2003 (8) TMI 186 - AT - Income Tax

Summary

Issues Involved:
1. Legality and validity of the block assessment order.
2. Jurisdiction and authority of the AO under sections 158BC/158BD.
3. Limitation period for issuing notice under section 158BC/158BD.
4. Principles of natural justice and fair play.
5. Taxation of share capital as undisclosed income.
6. Double taxation of the same income.
7. Evidence and identity of shareholders.
8. Charging of interest and penalty under section 158BFA.
9. Demand of tax and interest under section 158BFA.

Detailed Analysis:

1. Legality and Validity of the Block Assessment Order:
The assessee challenged the block assessment order dated 31st October 2001, arguing that it was illegal, void, inoperative, and barred by limitation. The appeal contested the determination of undisclosed income amounting to Rs. 2,27,15,000 under section 158BD of the IT Act, 1961.

2. Jurisdiction and Authority of the AO under Sections 158BC/158BD:
The assessee argued that the notice dated 12th October 2000, issued by the AO under sections 158BC/158BD, was without authority of law. The AO lacked jurisdiction because there was no satisfaction reached by the AO of Shri Alok Aggarwal, the person searched under section 132, against the appellant as "the other person" referred to in that section.

3. Limitation Period for Issuing Notice under Section 158BC/158BD:
The assessee contended that the notice under section 158BC/158BD was issued after the expiry of the period within which satisfaction was required to be reached by the AO of the person searched under section 132. No such satisfaction was reached against the appellant within the required period, rendering the notice and subsequent order void.

4. Principles of Natural Justice and Fair Play:
The assessee argued that the impugned order was vitiated and unsustainable in law, as it was passed in breach of principles of natural justice and fair play. The AO did not give any opportunity of advance hearing to the appellant before issuing the notice under section 158BC/158BD, thus denying the appellant a chance to rebut any material and explain its case.

5. Taxation of Share Capital as Undisclosed Income:
The AO taxed the entire paid-up share capital of the appellant company at Rs. 2,27,15,000 as its undisclosed income for the block period. The assessee contended that all such share capital stood disclosed to the Department prior to the date of the search on 19th April 1996. The AO's action was challenged on the grounds that the share capital had already been taxed in regular assessments, and the evidence showed the identity and creditworthiness of the shareholders.

6. Double Taxation of the Same Income:
The assessee argued that the amount of Rs. 1,12,25,000, part of the total share capital, was already taxed in the regular assessment made under section 143(3) for the assessment year 1996-97. Thus, taxing the same amount again as part of the total alleged undisclosed income resulted in double taxation.

7. Evidence and Identity of Shareholders:
The AO disregarded the evidence showing the identity and creditworthiness of the shareholders. The assessee provided a list of shareholders, their addresses, and confirmations from the shareholders, which were found at the premises of Shri Alok Aggarwal. The AO's conclusion that the share capital was non-genuine was based on seized material, which included share application registers and other documents found at Shri Alok Aggarwal's premises.

8. Charging of Interest and Penalty under Section 158BFA:
The assessee challenged the order charging interest under section 158BFA and initiating penalty proceedings under section 158BFA as being without jurisdiction and authority of law.

9. Demand of Tax and Interest under Section 158BFA:
The assessee denied its liability to the demand of Rs. 1,60,48,148 on account of tax and interest charged under section 158BFA as specified in the notice of demand issued under section 156 along with the impugned order.

Conclusion:
The Tribunal found that the AO's block assessment order lacked application of mind and was contrary to logic and reason. The share capital was duly recorded in the regular books of account, audited, and submitted to the IT authorities. The identity of the shareholders was established, and they were assessed to tax. The Tribunal noted that the Revenue had been taking conflicting stands regarding the genuineness of the share capital. The Tribunal concluded that there was no cogent evidence to support the AO's finding that the share capital represented undisclosed income. The addition of Rs. 2,27,15,000 was deleted, and the appeal was allowed.