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TMI Blog2003 (7) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... t of 373 allottees to whom shares have been allotted through private placement. Copy of share application forms submitted to the assessee company in respect of private placement quota are also included in this paper book. 3. Briefly stated the facts are that the assessee company was incorporated under the Companies Act on 27-11-1991 as per the certificate of incorporation placed at page 1 of the paper book I. The Assistant Registrar of Companies has issued the certificate for commencement of business on 2-12-1991. The Company commenced commercial production of cement from 27-2-1992 with the installed capacity of 35 tons per day. Assessment year 1992-93 is thus the first year of commercial production. The authorized share capital of the assessee company is ₹ 5 crores divided into 50 lakh shares of ₹ 10 each. The company has been allowed allotment of 9.90 lakhs of shares by private placement and the balance shares have been offered to the public. The assessee company received contribution through private placement in the promoters quota ₹ 98,99,300 from 373 applicants. During assessment proceedings the Assessing Officer called upon the assessee to produce the perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee explained that these shares were allotted through the brokerage of M/s. Rajyaguru & Associates whose business premises were situated at 18, Semi Basement, Paradise Complex, Sayajigunj, Baroda. The CIT(A) forwarded the documents and papers filed by the assessee in the two paper books to the Assessing Officer for comments. The Assessing Officer forwarded her comments on 12-7-1995 which have been considered by the CIT(A) while deleting the impugned addition. The CIT(A) held that the assessee has duly furnished the evidence in support of genuineness of the share application money received from the allottees of the preferential quota and the impugned addition made by the Assessing Officer cannot be sustained. With regard to the evidence filed by the assessee at the appellate stage, the CIT(A) observed vide para 3.9 of the appellate order that even if share application forms of the allottees are being filed at the appellate stage for the first time yet the assessee has duly furnished full information regarding the allotment of shares at the assessment stage. The CIT(A) further observed that the Assessing Officer has not made any adverse comments in her written submissions d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney received from them. All that the assessee had produced before the CIT(A) is copies of the share application forms received from the 373 allottees which cannot be considered as additional evidence inasmuch as the entire information had earlier been furnished at the assessment stage. The ld. counsel further submitted that the CIT(A) has duly taken note of Rule 46A of I.T. Rules 1962 and also referred to the fact that no adverse comments have been made by the Assessing Officer in her written submissions dated 12-7-1995 before the CIT(A). Shri Patel further referred to the decision of Gujarat High Court in the case of Pari Mangaldas Girdhardas v. CIT [1977] CTR (Guj.) 647 wherein the High Court has considered at length the basis criteria for admission of additional evidence by the Tribunal under Rule 29 of Income Tax Appellate Tribunal Rules 1963. According to the ld. counsel the discretion given to the appellate authority to receive and admit additional evidence is a judicial one and such evidence may be allowed in the interest of justice. The ld. counsel submitted that there is no infirmity in the impugned order of the CIT(A) in considering the share application forms filed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Supreme Court in CIT v. Steller Investment Ltd. [2001] 251 ITR 263. Further reliance is placed on the following decisions: 1. Dy. CIT v. Core Healthcare Ltd. [2001] 251 ITR 61 (Guj.). 2. CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570 (SC). 3. CIT v. Ramanathapuram Distt. Co-op. Central Bank Ltd. [2002] 255 ITR 423 (SC). 4. CIT v. Lanco Industries Ltd. [2000] 242 ITR 357 (AP). 8. We have given our thoughtful consideration to the rival contentions and also gone through the facts and material on record. In our considered opinion the finding reached by the ld. CIT(A) and the reasoning adopted in support thereof are entirely well conceived and no interference on our part is called for. The very first objection raised by the revenue against entertainment of additional evidence by the CIT(A) lacks substance and is liable to be rejected. The ld. CIT(A) has duly considered the issue of admitting fresh evidence in the light of Rule 46A of I.T. Rules, 1962 and took note of the fact that the Assessing Officer in her written submissions dated 12-7-1995 did not make any adverse comments with regard to the evidence produced by the assessee company. We are inclined to agree with the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee company. The Assessing Officer has not disputed the fact that these 20 allottees have been allotted shares on the basis of share application forms submitted through Rajyaguru & Associates share broker. The said broker has been remunerated for the services rendered to the assessee firm. Once the basic fact is accepted that share application money has been received through Rajyaguru & Associates along with the share application forms, the Assessing Officer should have examined the share broker before jumping to the conclusion that the allottees are not available at the said address. We find that there is not even a whisper of any enquiry made by the Assessing Officer from the said broker regarding the identity or whereabouts of the applicants who have made applications along with the share application money for allotment of shares out of preferential quota. Without making any enquiries from the broker the Assessing Officer has proceeded to treat the investment as undisclosed income of the assessee company. If the investment belongs to the assessee company, there was no occasion for the Assessing Officer to allow deduction for under writing commission or brokerage to M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts it clearly emerges that the assessee has discharged the onus which lay upon it by virtue of provisions of section 68. Regarding the contention of the Assessing Officer that share certificates have not been produced, we feel that such a requirement has no nexus with the issue of onus under section 68. There are as many as 373 allottees spread all over the country and allotments have been made in conformity with the procedure laid down under the Companies Act. Share application forms submitted by the allottees are available on record. The assessee has furnished copy of return of allotment filed with the Registrar of Companies, Gujarat. The Assessing Officer has examined as many as 30 allottees who have confirmed the investment with regard to 20 allottees with the same address as 18, Semi Basement, Paradise Complex, Sayaji Gunj, Baroda it is amply established that M/s. Rajyaguru & Associates was the share broker who was the broker and under writer to the issue duly approved by the Baroda Stock Exchange and it was through this broker that share application money as well as share applications have been filed with the assessee company. The question of onus of proving the source and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of persons together with their confirmations and bank passbook for confirming their investments. The assessee produce none of the parties called for. The Assessing Officer finally conducted field enquiries and out of total of 373 allottees, 50 people were interrogated. Out of 50, 30 people have confirmed their investments. However, a total of 20 people could not be located at the address which was given to the Assessing Officer. All these 20 people have given the address of 18, Semi Basement, