2004 (1) TMI 41 - HC - Income Tax

Whether the Tribunal was right in coming to the conclusion that the provisions of section 263, had not been rightly invoked by Commissioner? - increased share capital undisclosed income allegation of bogus shareholders - If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself - Assessing Officer did not make any enquiries with regard to the genuineness of the subscribers to the share capital - Tribunal came to a conclusion on facts and no interference is called for Revenue appeal dismissed

Summary

Issues:
1. Interpretation of section 263 of the Income-tax Act, 1961.
2. Validity of the Commissioner of Income-tax's order.
3. Applicability of the decision in the case of Steller Investment Ltd.
4. Challenge of the decision before the Supreme Court.

Interpretation of section 263 of the Income-tax Act, 1961:
The case involved a reference under section 256(2) of the Income-tax Act, 1961, for the assessment year 1982-83 regarding the invocation of section 263. The Assessing Officer completed the assessment under section 143(3) after inquiries. The company's capital, share application money, and certain expenditures were scrutinized. The Commissioner of Income-tax set aside the Assessing Officer's order, directing further examination. The Tribunal, following a previous decision, allowed the assessee's appeal, leading to a reference to the High Court under section 256(2).

Validity of the Commissioner of Income-tax's order:
The Commissioner's order was challenged by the assessee through an appeal, which was allowed by the Tribunal based on a decision in a similar case involving Steller Investment Ltd. The Tribunal's decision was influenced by the principle that even if subscribers to increased share capital were not genuine, such amounts could not be treated as undisclosed income of the assessee. The Division Bench dismissed the petition, emphasizing that no question of law arose. The Supreme Court later upheld the High Court's decision against the Revenue, concluding that the Tribunal's factual findings did not warrant interference.

Applicability of the decision in the case of Steller Investment Ltd.:
The Tribunal's decision in the present case was influenced by the judgment in the Steller Investment Ltd. case, where the Commissioner's revision was set aside due to lack of inquiries into the genuineness of share subscribers. The Division Bench stressed that increased share capital cannot be assessed as the company's undisclosed income, even if some subscribers were found to be bogus. This principle guided the Tribunal's decision in the current case.

Challenge of the decision before the Supreme Court:
The Revenue challenged the Steller Investment Ltd. case before the Supreme Court, which upheld the High Court's decision. The Supreme Court concurred with the Tribunal's factual conclusions and dismissed the appeal, stating that no interference was necessary. Consequently, the High Court in the present case did not address the question framed, disposing of the reference in line with the Supreme Court's ruling.