2008 (11) TMI 681 - AT - Income Tax

Block assessment order passed u/s 158BC - Bogus share capital unexplained cash credits u/s 68 or not - increase in share capital - deletion of levy of surcharge - It is noticed that the Revenue has not been able to specifically show that the investments had emanated from the coffers of the assessee in this case. Undisclosed Share Capital - HELD THAT - The decision of the Hon ble jurisdictional High Court in Value Capital Services Ltd. 2008 (4) TMI 263 - DELHI HIGH COURT as also Hon ble Supreme Court in Divine Leasing Finance Ltd. 2008 (1) TMI 927 - SC ORDER , wherein the addition made by the AO and confirmed by the CIT(A) in regard to the alleged bogus shareholders represented by the increase in share capital of the assessee cannot be treated as unexplained cash credits in the hands of the assessee. Respectfully following the decision of the Hon ble Supreme Court we direct the AO to delete the addition made u/s. 68. However, the Department is free to proceed to reopen the individual assessments of the share applicants in accordance with law. We direct accordingly. Deleting the levy of surcharge - HELD THAT - In view of the decision of Hon ble Supreme Court in the case of CIT vs. Suresh N. Gupta 2008 (1) TMI 396 - SUPREME COURT held that proviso to s. 113 inserted by the Finance Act, 2002 w.e.f. 1st June, 2002 is clarificatory in nature, we confirm the action of AO and allow this ground in favour of assessee. In the result, both the appeals of the assessee and that of the Revenue are allowed in part.

Issues Involved:
1. Addition of Rs. 87,36,500 to the undisclosed income on account of alleged benami share capital.
2. Deletion of the addition of Rs. 21,50,000, Rs. 18,18,000, and Rs. 40,25,000 made by the assessing officer on account of benami share capital.
3. Deletion of the addition of Rs. 43,000 and Rs. 40,250 on account of premium paid for obtaining entries.
4. Deletion of the addition of Rs. 19,00,000 under Section 68 of the Income Tax Act.
5. Levy of surcharge on the tax payable found on the undisclosed income computed in block assessment.

Detailed Analysis:

1. Addition of Rs. 87,36,500 to the undisclosed income on account of alleged benami share capital:
The learned Commissioner (Appeals) upheld the addition of Rs. 87,36,500 to the undisclosed income of the appellant company on account of alleged benami share capital. The appellant argued that the share capital was fully disclosed in the regularly filed balance sheets and income tax returns, and the identity, creditworthiness, and genuineness of the subscriber were fully established. The Commissioner (Appeals) drew adverse inferences based on documents found showing the proposal to take over CVL by various family members, which the appellant contended was incorrect.

2. Deletion of the addition of Rs. 21,50,000, Rs. 18,18,000, and Rs. 40,25,000 made by the assessing officer on account of benami share capital:
The Commissioner (Appeals) deleted the additions made by the assessing officer on account of benami share capital subscribed by companies controlled by Shri Rajender Aggarwal. The assessing officer made these additions based on documents seized during the search operation. The Tribunal referred to the Supreme Court's decision in the case of Divine Leasing & Finance Ltd., which held that if the share application money is received from alleged bogus shareholders whose names are given to the assessing officer, the department is free to reopen their individual assessments. The Tribunal directed the assessing officer to delete the addition made under Section 68, following the Supreme Court's decision.

3. Deletion of the addition of Rs. 43,000 and Rs. 40,250 on account of premium paid for obtaining entries:
The Commissioner (Appeals) deleted the additions of Rs. 43,000 and Rs. 40,250 made by the assessing officer on account of premium paid for obtaining entries. The Tribunal found that the identity of the share applicants was not in dispute and followed the Supreme Court's decision, directing the assessing officer to delete the addition made under Section 68.

4. Deletion of the addition of Rs. 19,00,000 under Section 68 of the Income Tax Act:
The Commissioner (Appeals) deleted the addition of Rs. 19,00,000 made by the assessing officer under Section 68. The Tribunal referred to the Supreme Court's decision, which held that the addition in regard to the share capital cannot be treated as the undisclosed income of the assessee if the share application money is received from alleged bogus shareholders whose names are given to the assessing officer. The Tribunal directed the assessing officer to delete the addition made under Section 68.

5. Levy of surcharge on the tax payable found on the undisclosed income computed in block assessment:
The Commissioner (Appeals) deleted the levy of surcharge, but the Tribunal confirmed the action of the assessing officer based on the Supreme Court's decision in the case of CIT v. Suresh N. Gupta, which held that the proviso to Section 113 inserted by the Finance Act, 2002 with effect from 1-6-2002 is clarificatory in nature.

Conclusion:
The Tribunal allowed both the appeals of the assessee and the revenue in part, directing the assessing officer to delete the additions made under Section 68, while confirming the levy of surcharge on the tax payable found on the undisclosed income computed in block assessment. The Tribunal's decision was based on the Supreme Court's rulings, which emphasized that the revenue is free to reopen the individual assessments of the share applicants in accordance with law.

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