TaxTMI 
TaxTMI 
2003 (7) TMI 257
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....es have been allotted through private placement. Copy of share application forms submitted to the assessee company in respect of private placement quota are also included in this paper book. 3. Briefly stated the facts are that the assessee company was incorporated under the Companies Act on 27-11-1991 as per the certificate of incorporation placed at page 1 of the paper book I. The Assistant Registrar of Companies has issued the certificate for commencement of business on 2-12-1991. The Company commenced commercial production of cement from 27-2-1992 with the installed capacity of 35 tons per day. Assessment year 1992-93 is thus the first year of commercial production. The authorized share capital of the assessee company is Rs. 5 crores divided into 50 lakh shares of Rs. 10 each. The company has been allowed allotment of 9.90 lakhs of shares by private placement and the balance shares have been offered to the public. The assessee company received contribution through private placement in the promoters quota Rs. 98,99,300 from 373 applicants. During assessment proceedings the Assessing Officer called upon the assessee to produce the persons to whom preferential share allotment has....
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.... brokerage of M/s. Rajyaguru & Associates whose business premises were situated at 18, Semi Basement, Paradise Complex, Sayajigunj, Baroda. The CIT(A) forwarded the documents and papers filed by the assessee in the two paper books to the Assessing Officer for comments. The Assessing Officer forwarded her comments on 12-7-1995 which have been considered by the CIT(A) while deleting the impugned addition. The CIT(A) held that the assessee has duly furnished the evidence in support of genuineness of the share application money received from the allottees of the preferential quota and the impugned addition made by the Assessing Officer cannot be sustained. With regard to the evidence filed by the assessee at the appellate stage, the CIT(A) observed vide para 3.9 of the appellate order that even if share application forms of the allottees are being filed at the appellate stage for the first time yet the assessee has duly furnished full information regarding the allotment of shares at the assessment stage. The CIT(A) further observed that the Assessing Officer has not made any adverse comments in her written submissions dated 12-7-1995 regarding the evidence filed by the assessee at the ....
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....of the share application forms received from the 373 allottees which cannot be considered as additional evidence inasmuch as the entire information had earlier been furnished at the assessment stage. The ld. counsel further submitted that the CIT(A) has duly taken note of Rule 46A of I.T. Rules 1962 and also referred to the fact that no adverse comments have been made by the Assessing Officer in her written submissions dated 12-7-1995 before the CIT(A). Shri Patel further referred to the decision of Gujarat High Court in the case of Pari Mangaldas Girdhardas v. CIT [1977] CTR (Guj.) 647 wherein the High Court has considered at length the basis criteria for admission of additional evidence by the Tribunal under Rule 29 of Income Tax Appellate Tribunal Rules 1963. According to the ld. counsel the discretion given to the appellate authority to receive and admit additional evidence is a judicial one and such evidence may be allowed in the interest of justice. The ld. counsel submitted that there is no infirmity in the impugned order of the CIT(A) in considering the share application forms filed by the assessee. Regarding the enquiries made by the Assessing Officer the ld. counsel made ....
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....placed on the following decisions: 1. Dy. CIT v. Core Healthcare Ltd. [2001] 251 ITR 61 (Guj.). 2. CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570 (SC). 3. CIT v. Ramanathapuram Distt. Co-op. Central Bank Ltd. [2002] 255 ITR 423 (SC). 4. CIT v. Lanco Industries Ltd. [2000] 242 ITR 357 (AP). 8. We have given our thoughtful consideration to the rival contentions and also gone through the facts and material on record. In our considered opinion the finding reached by the ld. CIT(A) and the reasoning adopted in support thereof are entirely well conceived and no interference on our part is called for. The very first objection raised by the revenue against entertainment of additional evidence by the CIT(A) lacks substance and is liable to be rejected. The ld. CIT(A) has duly considered the issue of admitting fresh evidence in the light of Rule 46A of I.T. Rules, 1962 and took note of the fact that the Assessing Officer in her written submissions dated 12-7-1995 did not make any adverse comments with regard to the evidence produced by the assessee company. We are inclined to agree with the ld. CIT(A) that the assessee had furnished full details regarding the share application money paid....
