9911796707
TMI Blog2006 (5) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... search, Shri B.P. Gupta offered Rs. 50,00,000 under section 132(4) in the hands of the company and its directors. Later, Shri Y. Ravi Prasad and others retracted the admission by filing a letter dated 21-3-1996. However, before conclusion of the search, four affidavits dated 4-4-1996 were filed by Smt. B. Prabhavathi, wife of Shri B.P. Gupta, Shri Y. Ravi Prasad, Shri Y. Mahadev (Promoter) and Shri M.N.S. Venkateshawar Rao, admitting total undisclosed income of Rs. 40 lakhs. As per the Assessing Officer, the search operations were initiated mainly to unearth unaccounted money earned by rigging the prices of shares of Valueline Securities (India) Ltd., after the public issue during July 1995. 3. In response to notice under section 158BD, the company filed block return disclosing total undisclosed income at Nil. The assessment was made on 30-5-1997 determining the total undisclosed income at Rs. 38,64,000 which comprised of the following amounts:- Rs. 1. Amounts introduced in the names of 7,64,000 B. Ramakrishna & 21 other investors- treated as benami investments and added as unexplained credits under section 68 in the hands of the assessee-company. 2. Amounts introduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paper books in the case of Valueline Securities (India) Ltd., besides filing paper books in the cases of Shri B.P. Gupta and Shri Y. Ravi Prasad, the Directors of the company. The Revenue also filed paper books. The paper books consist of the following:- (a) Paper book showing evidence of introduction of share capital by the shareholders of the Valueline Securities (India) Ltd. (b) Paper book (2nd volume) containing 13 pages, also filed by the appellant. This consists of the information regarding the details of search and seizure operations and the notice issued by the Assessing Officer before completion of assessment under section 158BC of the Act. (c) Department filed paper book dated 5-8-2004 containing 30 pages. (d) The second volume of the paper book filed by the department contains pages 31 to 67. (e) The appellant prepared a consolidated paper book containing pages 1 to 67 on 22-2-2006 (This paper book consists of the papers contained in the paper book No. 2 filed by the appellant and the paper books filed by the Department), hereinafter referred to as consolidated paper book. The learned DR, during the course of hearing, filed a copy of the order sheet in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant was made in accordance with the provisions of section 158BD and, therefore, the assessment was within the time. (3) There were search and seizure operations in the case of the appellant and the authorities also issued warrant in the case of the company. The following extracts indicate clearly that there were search and seizure operations in the case of the appellant itself. Extract of columns A & B of Panchanama drawn on 27-1-1996 at the premises of the appellant "(A) Warrant in the case of : Valueline Securities Ltd. (B) Warrant to search : 6-2-6 (Details & ownership of 1st Floor, B.J. Road place of search) Lakdi-ka-pul, Hyderabad" Extract of columns A & B of Panchanama drawn on 31-1-1996 at the premises of the appellant "(A) Warrant in the case of : Valueline Securities Ltd. (B) Warrant to search : 6-2-6 (Details & ownership of 1st Floor, B.J. Road place of search) Lakdi-ka-pul, Hyderabad" Extract of columns A & B of panchanama drawn on 24-1-1992 at the premises of the appellant "(A) Warrant in the case of : M/s Valueline Securities Ltd. (B) Warrant to search : Valueline Securities Ltd,6-2-6 (Details & ownership of B.J. Road place of search) Lakdi-ka-p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er sheet: "The materials gathered during search operations revealed that the genuineness of promoters equity of the company was not substantiated. I have perused the materials gathered and satisfied. Issue notice under section 158BD. Sd/ 22/4" It is clear from the order sheet noting that it is an interpolation. It was submitted that at the time of interpolation, the date was indicated as "22/4". The appellant submits that while making the first order sheet entry, there is no need for inserting the matter unless such insertion was made afterwards. Therefore, an attempt was made to show that notice issued was under section 158BD though the same was issued under section 158BC. 7. Without prejudice to the above contention, the learned counsel for the assessee submitted that a notice under section 158BC was put up on 22-4-1996 and the said notice was signed by the Assessing Officer, duly affixing his initials. Even if the earlier interpolated note were to be accepted, the later action of the Assessing Officer in initialling the note put up by his Assistant and in signing the notice under section 158BC would clearly indicate that the Assessing Officer was issuing notice under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholders before the Assessing Officer. The Assessing Officer issued letters of enquiry to the shareholders. Based on the response to such enquiry letters, the Assessing Officer made the additions. The details of additions made by the Assessing Officer and reasons for making such addition are as under: Rs. 1. Enquiry letters were served and by the time of assessment no replies were received. The Assessing Officer listed 22 shareholders at Para 11(1) of the Assessment Order at Pages 10, 11 & 12 of the Assessment Order. The aggregate Amount works out to 7,64,000 2. The Assessing Officer mentioned that he sent letters and in respect of 11 shareholders such letters were returned unserved. The aggregate of the amount is Rs. 4,76,000 mentioned at Para 11(4) of the Assessment Order at Pages 14 & 15 4,76,000 3. The Assessing Officer found that in 5 cases letters were sent and the Assessing Officer did not receive either the replies or the acknowledgements - Pages 15 & 16 of the Assessment Order and aggregate of the amount is 1,25,000 4. The Assessing Officer addressed to shareholders directly and according to him sources of investments was not est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntries are made in the books of account and no adverse evidence is found during the course of search, no addition can be made while completing the assessment under section 158BC of the Act. 12. Without prejudice to the above, the learned counsel submitted that the share capital introduced cannot be considered as not genuine. He submitted that the Assessing Officer himself issued letters and received the letters of confirmation from some of the persons. The Assessing Officer required the shareholders to submit the details as per the proforma provided by him. This is clear from the letters of confirmation submitted by some of the shareholders, which are submitted in the paper book, the details of which are as under: ------------------------------------------------------------- Sl. Page No. Name of the Shareholder Amount Date on No. of the Invested which Paper letter Book was sent ------------------------------------------------------------- 1. 