y. Venkatesam Brother of director Y. Ravi Prasad ------------------------------------------------------------ 15. Nikita Grand daughter of G. Subba Rao, director ------------------------------------------------------------ 16. B.P. Gupta &nbs....
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....9. K. Pavan Kumar Under dispatch ------------------------------------------------------------ 30. Y. Mahadev Vice President ------------------------------------------------------------ 31. N.S. Venkateswera Son-in-law of G. Subba Rao Rao ------------------------------------------------------------ 32. Dilipkumar Under dispatch ------------------------------------------------------------ 33. Y. Padma Wife of Y. Mahadev, Vice President ------------------------------------------------------------ 34. Y. Sarada Wife of director Y. Ravi Prasad ------------------------------------------------------------ 35. P. Kalavati Niece of director Y. Ravi Prasad ------------------------------------------------------------ 36. A. Sarojini Devi Under dis....
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....nfirmed the investment in the share capital. Therefore, in view of the submissions made earlier, and in view of the decision of the Supreme Court in the case of Stellar Investment Ltd. and the decision of the Andhra Pradesh High Court in the case of Lanco Industries Ltd. the Assessing Officer is not justified in making the addition. Insofar as Smt. K Sujanadevi and K. Padma are concerned, they did not respond to the summon issued. However, the appellant submitted the copy of the application form for allotment of the shares, a copy of the certificate issued for deduction of tax at source in respect of dividend paid to them. In view of the above, the appellant submits that the Assessing Officer is not justified in making any addition. 20. The learned departmental representative, on the other hand, opposed the contention of the assessee that the assessment order dated 30-5-1997 passed by the Assessing Officer under section 143(3), read with section 158BC and section 158BD is barred by limitation, by submitting as follows:- (1) The assessment was made under section 158BD of the Act on 30-5-1997, read with section 158BC. This is evident not only from the first page of the assessme....
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....ations revealed that the genuineness of promoters equity of the company was not substantiated. I have perused the materials gathered and satisfied. Issue notice under section 158BD." [DPB 31] The satisfaction of the Assessing Officer also finds place at para 2, page 2 of the block assessment order in the case of the assessee. Initially, a notice under section 158BC was prepared on 22-4-1996 as per the order sheet noting dated 22-4-1996. Subsequently, when the Assessing Officer learned from the ADIT that there was no warrant of authorisation in the case of the company, the satisfaction was recorded and the notice was issued under section 158BD. Therefore, before the notice was served on the assessee on 16-5-1996, the Assessing Officer duly recorded the satisfaction that it was a case covered under section 158BD and not under section 158BC, though in the notice it was not corrected as 158BD by oversight. It is important to mention that notices prescribed under section 158BC and section 158BD are one and the same and no separate notice is prescribed under section 158BD. Therefore, not scoring out 158BC and non-mention of 158BD was only an inadvertent mistake on the part of the Asse....
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....Batra v. Jt. CIT [2005] 95 ITD 152 (Asr.)(SB). (x) L. Saroja v. Asstt. CIT [2001] 76 ITD 344 (Mad.). (xi) Biological E. Ltd. [ITAT 'A' Bench, Hyderabad]. (6) Without prejudice to the submission that non-scoring out of section 158BC in the notice was only an inadvertent mistake, the provisions of Chapter XIV-B had been substantially complied with and adequate opportunity had been given to the assessee in the course of block assessment proceedings and no prejudice was caused to the assessee and, therefore, the assessment is valid in the eye of law. At the worst, as already submitted, it was only a procedural irregularity which could be cured under section 292B of the Act. Further, under the doctrine of waiver/acquiscence, since the assessee had participated in the proceedings initiated by the Assessing Officer and no ground was raised before the Assessing Officer at any point of the block assessment proceedings, it is not correct to take such stand at this stage by the assessee regarding alleged non-mention of section 158BD in the notice issued. In this context, reliance was placed on the following judgments:- (i) DIT (Inv.) v. Pooran Mal & Sons [1974] 96 ITD 390 (SC).....
