TaxTMI 
TaxTMI 
TaxTMI 
1999 (5) TMI 614
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.... was the Managers to issue of equity shares of 170000 at ₹ 10 each for cash at par. The registered office of the assessee was at 1111-A, Raheja Chambers, 213, Backbay Reclamation Scheme, Nariman Point, Bombay 400 021. The authorised share capital was ₹ 30,00,000 divided into 3,00,000 equity shares of ₹ 10 face value out of which 30000 equity shares of ₹ 10 each was paid-up for cash at par to the Promoters, Directors and their friends. Excluding 30000 equity shares, 1,70,000 shares at the face value of ₹ 10 each were offered to the public. When offered to the public, the conditions were that on application ₹ 5 per equity share is to be paid and on allotment the remaining ₹ 5 per equity share is to be paid. One of the Board of Directors, inter alia, comprised of Shri Ravindra Kumar Mansingka of Amaravati, State Bank of India, Backbay Reclamation Scheme, Nariman Point, Bombay were the Bankers to the company, whereas Punjab National Bank, Foreshore Road (Gen. J. Bhosle Marg), Bombay, and Canara Bank, Regent Chambers, Nariman Point, Bombay were the Bankers to the issue. Besides several other individual brokers were appointed at Calcutta, Cochin,....
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....origin residing abroad may subscribe to equity shares in accordance with the rules of the Reserve Bank of India. The assessee will obtain necessary permission in this connection from the Reserve Bank of India and the applicants need not apply direct to the Reserve Bank of India for permission for subscription to the said shares. Allotment of shares to non-resident Indians shall be subject to the assessee obtaining such permission from the RBI. Non-resident Indians or persons of Indian origin resident abroad are eligible to subscribe to the equity shares offered from their funds held in India or by inward remittance subject to inter alia their giving an undertaking not to seek repatriation of capital or income arising thereon. The cheques/drafts should be made payable to the Bankers to the Issue and marked A/c Jhantla Investments Ltd. Equity issue and crossed A/c payee only'. The Directors reserve the full and uncontrolled right to accept or reject any application in whole or in part without assigning any reason. No receipt will be issued for the application money. However, the bankers to the issue will acknowledge receipt of the application by stamping and returning to applicant th....
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....hed, in view of the two Supreme Court decisions in S. Narayanappa v. CIT (1967) 63 ITR 219and K.S. Rashid & Son v. ITO (1964) 52 ITR 355. In the course of the assessment proceedings, on sample selection basis, certain questionnaire was sent to 20 shareholders listed out at page 2 of the reassessment order dated 29-2-1988. They were all returned unserved by the postal authorities. The Assessing Officer stated in para 3 of his assessment order adverted to above that investigation of one of the assessee's group concerns, namely, M/s. Shree Salaskar Investment Co. Ltd. has given rise to the belief that the shareholders may not be genuine one. He found that since the questionnaires mailed came back unserved and considering other facts of the case, he was justified to reopen the case as he felt that all the material facts necessary for assessment were not disclosed fully and truly for the assessment year 1982-83. It was contended before him that the assumption that there was escapement of income was not correct. Further the Assessing Officer held that once the assessment was reopened following the Supreme Court decision in V. Jaganmohan Rao v. CIT (1970) 75 ITR 373, the whole of the asse....
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....postal acknowledgements were received and they were enclosed to the reply. After receipt of the allotment money, necessary share certificates were prepared and despatched by the Managers to the Issue to various shareholders on 24-12-1981 and necessary postal receipts were enclosed to the reply. On 4-11-1981, confirmation was given by M/s. H.B. Financial Consultants (P.) Ltd. stating the allotment letters were posted by them to various shareholders and share certificates were posted by them on 24-12-1981 and none of the undelivered allotment letters or share certificates were received by them from the postal authorities. The assessee applied to the Bombay Stock Exchange as well as Delhi Stock Exchange for listing of shares. After complying with various requirements, the Bombay Stock Exchange listed the assessee on 16-12-1981 whereas Delhi Stock Exchange listed the assessee on 22-12-1981. The letters from the two Exchanges listing the assessee were appended to the reply. An applicant applying for allotment of more than 20000 shares is required to give a Permanent Account No. along with their application as per the circulars issued by the Finance Ministry. Thus, according to the asses....
