2006 (1) TMI 603 - HC - Income Tax

Applications for allotment of shares - camouflage transactions / accommodation entries - Whether, the Tribunal was justified in reversing the findings of the CIT(A), when the appellant has produced the books of accounts to show the application made by the assessee by different applicants for allotment of shares ? - HELD THAT - We notice that whenever a company invites applications for allotment of shares from different applicants, there is no procedure contemplated to find out the genuineness of the address or the genunity of the applicants before allotting the shares. If for any reasons the address given in the applications were to be incorrect or for any reasons if the said applicants have changed their residence or the notices sent by the assessing officer has not been received by such applicants, the assessee/company cannot be blamed. Therefore, we are of the view that the Tribunal was not justified in allowing the appeal of the revenue only relying upon the statement of Sri Anil Raj Mehta, a Chartered Accountant. It is also seen by us that he has opened a joint account with three applicants viz., Sri Radheshyam. Sri Ramesh N Bothra and Sri Jabbar Singh. At the First instance he has denied the connection with that of the 10 persons and later on when he was confronted with the introductory forms of the bank accounts of aforesaid persons, he has admitted that he had opened joint account with three persons and introduced remaining some of them to the bank while opening the accounts. From this it is clear that the Tribunal so also the assessing officer could not have relied upon the sworn statement of Sri Anil raj Mehta. Thus, we allow this appeal and set aside the order passed by the Tribunal as well as the assessing officer and confirmed the order passed by the CIT (A) by answering the question of law framed in favour of the assessee.

Summary

Issues:
1. Assessment of income based on share allotment transactions.
2. Burden of proof on the assessee regarding share allotment.
3. Justification of the Tribunal's decision in reversing the findings of the Commissioner of Income Tax (Appeals).

Analysis:
1. The assessee filed a return of income for a specific assessment year, declaring a total income. The assessing officer, during scrutiny, noted an increased amount in the balance sheet related to share allotment transactions. The assessing officer asked the assessee to prove the ownership of the amount, which the assessee failed to do. Consequently, the assessing officer treated the amount as the assessee's income, leading to an assessment order.

2. The assessee appealed to the Commissioner of Income Tax (Appeals), who allowed the appeal based on the information provided by the assessee regarding the applicants for share allotment. The Commissioner found that the amount did not belong to the assessee, especially after considering a statement from an individual related to the share applicants.

3. The revenue challenged the Commissioner's decision by appealing to the Income Tax Appellate Tribunal. The Tribunal reviewed the statement provided by the individual mentioned earlier and concluded that there was no connection between the individual and the assessee. Consequently, the Tribunal sided with the revenue, overturning the Commissioner's decision. The assessee then appealed this decision, questioning the Tribunal's justification for reversing the Commissioner's findings.

4. The High Court observed that the assessee had indeed invited applications for share allotment and had collected money for the same. The assessing officer's doubts about the genuineness of the transactions were based on the failure to produce correct addresses of the applicants. The Court emphasized that there is no prescribed procedure to verify applicant details before share allotment. It noted that discrepancies in addresses or non-receipt of notices should not solely implicate the company. The Court criticized the Tribunal's reliance on a specific statement and found it unjustified.

5. The Court examined a sworn statement provided by the individual in question and concluded that it was not entirely reliable. The individual's connection to certain persons was established, but the Tribunal's reliance on this statement was deemed inappropriate. The Court, therefore, allowed the appeal, setting aside the Tribunal's decision and confirming the Commissioner's findings in favor of the assessee.