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....s have been allotted shares on the basis of share application forms submitted through Rajyaguru & Associates share broker. The said broker has been remunerated for the services rendered to the assessee firm. Once the basic fact is accepted that share application money has been received through Rajyaguru & Associates along with the share application forms, the Assessing Officer should have examined the share broker before jumping to the conclusion that the allottees are not available at the said address. We find that there is not even a whisper of any enquiry made by the Assessing Officer from the said broker regarding the identity or whereabouts of the applicants who have made applications along with the share application money for allotment of shares out of preferential quota. Without making any enquiries from the broker the Assessing Officer has proceeded to treat the investment as undisclosed income of the assessee company. If the investment belongs to the assessee company, there was no occasion for the Assessing Officer to allow deduction for under writing commission or brokerage to M/s. Rajyaguru & Associates through whom the said investment in shares has apparently been made.....
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.... of section 68. Regarding the contention of the Assessing Officer that share certificates have not been produced, we feel that such a requirement has no nexus with the issue of onus under section 68. There are as many as 373 allottees spread all over the country and allotments have been made in conformity with the procedure laid down under the Companies Act. Share application forms submitted by the allottees are available on record. The assessee has furnished copy of return of allotment filed with the Registrar of Companies, Gujarat. The Assessing Officer has examined as many as 30 allottees who have confirmed the investment with regard to 20 allottees with the same address as 18, Semi Basement, Paradise Complex, Sayaji Gunj, Baroda it is amply established that M/s. Rajyaguru & Associates was the share broker who was the broker and under writer to the issue duly approved by the Baroda Stock Exchange and it was through this broker that share application money as well as share applications have been filed with the assessee company. The question of onus of proving the source and nature of credits has to be examined in the backdrop of facts and circumstances of the case keeping in view....
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.... none of the parties called for. The Assessing Officer finally conducted field enquiries and out of total of 373 allottees, 50 people were interrogated. Out of 50, 30 people have confirmed their investments. However, a total of 20 people could not be located at the address which was given to the Assessing Officer. All these 20 people have given the address of 18, Semi Basement, Paradise Complex, Sayajigunj, Baroda-390005 and the field enquiry revealed that no such person have ever resided or worked at such a premises. The present occupants of the address is unable to supply any details. The Assessing Officer accordingly concluded that address given against the name of 20 persons is bogus. The names of these 20 persons as given by the Assessing Officer in the assessment order are as under: - ------------------------------------------------------- Sr. Sr.No. Name of Investment No. list investor/holder ------------------------------------------------------- 1. 115 &nbs....
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....bsp; 10000 18. 132 J. Mehta 10000 19. 133 K. Mehta 10000 20. 134 A. Mehta 10000 ------------------------------------------------------- 3. In the assessment order Assessing Officer has also mentioned that it seems that aforesaid investments are benami as the company has not been able to prove the whereabouts of these investors. The Assessing Officer also observed that in the share application money account, all these receipts are in cash on the same date i.e. 20-1-1992. 4. The Assessing Officer made the addition of Rs. 2,00,000 observing as under:- "In the case of CIT v. Sophia Finance Ltd., Delhi Full Bench, it has been held that it is the responsibility of the assessee company to establish the identity of the investors. Till the establishment of the....
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....y of additional evidence, submitted that share application forms were not produced for the purpose of examination during the course of assessment proceedings. The Assessing Officer also pointed out that some of the application forms does not carry any signature of the applicant. The ld. CIT(A) deleted the addition of Rs. 59,56,000 (including addition of Rs. 2,00,000) for the reasons given in 3.48 & 3.52 in the impugned order which is reproduced as under:- "3.48. I have verified the original application form as well as the copies and find that all the application forms that have been submitted before me carry the signature of the applicants. Therefore, the observation of the Assessing Officer is incorrect. 3.49. The contents of the application form, as available in the details submitted with the Assessing Officer, are also found to be identical. The form in which the submissions were made before the Assessing Officer have also been filed before me. It is seen that material information contained in the share application forms were already submitted to the Assessing Officer. The Assessing Officer has pointed out some minor defects in the forms such as non-filing of some columns of t....
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....2 of the assessment order wherein Assessing Officer has stated that after repeated opportunity being given to the assessee company to produce the list of promoters quota throughout a period of 1 1/2 years, the promoters quota details were finally produced on 6-2-1995. The Assessing Officer was required to complete the assessment before 31st March, 1995. The assessee has furnished confirmation only in respect of Rs. 39,43,300. In respect of balance amount, confirmations were not filed. The Assessing Officer also made field enquiry and in respect of 20 persons the list of which has been given by Assessing Officer in the assessment order, found that even the address given against their names is bogus and they have no connection with the address given either in the past or in the present. In these circumstances, Assessing Officer is fully justified in relying on the decision of Hon'ble Delhi Full Bench in the case of Sophia Finance Ltd. The learned DR also drew our attention to the Full Bench decision in the case of Sophia Finance Ltd. wherein the Hon'ble High Court has taken the following view: "The Income-tax Officer would be entitled to enquire, and it would indeed be his d....