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....tely, it was prayed that proceedings under section 148 may be dropped. 4. However, in making reassessment, the Assessing Officer held that the contents of paras 3, 4 & 6 extracted above are not acceptable. Out of 70 summons returned by the postal authorities with the remark "not known" covered 18,300 shares of the value of ₹ 1,83,000 out of 1,70,000 shares issued by the assessee. He stated that M/s. H.B. Financial Consultants (P.) Ltd. in their letter dated 9-2-1987 indicated the change of address of 14 shareholders only, but for the balance of 56 shareholders, it was stated by them in the said letter that they had no knowledge about their present whereabouts due to lapse of time. According to the Assessing Officer, there were many unanswered questions existing in the facts of the case and all these peculiarities clearly indicated that this was not a genuine public issue and it was nothing but an attempt to give colour of genuineness to the whole transaction. These unanswered questions, according to the Assessing Officer, are found as part of para 11 as follows : "If the Manager to the issue did not receive back any allotment letter/share certificates, how i....
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....the chart listed in the order. The chart is from pages 9 to 15 of his impugned order. 5. After examining all the details, the Assessing Officer held that people living in different places and different localities managed to purchase demand drafts or issued cheques in consecutive numbers which was highly impossible, unless there was one common cheque book from which the cheques were issued. Further the demand drafts of Bank of Maharashtra, Bank of Baroda, State Bank of India, Indian Bank, MSCB, were also issued in serial numbers in respect of persons living in different cities and different locations. According to the Assessing Officer, how could it be possible that they had purchased these demand drafts in consecutive numbers ? All these evidences, according to him, go to show that the public issue is not genuine. The Assessing Officer held that section 68 empowered him to charge to Income-tax income of the assessee, if the explanation offered by the assessee was not, in his opinion, satisfactory. He held that the explanation offered by the assessee was not at all satisfactory in view of various circumstantial evidences mentioned above. He relied upon the decision of the Supreme C....
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....quently. The other shareholders are outsiders and there is no evidence to indicate that they also hold the shares only representing the Mansingka group. One of the major shareholders outside the Mansingka group is Shri Shanti Narayan, who is with the share broker. He holds 27,750 shares even as on 21-4-1982 and continues to hold the same. No enquiries have been made from these outsiders. The bank accounts of those persons who have confirmed their investment have also not been verified. In respect of a number of other shareholders no enquiries have been made. In these circumstances, I hold that the addition has been made without taking into consideration all the relevant evidence on record and without making further investigation into the facts of the case. As such it would be in the interest of justice to set aside this addition of ₹ 17,00,000 with the direction to the Assessing Officer to reconsider the same after taking into account all the available evidence and making further investigation and after providing an opportunity to the assessee. The addition of ₹ 17,00,000 is set aside." The learned CIT(A) had set aside the addition of ₹ 17,00,000 with the di....
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.... Income-tax Act were clearly attracted. He further held that the share consideration credited in the books of account of the assessee-company with reference to its alleged public issue in fact does not represent share consideration received by the alleged shareholders because either they did not exist at all or they were persons of no means to invest in the share of the assessee in such large numbers and amounts. Therefore, he concluded that the explanation of the assessee was not at all satisfactory. He also found out certain stage features to note from the perusal of share application money received by the assessee. He found that some of the shareholders had purchased drafts or cheques from Bank for remitting the share application money in consecutive numbers, even though they were living in different places and stations as evident from the chart in which 13 instances were quoted containing names, shares purchased, value as well as D.D. No. obtained from different banks bearing consecutive numbers. All of them are mentioned in para 9 of the A.O.'s order. After collecting the said data, he held that it was highly impossible that people living in different places and different loc....
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....mpany for transfer, the details have also been furnished about the persons who lodged the transfer forms with the appellant-company and the names of the transferees. The Assessing Officer has not made any enquiries from those brokers or other persons through whom the share transfer forms were lodged or the new transferees to the shares. The Assessing Officer did not provide opportunity to the appellant to cross-examine those persons who denied having made investment in this company, though such cross-examination was asked for. Similarly, the Assessing Officer has not given any cogent reason for adding the share subscription amount of those persons who admitted having purchased the shares in this company." Accordingly, the CIT(A) held that justification for addition has not been made out in the case at least with regard to those persons who admitted having invested. He held that the addition made by the Assessing Officer to this extent was therefore not justified. For the reasoning given by him in para 6 of his order, the learned CIT(A), however, found justification to sustain an addition of ₹ 2,19,500 under section 68 of the Income-tax Act. The reasons given for sustain....
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....to the paper book and its contents would be made in this order as and when it is felt necessary. The first question which is argued by Shri Y.P. Trivedi, the learned advocate for the assessee was that the re-assessment is bad in law and there are no grounds for reopening, since full and true particulars of share investments by several shareholders were furnished to the ITO even at the time of original assessment which culminated in the assessment order dated 25-6-1983. About two years after the original assessment was completed, notice under section 148 was issued on 2-1-1985 and the assessment was reopened on 2-1-1985. In para 2 of the Assessing Officer's order in re-assessment proceedings, the Assessing Officer recorded that the assessee wanted to know the reasons for reopening his case under section 148(2). The Assessing Officer relied upon two Supreme Court decisions in S. Narayanappa's case (supra) and K.S. Rashid & Son's case (supra) for rejecting the request made by the assessee and holding that there was no obligation on the part of the Assessing Officer to furnish reasons for reopening to the assessee. In S. Narayanappa's case (supra), the following is what is held by the ....