5 Konduru Prakash 25,000 01.04.1997 ------------------------------------------------------------- 2. 29 Laxmi Devarakonda 25,000 06.12.1996 Thiresh Devarakonda Ramana Rao Devarakonda -------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----------------------------- 26. 151 Ravikanti Padmavathi 1,00,000 03.03.1997 ------------------------------------------------------------- 27. 154 G.V. Kanaka Durga 25,000 24.04.1997 ------------------------------------------------------------- 28. 156 Y.V. Nagalaxmi 25,000 24.04.1997 ------------------------------------------------------------- 29. 164 V.C. Bhadraiah 50,000 ------------------------------------------------------------- 30. 168 V. Murugesan 45,000 01.04.1997 ------------------------------------------------------------- 31. 170 Bonagiri Anjaneyulu 40,000 01.04.1997 ------------------------------------------------------------- 32. 172 T. Kusuma 25,000 28.02.1997 ------------------------------------------------------------- 33. 176 K. Subhashini 50,000 29.01.1997 ------------------------------------------------------------- 34. 179 B. Lakshmi 25,000 05.02.1997 ------------------------------------------------------------- 35. 184 G. Vijaya 25,000 10.02.1997 ------------------------------------------------------------- 36. 187 N. Anuradha 25,000 28.02.1997 ------------------------------------------------------------- 37. 194 K. Rajesh Goud 25,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are included in the paper book. It was further submitted that it was not correct for the Assessing Officer to mention that all the 22 shareholders did not respond to his letters. According to the learned counsel, the following shareholders responded to the letters and sent letters of confirmation: 1. K. Prakash - Page No. 3 of the Paper Book 2. T.R. Devarakonda - Page No. 29 of the Paper Book 3. M. Mahesh - Page No. 35 of the Paper Book He contended that the appellant produced evidence before the Assessing Officer and also before the Tribunal that the shareholders exist, they made applications for allotment of shares, that they paid the amount to the company for allotment of shares and that the appellant company paid dividend to the shareholders. From all these facts, he submitted, it would be clear that the shareholders are genuine and the Assessing Officer has no information to the contrary. Therefore, the Assessing Officer is not justified in making any addition under section 68 of the Act. 14. The learned counsel further submitted that the Assessing Officer, while treating the amount of Rs. 7,64,000 as the income of the appellant, mentioned that the onus of proving t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the shareholders were made available to the Assessing Officer. The Delhi High Court considered the decision in the case of CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 of the Delhi High Court but deferred from the said decision on only one point holding that an enquiry about the existence of the shareholders can be conducted. However, the Supreme Court confirmed the decision of the Delhi High Court in the case of CIT v. Stellar Investment Ltd. in toto. Therefore, the decision of the Sophia Finance Ltd.'s case is not now applicable. Further, the appellant already discharged the onus by proving the existence of the shareholders. The appellant provided necessary data before the Assessing Officer to prove the existence of the shareholders. The Assessing Officer did not intimate the appellant whether any shareholder was not available or whether any shareholder denied having invested. 16. The learned counsel further submitted that the Assessing Officer in Table 2 in para 11.4 listed the shareholders where the covers sent were returned unserved. The list of the shareholders consists of 12 names (there is a mistake in the assessment order: the actual number of persons is only 11; S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on them. All of them have sent letters of confirmation. The applications for allotment of shares are also submitted in the paper book. The appellant also submitted the details of the dividend and the TDS certificate issued for deduction of tax at sources from the dividend. Therefore, the Assessing Officer is not justified in treating them as undisclosed income. It is submitted that the Assessing officer, while sending the letters of enquiry under section 133(6), required the shareholders to provide information in five columns. This is evident from the fact that all the shareholders have replied only to the said five queries. Page 122 of the APB is a typical reply submitted by one Sri Vasanti Tirumala Raju wherein he has written the questions and replies thereto. It can be seen that all the shareholders have replied to the question put by the Assessing Officer. Therefore, the Assessing Officer cannot now mention that the replies provided by the shareholders are not complete. Further, in view of the decision of the Hon'ble Supreme Court in the case of CIT v. Stellar Investment Ltd. [2001] 251 ITR 263 and the decision of the Hon'ble A.P. High Court in the case of CIT v. Lanco Industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y. Ravi Prasad ------------------------------------------------------------ 12. D. Satyalaxmi Sister-in-law of director Y. Ravi Prasad ------------------------------------------------------------ 13. Suryanarayana Under dispatch Murthy ------------------------------------------------------------ 14. Y. Venkatesam Brother of director Y. Ravi Prasad ------------------------------------------------------------ 15. Nikita Grand daughter of G. Subba Rao, director ------------------------------------------------------------ 16. B.P. Gupta Director ------------------------------------------------------------ 17. Nagavenkata