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.... notices were issued to the Directors of the company i.e., 22-4-1996, and when the Assessing Officer found that the assessment got barred by limitation, he mentioned in the assessment order that he was completing the assessment under section 158BD of the Act though he had issued notice under section 158BC of the Act. (2) The learned DR mentioned that the notice under section 158BD was issued to the appellant to examine certain issues arising out of search operations. According to the learned DR, the Assessing Officer mentioned that notice under section 158BD was issued to examine certain issues arising out of the search and seizure operations during the block assessments under section 158BC in the case of Sri B.P. Gupta and Sri Y. Ravi Prasad on 31-1-1997. This is not correct. At page 11 of the assessment order of Sri Y. Ravi Prasad it is mentioned: "Since search operations were carried out in this case after commencement of new assessment procedure under Chapter XIV-B, a notice under section 158BC was issued to the assessee on 22-4-1996, in response to which the assessee filed his return of income of the block period 1986-87 to 1996-97 on 8-7-1996 disclosing the following in....
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....nts in respect of persons where search has been conducted and in respect of persons other than such persons whose books of account and other documents were found during the course of search of any other person. Section 158BE of the Income-tax Act provides different time-limits for those assessments to be made under section 158BC or under section 158BD. Therefore, the Legislature provided for different treatment with regard to the persons covered by the provisions of section 158BC and those who are covered by the provisions of section 158BD. When the question of time-limit under section 158BE is to be examined, it is to be seen whether the assessment has to be completed in accordance with the provisions of section 158BC or section 158BD. Therefore, the learned DR is not correct in mentioning that the assessment is valid as it is in conformity with the intent and purpose of the Act. Even if the determination of income were to be in conformity with the law (the appellant is not accepting that the assessment is in conformity with law), it has to be completed within the time allowed under section 158BE of the Income-tax Act. As the Assessing Officer did not complete the assessment withi....
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....e, it is submitted that in the case of the appellant notice under section 158BC has to be issued. Therefore, the notice was correctly issued under section 158BC. Further, the Assessing Officer retained section 158BC and scored out section 158BD correctly. (3) In the case of CIT v. Jai Prakash Singh [1996] 219 ITR 737, decided by Hon'ble Supreme Court, notice was not served on all the legal representatives, but served on one out of ten legal representatives. Therefore, the Supreme Court observed that the assessment was irregular and it is only a curable defect. In the case of the appellant the question is whether the assessment was made within the time or not. If the assessment is not made wit~ the time allowed by the statute, the assessment is void. The contention of the appellant is that the assessment was not completed within the time allowed. (4) In the case of Estate of Late Rangalal Jajodia v. CIT [1979] 79 ITR 505, Hon'ble Supreme Court observed that lack of a notice would take away the jurisdiction of the revenue authority. The Assessing Officer might have issued another notice under Act. The case of the appellant is different and this case is not applicable to the fac....
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....no application to the facts of the appellant's case. It is not the contention of the appellant that he did not understand implications of the notice issued and it is submitted that the company very well understood the notice issued under section 158BC. When the assessment got barred by limitation, the Assessing Officer chose to mention the assessment to be under section 158BD and not 158BC. Therefore, the appellant submits that the assessment is not valid. (13) Even in respect of the decisions of the Hon'ble Rajasthan High Court in the case of Birla Cotton Spg. & Wvg. Mills Ltd. v. ITO [1994] 209 ITR 434, and Special Bench of the ITAT, Lucknow, in the case of Nawal Kishore & Sons Jewellers v. Dy. CIT [2003] 87 ITD 407, the proposition is that the assessee, having participated in the assessment proceedings, cannot mention that he has not understood the notice. That is not the case of the assessee. The case of the assessee is that the Assessing Officer issued notice under section 158BC, which was rightly understood to be so by the appellant. But, the assessment has to be completed within the time mentioned under section 158BE(1), and the assessment was not completed within the sai....