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....al admitting additional evidences. As per provisions contained in section 46A(4), looking to the nature of fresh evidences filed before the CIT(A), learned CIT(A) either remanded the matter back to the Assessing Officer or he should have conducted the enquiry himself to find out why the 20 persons who were not found residing at the address given in the application form. Similarly, in respect of additional evidences the learned CIT(A) should have directed the Assessing Officer to make further enquiry as required by section 68 and asked him to furnish the necessary report. During the hearing of appeal, the learned CIT(A) has never indicated to Assessing Officer that he has admitted the fresh evidences. The CIT(A) asked simply comments and Assessing Officer has objected that these fresh evidences and cannot be admitted and in spite of this he has not passed any order on admissibility of additional evidences as required by Rule 46A(4). The learned DR concluded that addition was correctly made by Assessing Officer under section 68 and learned CIT(A) is not justified in deleting the same. 11. The learned authorised representative appeared for the assessee supported the orders of authori....
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.... for consideration of Hon'ble Delhi High Court (Full Bench) in the case of Sophia Finance Ltd. The Full Bench decision, after re-considering the observations made in Steller Investment Ltd.'s case took the view that it is not correct to say that share capital of a company can never be assessed as undisclosed income of the assessee. The judgment of both these cases were considered by ITAT, Ahmedabad (Third Member) in the case of Cas Card Finance Ltd. v. Asstt. CIT [IT Appeal No. 201/A of 1997 dated 29-7-2002] & Others and it was held that if inquiry is made by the Assessing Officer regarding share application money and he is not satisfied that the true nature of share application money is of capital receipt, he can invoke section 68 of the I.T. Act. 15. In the present case, the assessee company has not furnished the confirmation before the Assessing Officer. The share application form furnished before the First Appellate Authority, as per Assessing Officer were incomplete because some of the application form does not carry any signature of the applicant. In the impugned order, learned CIT(A) is not clear about admissibility of the fresh evidences. On the one hand, he has st....
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....er on the facts and in the circumstances of the case, the Accountant Member is justified in deleting the impugned addition of Rs. 58,56,000 on account of investment of share capital OR whether Judicial Member is justified in setting aside the issue to the file of the Assessing Officer to fresh adjudication?" 2. The assessee company was incorporated as a limited company under the Companies Act on 27-11-1991. Out of the total authorised capital of Rs. 5 crores it had issued, subscribed and paid up capital of Rs. 99 lakhs during the year under consideration. This consisted of 9,90,000 equity shares of Rs. 10 each. 70 shares were issued and subscribed by the 7 promoters aggregating to Rs. 700 and the balance of Rs. 98,99,300 was the contribution received through private placement in the promoters quota by 373 applicants. The company is engaged in manufacture of cement with an installed capacity of 35 tons per day and the commercial production commenced from 27-2-1992. The Assessing Officer required the assessee to produce the list of promoters quota which was filed by the assessee after a period of 1 1/2 years on 6-2-1995. The Assessing Officer thereafter asked the assessee to produce....
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....of the applicants and, therefore, the observation of the Assessing Officer was incorrect; (ii) that material information contained in the share application forms were already submitted to the Assessing Officer and the Assessing Officer had pointed out some minor defects in the forms such as non-filing of some columns of the application forms which were really not significant and that it was mere change in the form submission which does not alter the substance of the contents and, accordingly, the Assessing Officer's contention about the admissibility of additional evidence did not carry any weight; (iii) that no adverse comments have been provided with regard to the evidence furnished before the Assessing Officer; and (iv) that in absence of any proof against the assessee's version, the Assessing Officer should not have rejected the claim of the assessee that the amounts received were the share application money and in this connection, he placed reliance on the decision in the case of Valimohmed Ahmedbhai. On the basis of the aforesaid, he held that the entire share application money for which allotment was completed were share capital of the assessee company and cannot be ....