Durga Daughter of director G. Subba Rao Miryala ------------------------------------------------------------ 18. Jayaprada Miryala Mother-in-law of daughter of G. Subba Rao ------------------------------------------------------------ 19. Jugal Kishore Nagla Under dispatch ------------------------------------------------------------ 20. Y. Sumathi Sister-in-law of director Y. Ravi Prasad ------------------------------------------------------------ 21. C. Mahender Under dispatch --------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----------------------------------------------------- 46. Y.V.S.V. Prasad Under dispatch ------------------------------------------------------------ 47. N. Anil Son of director N.V. Rami Reddy ------------------------------------------------------------ Out of the above 47 shareholders, the Assessing Officer chose 10 share certificates as per the list at page No. 25 of the assessment order. The Assessing Officer mentioned that he conducted enquiries with the above mentioned 10 shareholders. Out of the above, Sri Chinta Mahender, Sri Kulkarni Dilip Kumar, K. Kanana Maha Lakshmi, P. Kalavathi, R. Ajay Kumar, Jugal Kishore Nagla, K. Kalpana and K. Pavan Kumar have replied mentioning that they have invested in share capital of the appellant company. From the observations of the Assessing Officer at paragraphs 12.2 and 12.3 of page No. 26 of the assessment order, 8 out of 10 persons responded and confirmed the investment in the share capital. Therefore, in view of the submissions made earlier, and in view of the decision of the Supreme Court in the case of Stellar Investment Ltd. and the decision of the Andhra Pradesh High Court in the case of Lanco Industries Ltd. the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, who were present in the premises searched, and they signed the same in token of having perused the same. Therefore, when there was no warrant of authorisation in the name of the company, the question of issue of notice under section 158BC does not arise in the case of the company. Thus, the assessment made under section 158BD is in conformity with or according to the intent and purpose of the Act. Merely because section 158BD was scored off in the notice instead of section 158BC, it cannot be said that the entire assessment order is vitiated and bad in law when it is in substance and effect in conformity with or according to the intent and purpose of the Act. (4) The intention of the Assessing Officer is also evident from the following satisfaction recorded on the order sheet before the notice was served on the assessee on 10-5-1996: "The materials gathered during search operations revealed that the genuineness of promoters equity of the company was not substantiated. I have perused the materials gathered and satisfied. Issue notice under section 158BD." [DPB 31] The satisfaction of the Assessing Officer also finds place at para 2, page 2 of the block assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prima facie satisfaction by the Assessing Officer. (5) Even otherwise, at worst, it was only a procedural irregularity which can be cured under section 292B, in view of the following authorities, and such procedural irregularity does not make the assessment made under section 158BD invalid: (i) CIT v. Jai Prakash Singh [1996] 219 ITR 737 (SC). (ii) Estate of Late Rangalal Jajodia v. CIT [1971] 79 ITR 505 (SC). (iii) CIT v. Anand & Co. [1994] 207 ITR 418 (Cal.). (iv) I. Devarajan v. Tamil Nadu Farmers Service Co-op. Federation [1981] 131 ITR 506 (Mad.). (v) Asstt. CIT v. M. Mani [1997] 63 ITD 393 (Cochin). (vi) Vijay Trading Co. v. ITO [1985] 13 ITD 526 (Nag.). (vii) Action for Welfare & Awakening in Rural Environment (AWARE) v. Dy. CIT [2003] 263 ITR 13 (AP). (viii) Y. Subbaraju & Co. v. Asstt. CIT [2004] 91 ITD 118 (Bang.) (SB). (ix) Smt. Mahesh Kumari Batra v. Jt. CIT [2005] 95 ITD 152 (Asr.)(SB). (x) L. Saroja v. Asstt. CIT [2001] 76 ITD 344 (Mad.). (xi) Biological E. Ltd. [ITAT 'A' Bench, Hyderabad]. (6) Without prejudice to the submission that non-scoring out of section 158BC in the notice was only an inadvertent mistake, the provisions of Chapter XIV-B had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y mere non-mention of section 158BD in the notice when the notice and the assessment are otherwise in substance and effect in conformity with or according to the intent and purpose of the Act. (8) In view of the maxim De minimis non curat lex (Law takes no notice of trivialities), it was prayed that the case may be decided on merits in the interests of justice. 21. The learned counsel for the assessee gave his replies to the contentions of the learned departmental representative as follows:- (1) According to the learned DR, the assessment was made under section 158BD and, therefore, the assessment is within time. The appellant is submitting that the provisions of section 158BD have no application and the provisions of section 158BC only apply to the facts of the case. The notice under section 158BC was issued on the same date when similar notices were issued to the Directors of the company i.e., 22-4-1996, and when the Assessing Officer found that the assessment got barred by limitation, he mentioned in the assessment order that he was completing the assessment under section 158BD of the Act though he had issued notice under section 158BC of the Act. (2) The learned DR mentione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8BC would not conclude the issue. (5) The learned DR is of the view that the intention of the Assessing Officer was to issue notice under section 158BD. This is not correct. From the noting it is clear that the intention was to issue notice under section 158BC and notice under that section only was issued. The notice itself makes it clear that it was issued under section 158BC. (6) The learned DR mentions that the assessment order in substance and effect, in conformity with or according to the intent and purpose of the Act. According to the learned DR the intention was to make an assessment under section 158BD and, therefore, any mistake committed by the Assessing Officer, would not invalidate the assessment. It is submitted that provisions of Chapter XIV-B of the Income-tax Act provide for two different types of assessments in respect of persons where search has been conducted and in respect of persons other than such persons whose books of account and other documents were found during the course of search of any other person. Section 158BE of the Income-tax Act provides different time-limits for those assessments to be made under section 158BC or under section 158BD. