1999 (8) TMI 108 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 19,00,500 as alleged profit from shares allotted in a public issue.
2. Addition of Rs. 2,92,274 as interest on term deposits.
3. Charging of interest under sections 234A, 234B, and 234C.
4. Initiation of penalty proceedings under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Addition of Rs. 19,00,500 as Alleged Profit from Shares Allotted in a Public Issue:

The assessee challenged the addition of Rs. 19,00,500, which was the profit made by Videocon International Ltd. (VIL) and Videocon Appliances Ltd. (VAL) from shares allotted to the assessee in public issues. The Assessing Officer (AO) contended that the profit belonged to the assessee and not VIL/VAL, citing violations of the Benami Transactions (Prohibition) Act, Securities Contracts (Regulation) Act, and Companies Act. The AO argued that the transactions were colorable devices to avoid tax, invoking the Supreme Court decision in McDowell & Co. Ltd. vs. CTO.

The assessee argued that the funds for acquiring the shares were provided by VIL/VAL, and the shares were transferred to them at cost, making the transactions legitimate. The assessee contended that the Benami Transactions (Prohibition) Act did not apply as there was no transfer of existing property. They also argued that the Securities Contracts (Regulation) Act did not apply as the shares were not listed at the time of the agreements. Additionally, the assessee claimed that section 187C of the Companies Act was not violated as the shares were transferred immediately, leaving no occasion to file a declaration.

The Tribunal found that the agreements between the assessee and VIL/VAL were legitimate and that the profits belonged to VIL/VAL. It held that the provisions of the Benami Transactions (Prohibition) Act and Securities Contracts (Regulation) Act were not applicable. The Tribunal concluded that the transactions were not colorable devices for tax avoidance and directed the deletion of the addition of Rs. 19,00,500.

2. Addition of Rs. 2,92,274 as Interest on Term Deposits:

The AO added Rs. 2,92,274 as accrued interest on term deposits, arguing that the assessee, following the mercantile system of accounting, should have accounted for the interest on an accrual basis. The assessee contended that interest was not accounted for as the term deposits could be broken before maturity, resulting in no interest.

The Tribunal upheld the AO's decision, stating that income must be accounted for on an accrual basis, and the computation of Rs. 2,92,274 was based on the assessee's own working. Therefore, the addition was justified.

3. Charging of Interest under Sections 234A, 234B, and 234C:

The assessee did not advance specific arguments regarding the charging of interest under sections 234A, 234B, and 234C. The Tribunal dismissed these grounds as not pressed and noted that they did not arise from the CIT(A)'s order.

4. Initiation of Penalty Proceedings under Section 271(1)(c):

The assessee's objection to the initiation of penalty proceedings under section 271(1)(c) was dismissed as premature and not arising from the CIT(A)'s order.

Conclusion:

The appeal was partly allowed. The Tribunal directed the deletion of the addition of Rs. 19,00,500 but upheld the addition of Rs. 2,92,274 as interest on term deposits. The objections regarding interest under sections 234A, 234B, and 234C, and the initiation of penalty proceedings under section 271(1)(c) were dismissed.