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....eizure operations. 24. When the assessment was getting barred by limitation in view of section 158BE of the Act, the Assessing Officer made an attempt to show that the assessment was being made under section 158BD of the Act. This attempt is only to save the assessment order from being called time-barred. In that process, the Assessing Officer mentioned that the assessment was being made under section 158BD. He also mentioned at page 2: "The block assessments under section 158BC in the case of Shri B.P. Gupta and Shri Y. Ravi Prasad were completed on 31-1-1997. A notice under section 158BD was issued to M/s. Value Line Securities (P.) Ltd., to examine certain issues arise out of search and seizure operations." The Assessing Officer by writing the above paragraph wants others to understand that the notice under section 158BD was issued after completion of the assessment proceedings in the cases of the Directors. But, according to the learned counsel, the fact remains that a notice under section 158BC was issued on the same day on which the notices under section 158BC were issued to the Directors i.e., on 22-4-1996 itself. In the assessment order, the Assessing Officer categ....
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....are certificates were found at the premises of the company. It was also submitted that the share certificate found at the residential premises of the appellant belong to the close relatives of the directors. Therefore, availability of the share certificate at the premises of the company or at the residential premises of the directors cannot lead to the conclusion that the share capital is not genuine. The appellant had submitted evidence to show that the share capital introduced is genuine. The company submitted the list of shareholders, copies of the applications, and other evidences to prove the genuineness of the share capital. Therefore, the learned counsel submitted that the Assessing Officer is not justified in making any addition under section 68 of the Act. He relied on the submissions made by the company in this regard and requested the Bench to consider the submissions made in the case of the company as the submissions made in the case of the director also. 27. Without prejudice to the above, the learned counsel submitted that the total share capital treated as not genuine in the case of the company is only Rs. 38,64,000 and not Rs. 56,04,000 as mentioned in the assess....
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....the Assessing Officer is not justified in making any addition on this count. 30. The learned counsel further submitted that the director had admitted the share capital introduced by his father Shri Y. Venkata Narayana in the company and that this does not mean that the entire share capital in the names of all other shareholders was introduced by him. Further, wherever the Assessing Officer sent letters of enquiry, the shareholders accepted the investment made by them. None of the shareholders explained that the share capital does not relate to them. 31. He further submitted that the Assessing Officer has no basis to estimate the addition to be made in the case of the director as 50% of the share capital and that the very fact that the Assessing Officer resorted to an estimation indicates clearly that the Assessing Officer has no basis to hold that any of the share capital relating to any particular shareholder was introduced by the appellant herein. He drew our attention to the evidences submitted in the paper book filed before us in the case of the company. He thus submitted that in view of the contentions made in the case of the director and in view of the detailed explanat....
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....me of Shri Y. Venkata Narayana, and at the premises of Shri B.P. Gupta, who admitted such investment to the extent of Rs. 5,98,050. Thus, he submitted, overwhelming and specific evidences were found during the search operations which prompted the Assessing Officer to make further enquiries about the sources of the share capital introduced in the books of Value Line Securities Ltd. and that the enquiries conducted and statements recorded by the ADIT and the Assessing Officer were with reference to the positive and specific evidences found and, therefore, the material gathered was relatable to such evidences. He further submitted that the details of bank drafts/cheques issued in some cases for acquisition of shares in the promoters' quota of the assessee-company show that the demand draft numbers are continuous numbers, though the alleged applicants hail from different places. In this regard, he referred to Annexure C to the written submissions. Thus, he submitted, it is not correct to say that no incriminating evidence was found during the search to suggest that the share capital was introduced in various names out of the undisclosed income of the promoters of the company. 34. Th....