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not under section 158BD, but under section 158BC, and that the assessment got barred by limitation. (2) In the case of Rushil Industries Ltd. v. Harsh Prakash [2001] 251 ITR 608, the question before the Hon'ble Gujarat High Court is whether action under section 158BD is properly initiated or not, which is not relevant to the facts of the appellant's case. The learned DR is of the view that not scoring out the relevant portions in the notice is an inadvertent mistake. It is submitted that in the case of the appellant, notice was issued on 22-4-1996, one day prior to the date of closure of the search. Section 158BC is retained and 158BD is struck off. Therefore, the learned DR is not correct in mentioning that it is a mere mistake in not scoring out the relevant portion in the notice. From the facts enumerated above, it is submitted that in the case of the appellant notice under section 158BC has to be issued. Therefore, the notice was correctly issued under section 158BC. Further, the Assessing Officer retained section 158BC and scored out section 158BD correctly. (3) In the case of CIT v. Jai Prakash Singh [1996] 219 ITR 737, decided by Hon'ble Supreme Court, notice was not ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the Special Bench of ITAT in the case of Smt. Mahesh Kumari Batra v. Jt. CIT [2005] 95 ITD 152 (Asr.); L. Saroja v. Asstt. CIT [2001] 76 ITD 344 (Mad.) also have no application to the facts. The appellant is contending that the assessment has to be completed under section 158BC and that such assessment has to be completed within one year from the end of the month during the course of which the search and seizure operations were conducted. It is the contention of the appellant that the assessment was not completed within the time and therefore got barred by limitation. (12) The decisions of the Hon'ble Supreme Court in the case of DIT (Inv.) v. Pooran Mal & Sons [1974] 96 ITR 390, and the ITAT Allahabad Bench in the case of Dr. R.M.L. Mehrotra v. Asstt. CIT [1999] 68 ITD 288, have no application to the facts of the appellant's case. It is not the contention of the appellant that he did not understand implications of the notice issued and it is submitted that the company very well understood the notice issued under section 158BC. When the assessment got barred by limitation, the Assessing Officer chose to mention the assessment to be under section 158BD and not 158BC. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer acknowledged that search and seizure operations were contemplated because of the public issue of the shares of the appellant company. All the data clearly indicate that there were search and seizure operations at the premises of the appellant. Therefore, the assessment has to be made under section 158BC of the Act and the Assessing Officer rightly issued a notice under section 158BC. Therefore, the intent of the Assessing Officer is very clear to make an assessment under section 158BC of the Act. The learned counsel for the assessee emphasized that the notice under section 158BC was issued to the appellant company on the same day on which the notices under section 158BC were issued to the Directors of the Company i.e., on 22-4-1996, just a day before closing the search and seizure operations. 24. When the assessment was getting barred by limitation in view of section 158BE of the Act, the Assessing Officer made an attempt to show that the assessment was being made under section 158BD of the Act. This attempt is only to save the assessment order from being called time-barred. In that process, the Assessing Officer mentioned that the assessment was being made under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company, some more shareholders had responded to the letters issued by the Assessing Officer and, therefore, the amount to be considered for the purpose of assessment under section 68 was reduced from Rs. 56,04,000 to Rs. 38,64,000. He submitted that while completing the assessment under section 158BC of the Act, the Assessing Officer has to strictly compute the undisclosed income on the basis of the seized material. In the case of the company Value Line Securities (India) Ltd., the appellant explained that the entire share capital was introduced in the regular books of account. He contended that there is no evidence in the seized documents that the share capital was introduced by the Directors or by the company. The appellant also submitted clearly the reasons as to why the share certificates were found at the premises of the company. It was also submitted that the share certificate found at the residential premises of the appellant belong to the close relatives of the directors. Therefore, availability of the share certificate at the premises of the company or at the residential premises of the directors cannot lead to the conclusion that the share capital is not genuine. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee introduced his own money in the names of various shareholders. He further submitted that if the company is not in a position to explain the credit entry in the books of account, addition may be made in the case of the company under section 68 of the Act; if the shareholder is not in a position to explain the source for investment, an addition may be made in the hands of the shareholder under section 69, but unless there is information that the director introduced his own money in the names of various shareholders, no addition can be made in the case of the director. He submitted that no such information was found during the course of search nor could such information be gathered by the Assessing Officer during the course of assessment proceedings. He thus contended that the Assessing Officer is not justified in making any addition on this count. 