2011 (12) TMI 316 - HC - Income Tax

A sum to be treated as income of the assessee under Section 68 of the Income Tax Act, pursuant to search had been detected in a search and the assessee had not established the source of the said sum by producing positive evidence? Held that - M.S.I.L. assessee had written a letter to the Assessing Officer that it has subscribed to the additional share capital - the Department is not making available to the Court the documents that are seized during search in the present case - unexplained share capital contribution even if not genuine cannot be treated as undisclosed income (CIT v. Steller Investments Ltd., 2000 (7) TMI 76 - SUPREME Court )- Appeal was dismissed.

Summary

Issues:

1. Whether the Appellate Authorities were right in holding that a sum of Rs. 3,84,88,500/- treated as income of the assessee under Section 68 of the Income Tax Act, pursuant to search had been detected in a search and the assessee had not established the source of the said sum by producing positive evidence?
2. Whether the Appellate Authorities were right in holding that the judgment of the Apex Court in the case of CIT v. Steller Investments Ltd., reported in 251 ITR 263 is applicable to the facts of the case?

Issue 1:

The appeal was filed by the revenue against the order of the Income Tax Appellate Tribunal, where the revenue's appeal was dismissed. The case involved a search in the premises of the respondent-assessee leading to block assessment proceedings under Chapter XIV-B of the Income Tax Act. The Assessing Officer held that the share capital contribution for certain assessment years was unexplained income under Section 68 of the Act. The Commissioner of Income Tax (Appeals) partially allowed the appeal, citing the decision of the Supreme Court in CIT v. Steller Investments Ltd. The Tribunal upheld the Appellate Authority's decision, considering the Settlement Commissioner's order and the letter from M.S.I.L. confirming the share capital contribution. The High Court affirmed the Tribunal's decision, stating that even if the share capital was not genuine, it could not be treated as undisclosed income under Section 68, based on legal precedents. The Court found in favor of the assessee, dismissing the appeal by the revenue.

Issue 2:

The learned counsel for the revenue argued that the Appellate Authority erred in relying on the Steller Investments Ltd. case, claiming that the circumstances were different. They contended that the Assessing Officer correctly treated the unexplained share capital as undisclosed income. On the other hand, the respondent's counsel argued that M.S.I.L. had provided a letter confirming the share capital contribution, which the Assessing Officer should have considered. They cited the Steller Investments Ltd. case and a Division Bench decision in Ask Brothers Ltd., emphasizing that even if the share capital was not genuine, it could not be treated as undisclosed income. The High Court analyzed the arguments, noting the absence of seized documents and the acceptance of the share capital contribution by M.S.I.L. and the Settlement Commissioner. Relying on legal precedents, the Court upheld the Tribunal's decision, ruling against the revenue and in favor of the assessee, dismissing the appeal.

This comprehensive analysis of the judgment highlights the key legal issues, arguments presented by both parties, the application of relevant legal precedents, and the final decision of the High Court in dismissing the appeal filed by the revenue.