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.... income on the basis of the material which has been gathered by him. The process of assessment under section 158BC, read with section 158BB is not merely computation of income but a process of evaluation of evidence and material found during the course of the search and derived from the books of account, documents and other information. 35. The learned departmental representative reiterated that in the instant case, incriminating documents in the form of share certificates in various names were found and seized as a result of search and when confronted, the promoters of the company admitted part of the share capital introduced in the said names as undisclosed income of the promoters and that, in the circumstances, the Assessing Officer made further enquiries and the assessment was made on the basis of material found during the search and the evidences gathered by the ADIT and the Assessing Officer. In this regard, he placed reliance on the following decisions: (a) Cas Card Finance Ltd. v. Asstt. CIT [2003] 84 ITD 1 (Ahd.)(TM) (b) Khopade Kisanrao Manikrao v. Asstt. CIT [2000] 74 ITD 25 (Pune)(TM) (c) CIT v. Elegant Homes (P.) Ltd. [2003] 259 ITR 232 (Raj.) (d) CIT v.....
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....persons and creditworthiness of the persons and after affording adequate opportunity to the assessee. He submitted that the substantive addition was made in the hands of Shri Y. Ravi Prasad and Shri B.P. Gupta for the reason that they were looking after the day to day affairs of the company as evidenced by the prospectus of the public issue (DPB-67) and the statement of Shri Y. Ravi Prasad dated 24-1-1996 (DPB-41). In this connection, the learned departmental representative placed reliance on the following decisions:- 1. CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 (Delhi)(FB) 2. CIT v. Kundan Investment Ltd. [2003] 263 ITR 626 (Cal.) 3. CIT v. Ruby Traders & Exporters Ltd. [2003] 263 ITR 300 (Cal.) 4. CIT v. Nivedan Vanijya Niyojan Ltd. [2003] 263 ITR 623 (Cal.) 5. Ram Kumar Jalan v. CIT [1976] 105 ITR 331 (Bom.) 6. R.B. Mittal v. CIT [2000] 246 ITR 283 (AP) 7. CIT v. Precision Finance (P.) Ltd. [1994] 208 ITR 465 (Cal.) 8. CIT v. Korlay Trading Co. Ltd. [1998] 232 ITR 820 (Cal.) 9. CIT v. United Commercial & Industrial Co. (P.) Ltd. [1991] 187 ITR 596 (Cal.) 10. VBC Fertilizers & Chemicals (P.) Ltd. v. Dy. CIT [IT Appeal No. 541 (Hyd.) of 1997] (Hyde....
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....mselves would not lead to the conclusion that the company invested the share capital. The appellant submits that to invoke the provisions of section 68 while completing the assessment under section 158BC of the Income-tax Act, the authorities should find information in the seized material to the effect that the share capital was introduced by the appellant company from its income not disclosed to the department. Such information was not available in the seized documents. The availability of share certificates, which were confirmed to be belonging to the shareholders at a later date by the respective shareholders, cannot be considered as the reason for inclusion of the income under section 68 of the Income- tax Act, particularly in view of the fact that the appellant submitted a detailed explanation as to why the share certificates were available at the premises of the company. (2) It is also submitted that in respect of some of the share certificates found, the Assessing Officer accepted the genuineness of the share capital. Therefore, the Assessing Officer is not justified in mentioning that there was information on record to enable the department to invoke the provisions of se....
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....t from out of its own income. It is Sri Y. Mahadeva who invested the amount and, therefore, the said amount cannot be considered as the income of the appellant. (5) Insofar as the affidavit of Sri M.N.S. Venkateswera Rao, referred to by the learned DR, is concerned, the said person is engaged in the business of purchase and sale of shares like Sri Y. Mahadeva. Sri Venkateswera Rao accepted that the amount was invested by him. Therefore, there is no possibility to hold that this amount is invested by the appellant company. (6) The learned DR is referring the affidavit of Sri Y. Ravi Prasad. He stated that he was declaring the investments made by his father Sri Y. Venkatanarayana as his income. It can be seen from the affidavit that what was admitted by him is investment made by his father Sri Y. Venkatanarayana. Therefore, this cannot lead to the conclusion that the amount of investment belongs to the appellant company. (7) The learned DR mentioned that at the residential premises of Sri B.P. Gupta some share certificates were found. The list of share certificates found at the premises of Sri B.P. Gupta is as under: (a) Smt. Indira - She is the daughter of Sri B.P. Gupta....