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....presentative in fact agreed to furnish the reasons and ultimately failed to file the same and failed to show it to the Tribunal. The only place where a semblence of reasons for reopening were found was at para 3 in the reassessment proceedings by the Assessing Officer. After giving out the list of 20 persons to whom questionnaire was said to have been sent on sample selection basis, he held the following : "The investigation in the assessee's group concerned M/s. Shree Salaskar Investment Co. Ltd. has given rise to the belief that the shareholders may not be genuine one. Since questionnaires mailed have come back unserved considering other facts of this case, it was found necessary to reopen the case as the assessee has not disclosed fully and truly all material facts necessary for the assessment for assessment year 1982-83." Further, when we have asked a specific question to the learned departmental representative as to whether the reasons recorded were available in the file and, if so, whether he can make us available the file whereunder the reasons were recorded, the learned departmental representative stated that files were shifted four or five times and copy of th....
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....as found necessary to reopen the case as the assessee has not disclosed fully and truly all material facts necessary for the assessment for the assessment year 1982-83." In this respect, the relevant facts obtaining in this case are the following: After the issue of notice under section 148, the learned Chartered Accountants who represented the assessee before the Assessing Officer issued a letter dated 7-3-1987 a copy of which is furnished at pages 1 to 5 of the paper book. (Reference to paper book should always be taken to means as paper book filed by the assessee, since department did not file any paper book whatsoever). It was stated in the said letter that the original assessment was completed accepting the business loss of ₹ 2,22,311 by the 14th ITO, Com. Cir. III, Bombay by his order dated 25-6-1983. The notice of reopening was issued under section 148 on 2-1-1985. In pursuance of the said notice, the return was filed on 8-2-1985 under protest. In para No. 1 itself, the assessee requested to let them know the reasons recorded by the ITO for reopening the assessment. It is stated that the Registrar of Companies registered the assessee-company on 24-10-1980 and the....
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....rom the postal authorities, was also enclosed to the reply under reference. The company was registered in the Bombay Stock Exchange as well as Delhi Stock Exchange on 16-12-1981 and 22-12-1981 and the said listing letters were enclosed to the reply under reference. Answering to the allegation made in the letter dated 16-1-1987 issued to the assessee that summons issued to 70 shareholders were returned unserved, it was stated in reply that they have written a letter to HBF on 29-1-1987 requiring them to find out the change of addresses of the shareholders for which they received a reply dated 9-2-1987 from HBF stating that some of the shareholders have changed their addresses and they have also enclosed list of 15 shareholders in whose case there was a change of address. Copy of letter dated 9-2-1987 addressed to the assessee-company by HBF was also sent along with the reply under reference. In para 4 of the reply, the assessee intimated that in certain other cases also management could get changes of some shareholders and list of such shareholders was also enclosed to the reply under reference. In the letter addressed to the assessee, it was intimated that 5 persons had denied to h....
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.... an assessee and his assessment was duly completed. In the facts of this case, it was held that the ITO could have easily found out why interest was not disclosed at the time of assessment. The Bombay High Court held that failure to do so would not entitle him to reopen the proceedings and notices for reopening u/s 147 read with 148 was held to be invalid. In Madnani Engg. Works Ltd.'s case (supra) the facts and decision of the Hon'ble Supreme Court are set out in the Head Note of the decision at pages 1 & 2 and they are extracted as under : "In the original assessment of the respondent for the assessment year 1959-60 completed on August 23, 1960, certain interest paid by it to creditors from whom it claimed to have borrowed monies on hundis was allowed as deductible expenditure. Subsequently on January 25, 1968, i.e. after a lapse of four years from the end of the assessment year, a notice was issued by the ITO to reopen the assessment of the respondent on the ground that the transactions of loan represented by the hundis were bogus and no interest was paid by the respondent to any of the creditors and interest was wrongly allowed. The respondent challenged the validity of ....