30. The learned counsel further submitted that the director had admitted the share capital introduced by his father Shri Y. Venkata Narayana in the company and that this does not mean that the entire share capital in the names of all other shareholders was introduced by him. Further, wherever the Assessing Officer sent letters of enq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o substance in the argument of the learned counsel for the assessee that additions made in the block assessment do not emanate out of the seized documents but as a result of roving post-search enquiries made by the Assessing Officer. He submitted that specific and positive evidences were found and seized during the search and seizure operation which included share certificates in the names of the certain persons. He pointed out that Shri Y. Mahadeva and Shri M.N.S. Venkateswara Rao, promoters of the company, and Shri Y. Ravi Prasad, director, admitted as undisclosed income the investment in the names of some of the said persons. Further, some such share certificates were found at the premises of Shri Y. Ravi Prasad, who admitted the investment of Rs. 2,00,000 in the name of Shri Y. Venkata Narayana, and at the premises of Shri B.P. Gupta, who admitted such investment to the extent of Rs. 5,98,050. Thus, he submitted, overwhelming and specific evidences were found during the search operations which prompted the Assessing Officer to make further enquiries about the sources of the share capital introduced in the books of Value Line Securities Ltd. and that the enquiries conducted and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down in section 158BB and the provisions of sections 142, 143(2) and (3), and sections 144 and 145 shall, so far as may be, apply. Section 158BB as existing prior to amendment by the Finance Act, 2002, provides that the undisclosed income of the block period shall be computed in accordance with the provisions of Chapter IV on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer. Thus, he submitted, under section 158BC(b) read with section 158BB, the provisions of section 143(3) have been specifically made available to the Assessing Officer while making block assessment. Section 143(3) empowers the Assessing Officer to make an assessment of income on the basis of the material which has been gathered by him. The process of assessment under section 158BC, read with section 158BB is not merely computation of income but a process of evaluation of evidence and material found during the course of the search and derived from the books of account, documents and other information. 35. The learned departmental representative reiterated that in the instant case, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search and the transactions in question and thus the additions in the block assessment were made after evaluation of the material seized and gathered by the ADIT and the Assessing Officer and after affording reasonable opportunity of being heard to the assessee. 37. Coming to the issue of addition under section 68 towards unexplained share capital in the hands of the company on protective basis and in the hands of the promoters on substantive basis, the learned departmental representative submitted that share capital of Rs. 116.20 lakhs had been introduced in the names of relatives and friends at the time of public issue in July 2005 and that the addition was made after elaborate enquiry regarding the genuineness of the transactions, identity of the persons and creditworthiness of the persons and after affording adequate opportunity to the assessee. He submitted that the substantive addition was made in the hands of Shri Y. Ravi Prasad and Shri B.P. Gupta for the reason that they were looking after the day to day affairs of the company as evidenced by the prospectus of the public issue (DPB-67) and the statement of Shri Y. Ravi Prasad dated 24-1-1996 (DPB-41). In this connection, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of search at the Regd. Office. From the details, it can be seen that the share certificates found were either belonging to the close relatives of the directors of the company or were under despatch. As submitted earlier, the directors have their own chambers at the premises of the company and, therefore, the share certificates belonging to them and to their close relatives were available at the premises of the company. The Assessing Officer examined the share certificates so issued and available at the premises. In respect of the share certificates found at the premises of the company also, the shareholders confirmed having invested the amount with the appellant company. The availability of share certificates by themselves would not lead to the conclusion that the company invested the share capital. The appellant submits that to invoke the provisions of section 68 while completing the assessment under section 158BC of the Income-tax Act, the authorities should find information in the seized material to the effect that the share capital was introduced by the appellant company from its income not disclosed to the department. Such information was not available in the seized do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident that the share capital is held by the shareholders. Therefore, neither the Assessing Officer nor the learned DR can consider the availability of the share certificates as an evidence against the appellant company. The learned DR is of the view that some of the share capital was accepted by the shareholders. The learned DR mentioned the list of the share certificates found. The learned DR filed a copy of the affidavit of Shri Y. Mahadeva. It can be seen that he mentioned that he invested the amount of Rs. 4 lakhs in the names of five different persons and offered for assessment the said amount of Rs. 4 lakhs. Here also, the information does not lead to the presumption that the appellant company invested the amount from out of its own income. It is Sri Y. Mahadeva who invested the amount and, therefore, the said amount cannot be considered as the income of the appellant. (5) Insofar as the affidavit of Sri M.N.S. Venkateswera Rao, referred to by the learned DR, is concerned, the said person is engaged in the business of purchase and sale of shares like Sri Y. Mahadeva. Sri Venkateswera Rao accepted that the amount was invested by him. Therefore, there is no possibility to hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i D. Rajaiah and mother-in-law of daughter of Sri B.P. Gupta. The Assessing Officer sent a letter of enquiry to these two persons and they submitted their replies, which are at pages 81 to 84 of the paper book filed in the case of Sri B.P. Gupta. In the said letters they have clearly mentioned that the amount was paid through cheques. They have also stated the sources for the amount. They have annexed pass book of the Central Bank of India, certificate from the