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....y the shareholders was not from out of the company's income. It is further submitted that all the persons are close relatives of Sri B.P. Gupta and, therefore, the share certificates were available at the premises of Sri B.P. Gupta. (8) In the case of Sri Y. Ravi Prasad the share certificates belonging to his father Sri Y. Venkata Narayana were available and in the case of Sri B.P. Gupta the share certificates of his close relatives were available at his residence. Therefore, there cannot be any presumption that the investment was made by the appellant company in the names of those shareholders. (9) The learned DR listed the demand drafts/cheques issued for purchase of shares and this is annexed to the written submissions filed by the learned DR. Insofar as the share certificates are concerned, the amount is brought by some of the shareholders to the company and the staff of the company purchased the share certificates to facilitate the investors and, therefore, no adverse inference can be drawn. Further, the Assessing Officer never doubted the issue on this count. (10) Further, during the course of search and seizure operations, no data was found leading to the inference ....
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.... found during the course of assessment proceedings. In the present case, the Assessing Officer did not gather any information even during the course of assessment proceedings contrary to the submissions made by the appellant. Therefore, the said decision has no application to the facts of the appellant's case. (4) In the cases of CIT v. Elegant Homes (P.) Ltd. [2003] 259 ITR 232 (Raj.) and CIT v. Ajay Kumar Sarma [2003] 259 ITR 240, the Hon'ble Rajasthan High Court observed that entries were made in the books of account and the assessee could not explain. In such circumstances, the amount can be treated as undisclosed income. In the case of the appellant, the appellant produced proof to the effect that the share capital was genuine. Further, during the course of search and seizure operations no material was found and, therefore, the said decisions have no application. (5) In the case of Nagpur Drugs (P.) Ltd. v. Dy. CIT [2006] 98 ITD 285 (TM), Delhi Bench of the Tribunal held that the computation of income under section 158BC need not be made exclusively on the basis of evidence found as a result of search, provided there is some material available at the time of search. The ....
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....l the shareholders, excepting a few, responded and confirmed the fact of investment. The facts were not put to the assessee. Therefore, the decisions of the Calcutta High Court have no application to the facts of the case. (9) The decision of the Hon'ble Bombay High Court in the case of Ram Kumar Jalan v. CIT [1976] 105 ITR 331, has no application to the facts of the appellant's case as the Assessing Officer did not issue any show cause letter to the appellant requiring the appellant to explain. (10) In the case of R.B. Mittal v. CIT [2000] 246 ITR 283, decided by Hon'ble Andhra Pradesh High Court, the issue is on cash credits and not share capital. Therefore, the said decision has no application in this case. (11) The decisions of the Hon'ble Calcutta High Court in the case of CIT v. Precision Finance (P.) Ltd. [1994] 208 ITR 465, CIT v. Korlay Trading Co. Ltd. [1998] 232 ITR 820 and CIT v. United Commercial & Industrial Co. (P.) Ltd. [1991] 187 ITR 596, have no application to the facts of appellant's case, as the Hon'ble High Court was dealing with cash credits and not the share capital. (12) In the case of VBC Fertilisers & Chemicals (P.) Ltd. v. Dy. CIT [IT Appeal N....
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....Lanca Industries Ltd. [2000] 242 ITR 357. 41. In view of the submissions made above, the appellant prays for deletion of the addition made by the Assessing Officer. 42. We have heard rival submissions and perused the orders of the revenue authorities as well as all the papers filed before us. The entire dispute in these cases pertains to additions made under section 68 of the Income-tax Act, 1961, in respect of share capital introduced in the case of Value Line Securities (India) Ltd. During the course of search and seizure operations, certain share certificates were found by the search party either in the premises of the company or in the personal chambers of the directors, Shri Y. Ravi Prasad and Shri B.K. Gupta. No other material was found to indicate that investments made in these shares were from out of undisclosed money earned and secreted either by Shri Y. Ravi Prasad or by Shri B.P. Gupta or by the company. Though a possible doubt, suspicion might arise, which would lead to a likely presumption that the investment in question in the shares belongs to any of the said three persons, such presumption is a rebuttable presumption and mere possession would not suffice to su....