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....he basis of which the court could be satisfied on the affidavit that he had reason to believe that a part of the income of the respondent had escaped assessment by reason of its failure to make a true and full disclosure of the material facts. (iv) That, therefore, the notice of reassessment was void." 13. The latest decision of the Hon'ble Supreme Court on the question of validity of reopening which contain an exhaustive exposition of law on the subject is found to have been considered in the case of Phool Chand Bajrang Lal (supra). Their Lordships held, after exhaustive analysis of the facts of CIT v. Burlop Dealers Ltd. (1971) 79 ITR 609(SC), that ratio of that decision rendered in that case should be confined only to the fact situation in that case and cannot be construed to be of universal application irrespective of the facts and circumstances of the particular case. Before their Lordships in Phool Chand Bajrang Lal's case (supra), it was argued on behalf of the assessee that Burlop Dealers Ltd.'s case (supra) should be considered to be an authority that if the assessee had made a disclosure of all primary facts and when those facts were furnished to the I.T.O. during....
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....f the original assessment on the basis of the material placed before him by the assessee relating to the loan from Calcutta company and which he failed to draw at that time. Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of the original assessment is different from drawing a fresh inference from the same facts and material which were available with the ITO at the time of the original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings cannot be said to be a disclosure of the "true" and "full" facts in the case and the ITO would have the jurisdiction to reopen the concluded assessment in such a case." In this connection, their Lordships of the Hon'ble Supreme Court approved an earlier Supreme Court decision in CIT v. T.S.PL.P. Chidambaram Chettiar (1971) 80 ITR 467and had also approved and followed ....
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....vestigation, whether the transaction was genuine or not if, on the basis of the subsequent information, the ITO arrives at a conclusion after satisfying the twin conditions prescribed in section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and, therefore, income chargeable to the tax had escaped assessment. The High Courts which have interpreted Burlop Dealers' case (1971) 79 ITR 609(SC) as laying down the law to the contrary fell into an error and did not appreciate the import of that judgment correctly." 14. From the above, two things are clear. Firstly, reasons for reopening must be recorded. The reasons may not be supplied to the assessee and simply because they are not supplied to the assessee, reopening does not become bad. But at the same time, the reasons for reopening must be recorded and must be available in the record and the reasons thus recorded should have a live link with the reopened assessment and the additions made in the reopened assessment. The second important fea- ture which emerges from out of the Supreme Court decision is that though sufficiency of reasons for form....
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....ney was received by the Bankers, i.e., Punjab National Bank and Canara Bank, but none of the shareholders were examined or their statements recorded. Further, the issue was oversubscribed and subscription for the issue of 206950 shares was received as against 170000 shares and in fact the basis of allotment was not approved by the Bombay Stock Exchange. All the primary material about the allotment letters, postal acknowledgements of having posted allotment letters to the shareholders, share certificates despatched to them and necessary postal receipts were all filed by the assessee before the Assessing Officer. For the first time the assessee closed its accounts on 30-11-1981 by which time postal receipts of having despatched the share certificates were not completely received by the Managers M/s. HBF because, according to the reply dated 7-3-1987 already adverted to above, it is only on 24-12-1981 postal receipts were received in evidence of sending share certificates to the various shareholders. The company is a public limited company and a listed company. The business of the assessee was that of investment and trading in shares by way of speculation and ready shares. Therefore, ....
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....of the company. The Tribunal noted the fact that there had been no change in the shareholders register on account of any transfer. The Tribunal also noted that it would be impossible for the assessee to satisfy itself by making enquiries at the stage of receiving applications whether the applicants were genuine investors. The subscription to the issue was started by the applications from the members of the public and these applications were all available with the assessee and these applications which gave the names and address of the applicants were also furnished to the Assessing Officer. The assessee-company was incorporated on 6-2-1981 and it commenced its business sometime in the month of April, 1981. Soon thereafter it made a public issue. It was difficult to hold that the assessee-company could have in this short period earned profits to the extent of ₹ 4,40,000. In fact in this case also, the facts are similar. On sample selection basis, the Assessing Officer sent questionnaires to 20 persons. They were all returned unserved by postal authorities. 212 shareholders holding among themselves 120390 shares were served with summons along with questionnaire asking them to co....
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....orms, the amount of moneys deposited in the bank, their share certificates, their names entering in the books of shareholding of the assessee-company, etc.? The only suspicious circumstance which weighed with the Revenue was that some of the shareholders sold them away at heavy loss at ₹ 2.50 to ₹ 3.50 per share and most of those shares were purchased by Shri R.K. Mansingka and his family members and associate concerns. From this, it is concluded that it was not a genuine public issue. After having considered the whole facts of the case and the bulky evidences on record, we are unable to hold that the Assessing Officer has obtained unimpeachable evidence which would conclusively prove that subscription to shares was only bogus and stage-managed by Mansingka group. Therefore, in our opinion, it is rightly contended by Shri Trivedi, the learned counsel for the assessee that the Assessing Officer had in fact not believed and that the belief which he had entertained was not at all a bona fide one. Further, he also argued that the belief was based on vague, irrelevant and non-specific information and therefore, reopening and the addition made thereunder should not be upheld ....