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TMI Blog1987 (1) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... t been correctly framed by the ITO. This is the first year of the company in which shareholders have invested a sum of Rs. 9,02,600 out of this, investment made by the shareholders as detailed hereunder has not been properly looked into and they have been accepted without enquiry : Rs. (1) Smt. Santosh Kumari 10,000 (2) Shri D. R. Bhatia 25,000 (3) Mrs. R. Geetha 42,000 (4) Shri M. P. Bhatia 24,000 (5) Shri K. R. Sachdeva 10,000 (6) Shri Jurnail Sing 25,000 (7) Shri Rajesh Kumar Sachdeva 20,000 2. Keeping in view the above facts I am of the opinion that asst. framed by the ITO is not only erroneous but prejudicial to the interests of revenue also. I, therefore, intend to invoke the provisions contained in section 263 of the Income-tax Act." The assessee-company gave out several pleas, inter alia, the following : "Your honour has observed in your notice u/s 263 that the investment made by 7 shareholders namely Smt. Santosh Kumari (Rs. 10,000), Shri D. R. Bhatia (25,000), Mrs. R. Geetha (42,000), Shri M. P. Bhatia (24,000), Shri K. R. Sachdeva (10,000), Shri Jurna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by him, clearly erroneous and prejudicial to the interests of revenue. It is, therefore, necessary that this case should go back to Income-tax Officer for verifying the genuineness of the investments made by the shareholder. The assessment made by the Income-tax Officer is accordingly cancelled and he is directed to make a fresh assessment in accordance with law keeping in view the observations made above." 4. The learned counsel for the assessee addressed on the enquiry made by the ITO. According to him the ITO had insisted for the confirmation from the shareholders during the assessments which were given to him. It was not a fact that confirmations were filed subsequently and not during the assessment. He also placed his reliance on a string of judicial pronouncements to show that Commissioner's order was an instance of illegal exercise of his power u/s 263. On the other hand, the departmental representative explained to us the necessity of lifting the veil of corporation to ascertain the correct, facts about the investments made by the shareholders which appeared in the books of the assessee-company. 5. Having considered the finding of the Commissioner and also the riv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions shows that the company has got to maintain not only a registered office but also a statutory register of shareholders giving their names, full particulars of their addresses and their shareholding. But nowhere the Companies Act authorises it to seek information from its shareholders regarding the source of their investment made in its shares. Our familiarity with the provisions of Income-tax Act also informs us that a company is not authorised to enquire from which source the shareholders have made their investments. It is enough for the company to know if they have made the subscriptions or investment in shares of the company, the number of shares subscribed and held and their full particulars of address to which a notice could be sent. But the company is not entitled to enquire from its shareholders about their source of money. How could then revenue raise a query about the source from which the shareholders have raised the funds to invest the shares in the course of making the assessment of the company. Although the ITO had asked for the confirmation of shareholders and the company had complied, in cur view the ITO had not proceeded within the framework of law to un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion makes the company a separate juridical entity distinct and distinguishable from its body of shareholders who are also liable for their own liability for tax. Therefore, a company cannot be held liable for the liability for its shareholders. Provision contain in sec. 68 was referred to by the D. R. in her address. It was contended that sec. 63 casts on the assessee to account for the source of the funds found credited in its books of account. Therefore, according to the D. R. the enquiry made by the ITO would not be an illegal exercise of discretion, but would appear to be provided for by the provisions contained in section 68. It appears the D. R. made out the plea losing sight of the fact that a company was different and distinct juridical entity different from its body of the shareholders. The company cannot be held as indicated above liable for the liability of its shareholders. On the other hand, the onus cast on the company stands discharged as soon as it refers to the credits to persons who are its shareholders and whose names are registered in the register of shareholders. As perusal of the register of shareholders gives not only the names, full particulars of addresses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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