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....ertificates, which were not delivered. Many of the persons in respect of whom certificates were found, have on enquiry made directly by the Assessing Officer, replied that they had invested in the share capital of the assessee-company and this explanation has been accepted by the Assessing Officer. Thus, the presumption that mere possession of a share certificate leads to a conclusion of benami investment, stands prima facie rebutted. 43. The legal propositions on the issue of addition in respect of share capital have been brought out by Hyderabad Bench 'A' of the Tribunal in the case of M.K. Securities Ltd. v. Asstt. CIT [IT (S.S) Appeal No. 196 (Hyd.) of 1997], order dated 30-8-2002. For ready reference, we quote from the said order:- "22. As regards the first issue, a lot has been argued on the right of the Assessing Officer to assume jurisdiction under section 68 of the I.T. Act. The Full Bench of the Delhi High Court in the case of Sophia Finance Ltd. [205 ITR 98] had clearly held that the Income-tax Officer has jurisdiction to make enquiries with regard to the nature and source of sums credited in the books of the assessee. In that very judgment, the Full Bench also sta....
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....f the Companies Act, a company can only seek certain limited information from the shareholders. However, in the case of Standard Cylinders (P.) Ltd. v. ITO [1988] 24 ITD 504 (Delhi), the Tribunal has held that company cannot even seek information from the shareholders , regarding the source of their investment in those shares'. 23. The judgment of the Hon'ble Andhra Pradesh High Court in the case of CIT v. Lanco Industries Ltd. [2000] 110 Taxman 172, clearly lays down the law on the issue. At page 275, it is held as follows:- 'The Tribunal no doubt should have considered the question of reliability of confirmation letters on the intrinsic worth and tenor of such letters. If crucial facts throwing light on the source of investment are not discernible from the letters, the Tribunal could have very well eschewed those letters from consideration. But, this is a matter of appreciation of evidence and we do not think that a substantial question of law arises on that account. Moreover, we fail to see how merely by reason of unsatisfactory explanation relating to the source of investment by the shareholders, the money invested on shares should be treated as income of the assessee. If....
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....s. 25 lakhs cannot be added in the hands of the company for the mere reason that the assessee has not established the creditworthiness of the investor. If the shareholder has not proved his creditworthiness, applying the judgment of the jurisdictional High Court, the investment should be treated as unexplained income in the hands of that investor. As there is no finding that these shareholders are mere name-lenders and that the money allegedly invested by them really belonged to the directors of the assessee-company, applying the judgment of the jurisdictional High Court, we cannot sustain the addition made by the Assessing Officer. There is no finding that the persons to whom the share certificates were issued in fact are dummies or stooges of the directors of the assessee-company. Thus, in view of the facts and circumstances discussed above, we have no other alternative but to delete the amount of Rs. 25,00,000 added as undisclosed income in the hands of the company under section 68." In the case of Uma Polymers (P.) Ltd. v. Dy. CIT [2006] 100 ITD 1 (Jodh.) (TM), the Hon'ble President of the Income-tax Appellate Tribunal, sitting as the Third Member on a difference on opinion,....
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.... a notice issued to the concerned shareholder has been returned, natural justice demands that the same be placed before the assessee concerned with a direction that necessary details from these shareholders be obtained by them. Adding these amounts straightaway as undisclosed income of the assessee is not warranted. The list of such cases is given in paragraph 11(4) of the assessment order at pages 14 and 15. Though this would appear to be a fit issue for setting aside, we do not do so, as the addition itself fails on further legal grounds which are discussed hereinafter. (3) A further addition of Rs. 1,25,000 was made on the ground that in five cases, the enquiry letters sent by the Assessing Officer did not receive either replies or acknowledgement. This is at pages 15 and 16 of the assessment order. In this case also, as in the earlier case, the Assessing Officer should have conducted further enquiries and also given an opportunity to the assessee by directing him to produce necessary evidence. An addition without even giving an opportunity to the assessee cannot be sustained. As in the earlier issue, in such cases, the proper course of action for the Tribunal would be to rem....