Sarpanch and confirmation from the loanees for perusal of the Assessing officer. Therefore, the investment of Rs. 5,98,050 was made by the respective persons and not by Sri B.P. Gupta. The appellant herein submits that the investment by the shareholders was not from out of the company's income. It is further submitted that all the persons are close relatives of Sri B.P. Gupta and, therefore, the share certificates were available at the premises of Sri B.P. Gupta. (8) In the case of Sri Y. Ravi Prasad the share certificates belonging to his father Sri Y. Venkata Narayana were available and in the case of Sri B.P. Gupta the share certificates of his close relatives were available at his residence. Therefore, there cannot be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e department. The learned DR is not correct in mentioning that incriminating documents were found during the course of search. The availability of share certificates at the premises of the company and at the premises of the directors, viz., Sri B.P. Gupta and Y. Ravi Prasad cannot be considered as incriminating material. (2) The decision of the Ahmedabad Bench of the ITAT in the case of Cas Card Finance Ltd. v. Asstt. CIT [2003] 84 ITD 1, has no application to the facts of the appellant's case. (3) In the case of Khopade Kisanrao Manikrao v. Asstt. CIT [2000] 74 ITD 25 (TM), it is held by the Pune Bench of ITAT that the Assessing Officer can base the assessment on the evidence found during the course of assessment proceedings. In the present case, the Assessing Officer did not gather any information even during the course of assessment proceedings contrary to the submissions made by the appellant. Therefore, the said decision has no application to the facts of the appellant's case. (4) In the cases of CIT v. Elegant Homes (P.) Ltd. [2003] 259 ITR 232 (Raj.) and CIT v. Ajay Kumar Sarma [2003] 259 ITR 240, the Hon'ble Rajasthan High Court observed that entries were made in the boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case where the assessment was being made under section 143(3) of the Income-tax Act and not under section 158BC. Therefore, the said decision has no application. (8) The learned DR also relied on the decisions in the case of CIT v. Ruby Traders & Exporters Ltd. [2003] 263 ITR 300 (Cal.), and CIT v. Nivedan Vanijya Niyojan Ltd. [2003] 263 ITR 623 (Cal.). In the case of Ruby Traders & Exporters Ltd. the company did not provide the identity of the shareholders but in the case of the appellant all the information necessary to prove the genuineness was filed. The Assessing Officer made an effort to examine the issue on his own and wrote letters to the shareholders. All the shareholders, excepting a few, responded and confirmed the fact of investment. The facts were not put to the assessee. Therefore, the decisions of the Calcutta High Court have no application to the facts of the case. (9) The decision of the Hon'ble Bombay High Court in the case of Ram Kumar Jalan v. CIT [1976] 105 ITR 331, has no application to the facts of the appellant's case as the Assessing Officer did not issue any show cause letter to the appellant requiring the appellant to explain. (10) In the case of R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be made without making any further enquiries. (2) Sana Electric Co. v. CIT [1985] 152 ITR 507, wherein the Delhi High Court observed that when the cash credits were introduced in the books of account, the genuineness of such cash credits can be rejected only on cogent reasons. In the case of the appellant, all the share capital was found at the time of search and there is no reason for the Assessing Officer to reject the contention of the appellant. (3) The decision of the Hon'ble Supreme Court in the case of CIT v. Stellar Investment Ltd. [2001] 251 ITR 263. (4) The decision of the Hon'ble Andhra Pradesh High Court in the case of CIT v. Lanca Industries Ltd. [2000] 242 ITR 357. 41. In view of the submissions made above, the appellant prays for deletion of the addition made by the Assessing Officer. 42. We have heard rival submissions and perused the orders of the revenue authorities as well as all the papers filed before us. The entire dispute in these cases pertains to additions made under section 68 of the Income-tax Act, 1961, in respect of share capital introduced in the case of Value Line Securities (India) Ltd. During the course of search and seizure operations, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n more easier made then proved and the very seriousness of such an allegation demands proof of a high order of credibility." In this case, the Assessing Officer himself has accepted the genuineness of some of the share capital, certificates of which were found in the possession of the company or in the personal chambers of the Directors. The assessee has filed a detailed chart explaining the reasons why some of the certificates were still in its possession. The reasons can be classified as follows:- (1) Certificates belong to close relatives of the Directors. (2) Certain certificates were under dispatch. (3) There were 47 share certificates, which were not delivered. Many of the persons in respect of whom certificates were found, have on enquiry made directly by the Assessing Officer, replied that they had invested in the share capital of the assessee-company and this explanation has been accepted by the Assessing Officer. Thus, the presumption that mere possession of a share certificate leads to a conclusion of benami investment, stands prima facie rebutted. 43. The legal propositions on the issue of addition in respect of share capital have been brought out by Hyderabad Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y were cleared through proper banking channels. The Full Bench decision, referred to above, makes it clear that in the case of limited companies the jurisdiction of the Assessing Officer would be limited only to see whether the identity is established and whether they exist or not. Once the identity is established, then, as the Full Bench felt, possibly no further enquiries need to be made. From sections 68A, 72, 75 and 77 of the Companies Act, it is very clear that any company who invite application for allotting the shares to public; is entitled only to issue shares against the applications received by it. As per section 72 of the Companies Act, a company can only seek certain limited information from the shareholders. However, in the case of Standard Cylinders (P.) Ltd. v. ITO [1988] 24 ITD 504 (Delhi), the Tribunal has held that company cannot even seek information from the shareholders , regarding the source of their investment in those shares'. 