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....d by the assessee before the CIT(A) for the first time and, therefore, the CIT(A) was not justified in observing that they were not in the nature of additional evidence and that the material information contained in the shape application forms were already submitted to the Assessing Officer and that it was a mere change in the form of submission which did not alter the substance of the contents and consequently, the Assessing Officer's contention about the admissibility of additional evidence does not carry any weight. It may be noted that Rule 46A of the Income-tax Rules empowers the CIT(A) to admit the additional evidence but it is subject to a condition provided in sub-rule (3) which states that the CIT(A) shall not take into consideration any evidence produced under sub-rule (1) unless the Assessing Officer has been allowed a reasonable opportunity - (a) to examine the evidence or document or to cross examine the witness produced by the assessee; or (b) to produce any evidence or document or evidence in rebuttal to the evidence produced by the assessee. In any case, the evidence submitted by the assessee before the CIT(A) in the shape of the application forms submitted by t....
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.... up capital of Rs. 99 lakhs which was subscribed by the private placement from the promoters quota. He submitted that list of the 20 persons along with the photocopy of the application forms for promoters (for private circulation) were submitted to the Assessing Officer. He then referred to the prospectus for the issue open on 12th October, 1992 i.e. in the subsequent year which incorporates the fact that equity shares already allotted and to be allotted to the promoters, etc. shall not be sold/ hypothecated/transferred for at least three years from the date of allotment, that out of Rs. 99 lakhs paid up capital Rs. 700 has been subscribed by promoter signatories to the Memorandum of Association and the balance Rs. 98,99,300 was placed for private circulation as promoters quota, that out of the aforesaid confirmation letters have been filed by the assessee with respect to the sum of Rs. 39,43,300 and thus, there was a balance of Rs. 59,56,000 which was added by the Assessing Officer to the income of the assessee which included the confirmation of Rs. 3 lakhs by the 30 out of 50 allottees from whom the Assessing Officer has made direct enquiries and who have confirmed the making of ....
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....h the CIT(A) on all counts and also by observing that private placement was through broker M/s. Rajyaguru & Associates whose address was given by all the said 20 persons who did not appear before the Assessing Officer, and having not examined the broker the Assessing Officer was not justified in making the addition. The judicial Member however, held that the material was not given to the Assessing Officer and it was new evidence that the forms was not authenticated one, confirmation was not filed and their genuineness of sources was not proved. 10. In my view, it is a fit case for further verification - firstly only the details giving address and amount invested by all 373 allottees was given to the Assessing Officer; secondly though copies of 20 persons' forms of application was given but I find some of which as rightly observed by the Assessing Officer carry no signature. To cite: S.No. 561 Shri Mukesh Patel, S.No. 507 Shri O. Mehta, S.No. 452 Shri Chandrakant Patel and S.No. 396 Shri A. Mehta. The CIT(A), it is evident, wrongly assumed that all the forms were signed; thirdly that it was a case of private placement by promoters which has to be from their friends and relative....
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....e regarded as undisclosed income of the company" have not been approved by the Full Bench decision in the case of Sophia Finance Ltd. even though the Full Bench agreed that if the shareholders are identified and it is established that they invested money in purchase of shares, then the amount received by the assessee would be regarded as a capital receipt and to that extent the observations in Steller Investment Ltd's case were correct. The Full Bench of Delhi High Court also held that under section 68 of the Income-tax Act, 1961 the Income-tax Officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of the assessee and it is immaterial as to whether the amount was credited is given the colour of a loan or a sum representing sale proceeds or even receipt of share application money. In the opinion of Their Lordships, the use of the words "any sum found credited in the books" in section 68 indicates that the section is very widely worded and the Income-tax Officer is not precluded from making an enquiry as to the true nature of the source of a sum credited in the account books even if it is credited as share applica....
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....t the source of investment as income of the assessee and the said discretion has to be exercised keeping in view the facts and circumstances of a particular case. Similar are the observations of Bombay High Court in the case of Belenje Investment & Trading Co. in connection with rejecting an application under section 256(2) of the Act. In that case, the share capital was subscribed by the shareholders pursuant to the public issue and the Tribunal observed 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 or not. The assessee has given the names and addresses of the applicants to the Assessing Officer. The Tribunal also noted that the assessee company was incorporated only on 6th February, 1991 and had commenced its business in the month of April, 1991. Soon thereafter, it made a public issue and in these circumstances, it was found to be difficult to hold that the assessee company could have in this short period earned profits to that extent. Here in the present case, the share capital is not received by the assessee pursuant to the public issue. It was a private pl....