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..... It is also noticed that no addition was made in the hands of the third promoter Smt. Ch. Aruna. We have to keep in mind that the addition made in the hands of Sri Ch. Mohan Rao and Sri B. Hanumantha Rao is not under section 68 of the Income-tax Act for the simple reason that no credit appeared in their books. The only basis on which the addition is made is that 34 shareholders are benamidars of these promoters. The law on the subject is clearly stated by the Hon'ble Allahabad High Court in the case of Prakash Narain v. CIT [1981] 20 CTR (All.) 147, wherein the following propositions with regard to benami have been laid down:- '34.....The following propositions seem to be well-established: 1. The burden of proof regarding benami is upon the one who alleges benami. 2. To prove benami the most important point is to examine the source of consideration and along with that there are certain other criteria which should be taken into account. Such criteria have been laid down in AIR 1970 SC 171. 5. The mere rejection of an explanation would not entitle the department to claim that the consideration for the purchase of the property in the name of a non-assessee was provided by....
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....roperty after sale. The above inidicia are not exhaustive and their efficacy varies according to the facts of each case. Nevertheless No. 1, viz. the source whence the purchase money came, is by far the most important test for determining whether the sale standing in the name of the one person, is in reality for the benefit of another.' Applying this judgment to the facts of the case on hand, we delete the additions of Rs. 12.5 lakhs each made in the hands of both the promoters Sri Ch. Mohan Rao and Sri B. Hanumantha Rao. 25. Coming to the judgment of the jurisdictional High Court in the case of R.B. Mittal [165 CTR 366] relied upon by the learned departmental representative, we find that that was a case of cash credits and not of share capital raised by a company. In that judgment itself, the Hon'ble High Court has laid down the proposition, while not agreeing with the decision of the Patna High Court (103 ITR 344), that in certain cases the burden of proof would be heavier in relative terms under section 68 i.e. in a case where the creditors are close relatives of the assessee or his employees, when compared to cases where the creditors are outsiders. The author of the j....
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....ding that any of the loose sheets discloses any undisclosed income. There was a disclosure on the day of search and thereafter there was a retraction. Later, affidavits were filed making the following disclosures:- 1. Smt. P. Prabhavathi Rs. 6,00,000 2. Shri Y. Ravi Prasad Rs. 16,00,000 3. Shri Y. Mahadev Rs. 10,00,000 4. Shri M.N.S. Venkateswara Rao Rs. 8,00,000 There is no discussion in the assessment order to the effect that the seized material indicates that the money of these persons has been invested in benami names. Only official share certificates and disclosed registers were found. The enquiries on these documents can as well be made in regular assessment. Only post-search enquiries were conducted to come to a conclusion as to whether these investments were made by the persons named in the certificates or by somebody else. Without such post-search enquiries, no conclusion could be drawn based on search material. The question to ....
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....zure. The logic behind the two different modes of assessment is that concealment of income and claiming deduction or exemption in respect of a disclosed income cannot be treated at part. The former is an offence which goes to the root of the matter and the other is on the basis of the causes shown by the assessee where the Assessing Officer is free to accept the justification shown or reject the same." CIT v. Vikram A. Doshi and Ms. Leena V. Doshi [2002] 256 ITR 129 (Bom.)(HN): "Block assessment-undisclosed income-undisclosed transactions assessed in block assessment - Tribunal finding transactions disclosed in return which were subject-matter of regular assessments-transactions in question not to be considered in block assessment - Income-tax Act, 1961, sections 143, 158B." CIT v. Shamlal Balram Gurbani [2001] 249 ITR 501 (Bom.)(HN): "A search was conducted at the residential premises of the assessee on March 25, 1996, and a notice under section 158BC of the Income- tax Act, 1961, was issued. The assessee did not file the returns for the years 1993-94, 1994-95 and 1995-96. The Assessing Officer treated the income of the three years as the income of the block period. On....