23. The judgment of the Hon'ble Andhra Pradesh High Court in the case of CIT v. Lanco Industries Ltd. [2000] 110 Taxman 172, clearly lays down the law on the issue. At page 275, it is held as follows:- 'The Tribunal no doubt should h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n letters from 55 of the shareholders before the Assessing Officer at the time of assessment proceedings of the company. Thus, it can be said that the identity of the shareholders is established as notices served under section 133(6) have been received by them and also confirmation letters have been filed before the Assessing Officer. The jurisdictional High Court has clearly held that unsatisfactory explanation relating to the source of investment of a shareholder does not by itself permit the amount of investment to be treated as income of the assessee-company. Applying this proposition, we hold that the amount of Rs. 25 lakhs cannot be added in the hands of the company for the mere reason that the assessee has not established the creditworthiness of the investor. If the shareholder has not proved his creditworthiness, applying the judgment of the jurisdictional High Court, the investment should be treated as unexplained income in the hands of that investor. As there is no finding that these shareholders are mere name-lenders and that the money allegedly invested by them really belonged to the directors of the assessee-company, applying the judgment of the jurisdictional High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as payment of dividends to these shareholders, they clearly demonstrate that the identity of the shareholders has been proved. Thus, applying the propositions laid down in the case of M.K. Securities Ltd. this addition has to be deleted. (2) The second addition of Rs. 4,76,000 was made on the ground that the letters were returned unserved. In this case, the Assessing Officer had not conducted any further enquiry, nor had he directed the assessee concerned to produce, necessary evidence as to the identity of these shareholders. When an enquiry has been independently conducted by the Assessing Officer and when a notice issued to the concerned shareholder has been returned, natural justice demands that the same be placed before the assessee concerned with a direction that necessary details from these shareholders be obtained by them. Adding these amounts straightaway as undisclosed income of the assessee is not warranted. The list of such cases is given in paragraph 11(4) of the assessment order at pages 14 and 15. Though this would appear to be a fit issue for setting aside, we do not do so, as the addition itself fails on further legal grounds which are discussed hereinafter. (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- "24. Coming to the addition made in the hands of the promoters, we find that the Assessing Officer had distributed the amount of Rs. 25,00,000 in the hands of Sri Ch. Mohan Rao and Sri B. Hanumantha Rao and accordingly added a sum of Rs. 12,50,000 being half share in each hand. This, to our mind, appears to be highly arbitrary and without any basis. There is no specific finding whatsoever that any particular shareholder is a benami of Sri Ch. Mohan Rao or Sri B. Hanumantha Rao. Without such specific finding, a general addition made in the hands of each of these persons on 50:50 basis is unwarranted. It is also noticed that no addition was made in the hands of the third promoter Smt. Ch. Aruna. We have to keep in mind that the addition made in the hands of Sri Ch. Mohan Rao and Sri B. Hanumantha Rao is not under section 68 of the Income-tax Act for the simple reason that no credit appeared in their books. The only basis on which the addition is made is that 34 shareholders are benamidars of these promoters. The law on the subject is clearly stated by the Hon'ble Allahabad High Court in the case of Prakash Narain v. CIT [1981] 20 CTR (All.) 147, wherein the following propositions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormly applicable in all situations, can be laid down, yet in weighing the probabilities and for gathering the relevant inidicia, the courts are usually guided by these circumstances: (1) the source from which the purchase money came; (2) the nature and possession of the property, after the purchases; (3) motive, if any, for giving the transaction a benami colour; (4) the position of the parties and the relationship, if any, between the claimant and the alleged benamidar; (5) the custody of the title-deeds after the sale; and (6) the conduct of the parties concerned in dealing with the property after sale. The above inidicia are not exhaustive and their efficacy varies according to the facts of each case. Nevertheless No. 1, viz. the source whence the purchase money came, is by far the most important test for determining whether the sale standing in the name of the one person, is in reality for the benefit of another.' Applying this judgment to the facts of the case on hand, we delete the additions of Rs. 12.5 lakhs each made in the hands of both the promoters Sri Ch. Mohan Rao and Sri B. Hanumantha Rao. 25. Coming to the judgment of the jurisdictional High Court in the case of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egally uphold its contention that shareholders are none other than name-lenders, stooges or benamis of the assessee-company or its directors. As the identity of the shareholders is not doubted, and as their existence is proved, the addition cannot be sustained. 