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TMI Blog2012 (7) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... he narration in the orders of the authorities below that on 25-2-1997, there was a search in the premises of the assessee by the Enforcement Directorate, during which time, the Enforcement Directorate seized certain books and documents relating to the assessee. They were thereafter handed over to the Department and warrant under section 132A was issued. On the recovery of materials, notice under section 158BC was issued to the assessee to furnish the return of income. The assessee filed a nil return along with a letter questioning the issue of notice when there was no search carried out in the premises of the assessee. The assessee further submitted that the company had not commenced any business, and as the return had to be filed before 10-5-1998, it filed a nil return that there was no undisclosed income to be assessed at the hands of the assessee. 2. It is seen from the facts that the company had acquired a property at No. 6, Santhome High, Road, Chennai, at a cost of ₹ 2.5 crores. The sources were stated to be mainly out of the share capital received locally as well as from NRI and OCB. The assessee was requested to furnish the total amount received towards share capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said Mahalingam, the shares were applied for and got allotted, which were subsequently transferred to the name of Chandrasekaran. Thus, a sum of ₹ 75,000 was treated as undisclosed income of the assessee. The state of affairs as far as Coimbatore is concerned, was not different and the applicant therein had no connection with the assessee. Consequently, a sum of ₹ 24,000 was added as income of the assessee. 6. As regards the enquiry made at Chennai, there were 23 individuals involved in the alleged transaction, on which, a sum of ₹ 1,18,200 was made by way of cheque. The officials found that the assessee could substantiate the transactions only in respect of 14 cases and in rest of the cases, it remained unexplained. Thus, a sum of ₹ 1,70,000 was treated as unexplained at the hands of the assessee. The officer further pointed out that in respect of ₹ 1,70,000, there was no response and there was further sum of ₹ 50,000 pending allotment. Thus, on the basis of the enquiry, the amount was sought to be assessed at the hands of the assessee. 7. Aggrieved by the same, the assessee went on appeal before the CIT(A), wherein, the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsequently, it upheld the assessment and reversed the order of the CIT (A). Aggrieved by the same, the present appeal has been preferred by the assessee. 10. Learned counsel appearing for the assessee pointed out that the assessment, made as block assessment, is bad in law; hence, the same could not be sustained. He further pointed out that going by the decision of the Delhi High Court, confirmed by the Supreme Court in the decision reported in CIT v. Steller Investment Ltd. (supra) and coupled with the fact that the assessee had not yet commenced its business as on date, the Tribunal was not justified in treating a sum of ₹ 11,71,000 as unexplained income at the hands of the assessee. He further pointed out that when the business itself had not yet commenced, the question of taking recourse to s. 68 of the IT Act to treat the share application money as unexplained income, did not arise. In any event, the assessee had placed materials to discharge his burden to show that there was an application for allotment of shares and the amount paid was share application money; consequently, the assessment has to fail. He also placed reliance on the unreported decision of this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the decision in CIT v. Steller Investment Ltd. (supra) would be correct; however, the observations in the decision in CIT v. Steller Investment Ltd. (supra) to the effect that even if the subscribers to the capital were not genuine under no circumstance could the share capital be regarded as undisclosed income of the company would not be correct. Referring to section 68 of the IT Act, the Delhi High Court held that the ITO had the jurisdiction to make enquiries as regards the nature and source of a sum credited in the books of account of the company. The mere fact that the assessee chooses to show the receipt of money as capital, it would not preclude the ITO from going into the question whether this is actually so. If the shareholders exist, then no further enquiry need be made; but where the ITO finds that the alleged shareholders do not exist, then, in effect, it would mean that there would be no valid issuance of share capital and the shares could not be issued in the name of non-existing persons. Thus referring to the decision in CIT v. Biju Patnaik (1986) 160 ITR 674 (SC) the Full Bench of the Delhi High Court held that the ITO was bound to enquire whether the cash cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company and the unexplained balance amount not standing in any existing persons name, could be treated as undisclosed income of the assessee. 19. As far as the enquiry at Thanjavur is concerned, the share applications were in the name of Mahalingam, who happened to be the brother of V.N. Chandrasekaran, one of the directors of the company. It was seen that the shares were allotted to Chandrasekaran. Considering the above said aspect, applying the decision of the Full Bench of the Delhi High Court in CIT v. Sophia Finance Ltd. (supra), we have no hesitation in holding that the sum of ₹ 75,000 could not be treated as an undisclosed income at the hands of the company. 20. As far as the enquiry made in Chennai is concerned, a sum of ₹ 1,70,000 remains unexplained by the assessee. Consequently, barring this amount of ₹ 1,70,000, a sum of ₹ 1,41,000 merits to be treated as explained and hence, cannot be treated as an unexplained income at the hands of the assessee. Thus, on going through the orders before us, we are satisfied that the assessee is entitled only to a partial relief, namely as regards ₹ 1,41,000 relating to the Chennai, ₹ 75,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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