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....ollows:- "8. Block period for which the assessment is to be made under Chapter XIV-B means the period comprising previous years relevant to ten assessment years preceding a previous year in which the search was conducted under section 132 or any requisition was made under section 132A, and also includes in the previous year in which such search was conducted or requisition made, the period up to the date of the commencement of such search or, as the case may be, the date of such requisition. Therefore, the assessment for the block period under Chapter XIV-B can be made of the undisclosed income only up to the date of commencement of search or the date of the requisition and not of the period thereafter. Section 158BA provides for assessment of undisclosed income as result of search for the block period and computation of income and the computation of undisclosed income for the block period to be made as per the provisions of section 158BB and assessment has also to be made under section 158BC of the block period. The undisclosed income for which the assessment is to be made, is defined in section 158B(b) which include money, bullion, jewellery or other valuable article or thing ....
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....nt income on the basis of such lease agreements have been recorded in the books of account, as income of the assessee and the depreciation and interest with regard to the very lease transactions have been claimed as deduction. Lease agreements may be an evidence by itself but there, is nothing in those agreements which could establish that assessee had undisclosed income. On the contrary, disclosure of income has been made by the assessee in the books and return of income pursuant to these very lease agreements. The department has no doubt collected the material subsequent to raid, but that may not be very material and relevant for framing the assessment under Chapter XIV-B of the case be, cause of the mandate given under section 158BB it has to be the income computed on the basis of evidence found as a result of search and not otherwise. If any material is collected by the Revenue after the search, that may not give authority to the department to make the computation of undisclosed income under section 158BB of assessment under section 158BC of the Act. Reference in this connection may be had to the decision of Jodhpur Bench of Tribunal in the case of Chitra Devi v. Asstt. CIT [20....
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....cted in the books of account of the company, the Board of Directors have considered the share applications and have passed resolutions allotting share capital and the statutory requirements of furnishing the full details of the share applications received and the allotments made, were met by furnishing the same to the Registrar of Companies and thus, this cannot be said to be a transaction representing wholly or partly income or property which had not been or would not have been disclosed for the purposes of the Income-tax Act so as to be termed as undisclosed income as defined in Chapter XIV-B. As regular returns have been filed by the assessee-company, such enquiries should always be made in such regular assessments. Applying the propositions culled out from various judgments of Hon'ble High Courts and the Tribunal, we have necessarily to uphold the contention of the assessee that the addition in question is beyond the jurisdiction of Chapter XIV-B. On this ground, the addition has to be deleted. 48. Coming to the addition made on ad hoc basis in the hands of each of the directors, we hold that the addition cannot be sustained. Similar addition in the case of M.K. Securities L....
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...., we do not know how in the three Panchanamas drawn up, against the column "Warrant in the case of", the name of the company, Value Line Securities (India) Ltd. has been given. Moreover, in the case of Shri Y. Ravi Prasad, in paragraph 3 on page 2 of the assessment order, it is stated by the Assessing Officer that "Search operations were initiated in M/s. Value Line Securities Ltd.". In paragraph 12 on page 12, it is stated that "During the course of search operations, share certificates worth Rs. 11.70 lakhs were seized from the Registered Office of Value Line Securities Ltd." Further, in paragraph 13 on page 14 of the assessment order in the case of Shri Y. Ravi Prasad, it is stated as follows: "During the course of search operations at the Registered Office of Value Line Securities (I) Ltd., a document showing a list of investors was found (Annexure. VLS/S)...". Thus, whatever may be the internal records with the Revenue, the documents given to the assessee have to be the basis of conclusion. The Panchanamas and assessment orders are in the public domain and can be held as carrying more weight, as compared to the secret internal files of the Income-tax Department. 51. B....