45. Even otherwise, nowhere in the seized material there is an indication of undisclosed income or undisclosed investment, which can be said to be the cause of this addition. The list of seized material is given in paragraph 6 at page 6 of the assessment order in the case of Shri Y. Ravi Prasad. There is no finding that any of the loose sheets discloses any undisclosed income. There was a disclosure on the day of search and thereafter there was a retraction. Later, affidavits were filed making the following disclosures:- 1. Smt. P. Prabhavathi Rs. 6,00,000 2. Shri Y. Ravi Prasad Rs. 16,00,000 3. Shri Y. Mahadev Rs. 10,00,000 4. Shri M.N.S. Venkateswara Rao Rs. 8,00,000 There is no discussion in the assessment order to the effect that the seized material indicates that the money of these persons has been invested in benami names. Only official share certificates and disclosed registers were found. The enquiries on these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make a distinction between the block assessment and the regular assessment. In the case of regular assessment, the Assessing Officer is free to examine the veracity of the return as well as the claims made by the assessee, whereas the undisclosed income is taxed by way of block assessment as a result of search and seizure. The logic behind the two different modes of assessment is that concealment of income and claiming deduction or exemption in respect of a disclosed income cannot be treated at part. The former is an offence which goes to the root of the matter and the other is on the basis of the causes shown by the assessee where the Assessing Officer is free to accept the justification shown or reject the same." CIT v. Vikram A. Doshi and Ms. Leena V. Doshi [2002] 256 ITR 129 (Bom.)(HN): "Block assessment-undisclosed income-undisclosed transactions assessed in block assessment - Tribunal finding transactions disclosed in return which were subject-matter of regular assessments-transactions in question not to be considered in block assessment - Income-tax Act, 1961, sections 143, 158B." CIT v. Shamlal Balram Gurbani [2001] 249 ITR 501 (Bom.)(HN): "A search was conducted at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection of certain undisclosed income, though it is not relatable to the evidence found as on the date of search, then also, Mumbai Bench of the Tribunal, in the case of Morarji Goculdas Spg. & Wvg. Co. Ltd. v. Dy. CIT [2005] 95 ITD 1 (TM), while considering an identical situation, held as follows:- "8. Block period for which the assessment is to be made under Chapter XIV-B means the period comprising previous years relevant to ten assessment years preceding a previous year in which the search was conducted under section 132 or any requisition was made under section 132A, and also includes in the previous year in which such search was conducted or requisition made, the period up to the date of the commencement of such search or, as the case may be, the date of such requisition. Therefore, the assessment for the block period under Chapter XIV-B can be made of the undisclosed income only up to the date of commencement of search or the date of the requisition and not of the period thereafter. Section 158BA provides for assessment of undisclosed income as result of search for the block period and computation of income and the computation of undisclosed income for the block period to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the basis of which the undisclosed income could be computed. Certain documents in the form of lease agreement etc. were seized at the time of search, but entries based on those documents were already found recorded in the books of account of the assessee and the depreciation and rent income on the basis of such lease agreements have been recorded in the books of account, as income of the assessee and the depreciation and interest with regard to the very lease transactions have been claimed as deduction. Lease agreements may be an evidence by itself but there, is nothing in those agreements which could establish that assessee had undisclosed income. On the contrary, disclosure of income has been made by the assessee in the books and return of income pursuant to these very lease agreements. The department has no doubt collected the material subsequent to raid, but that may not be very material and relevant for framing the assessment under Chapter XIV-B of the case be, cause of the mandate given under section 158BB it has to be the income computed on the basis of evidence found as a result of search and not otherwise. If any material is collected by the Revenue after the search, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of assessments completed without any information or material in possession during the block period." 47. In line with these legal propositions, in the case of M.K. Securities Ltd. also, this Bench has taken a view that the transactions relating to share capital are reflected in the books of account of the company, the Board of Directors have considered the share applications and have passed resolutions allotting share capital and the statutory requirements of furnishing the full details of the share applications received and the allotments made, were met by furnishing the same to the Registrar of Companies and thus, this cannot be said to be a transaction representing wholly or partly income or property which had not been or would not have been disclosed for the purposes of the Income-tax Act so as to be termed as undisclosed income as defined in Chapter XIV-B. As regular returns have been filed by the assessee-company, such enquiries should always be made in such regular assessments. Applying the propositions culled out from various judgments of Hon'ble High Courts and the Tribunal, we have necessarily to uphold the contention of the assessee that the addition in question is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Shri Y. Ravi Prasad and Shri B.P. Gupta and that the third warrant was in the joint names of Shri Y. Ravi Prasad and Shri B.P. Gupta and that there was no warrant whatsoever in the names of Value Line Securities (India) Ltd. When the argument of the Revenue is such, we do not know how in the three Panchanamas drawn up, against the column "Warrant in the case of", the name of the company, Value Line Securities (India) Ltd. has been given. Moreover, in the case of Shri Y. Ravi Prasad, in paragraph 3 on page 2 of the assessment order, it is stated by the Assessing Officer that "Search operations were initiated in M/s. Value Line Securities Ltd.". In paragraph 12 on page 12, it is stated that "During the course of search operations, share certificates worth Rs. 11.70 lakhs were seized from the Registered Office of Value Line Securities Ltd." Further, in paragraph 13 on page 14 of the assessment order in the case of Shri Y. Ravi Prasad, it is stated as follows: "During the course of search operations at the Registered Office of Value Line Securities (I) Ltd., a document showing a list of investors was found (Annexure. VLS/S)...". Thus, whatever may be the internal records with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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