1998 (7) TMI 719 - HC - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 38,65,000 to share subscription money.
2. Ad hoc disallowance of Rs. 50,000 out of various expenses.
3. Levy of interest under section 217 of the Income Tax Act, 1961.

Detailed Analysis:

1. Addition of Rs. 38,65,000 to Share Subscription Money:

The assessed company contested the addition of Rs. 38,65,000 out of the total Rs. 50,00,000 received from shareholders during a rights issue. The Commissioner (Appeals) upheld this addition, citing the absence of confirmations from the concerned shareholders in the assessment record, despite the assessing officer's remand report indicating that confirmations were received. The appellant argued that the Commissioner (Appeals) failed to make further inquiries and did not confront the appellant with the remand report, violating principles of natural justice.

The company was incorporated in 1983 with an authorized capital of Rs. 25 lakh. It later issued a rights issue of Rs. 50 lakh, receiving subscriptions from 12 shareholders. The assessment for the year 1986-87 was completed ex parte under section 144 due to non-compliance with notices. The assessing officer included the entire share capital of Rs. 50 lakh as income from undisclosed sources, citing lack of confirmations. The Commissioner (Appeals) directed verification, and the assessing officer confirmed receipt of confirmations in a remand report. However, the Commissioner (Appeals) found only three confirmations in the assessment records and upheld the addition for the remaining amount.

The appellant argued that the rights issue was compliant with company law and stock exchange regulations, and the share subscriptions were received through account payee cheques/drafts. The appellant cited the case of CIT v. Orissa Corpn. Ltd. [1986]159ITR78(SC), arguing that the burden of proof was discharged by providing names, addresses, and assessment particulars of the shareholders. The appellant also referenced CIT v. Sophia Finance Ltd. (1995) 205 ITR 98, asserting that the amount received should be regarded as a capital receipt if shareholders are identified.

The court noted that the burden of proving the identity of the shareholders and the genuineness of the share capital lies with the assessed. The Commissioner (Appeals) should have provided the appellant with the remand reports and allowed inspection of the assessment records. The matter was remanded to the Commissioner (Appeals) for fresh consideration, allowing the appellant to furnish evidence and directing the assessing officer to issue summons if necessary.

2. Ad Hoc Disallowance of Rs. 50,000 Out of Various Expenses:

The assessed contended that the Commissioner (Appeals) did not adjudicate on the ad hoc disallowance of Rs. 50,000 out of various expenses. The learned counsel argued that this point was raised in the statement of facts and covered by general ground No. 2. The court found that the Commissioner (Appeals) did not render a decision on this point. The matter was remanded to the Commissioner (Appeals) for a fresh decision in accordance with the law, after allowing both sides an opportunity to be heard.

3. Levy of Interest Under Section 217 of the Income Tax Act, 1961:

The assessed challenged the levy of interest under section 217. The court remanded this matter to the Commissioner (Appeals) for a decision in accordance with the law, after hearing both sides.

Conclusion:

The appeal was partly allowed for statistical purposes. The matters concerning the addition of Rs. 38,65,000, the ad hoc disallowance of Rs. 50,000, and the levy of interest under section 217 were remanded to the Commissioner (Appeals) for fresh consideration, with directions to provide the appellant with necessary documents and opportunities for inspection and hearing.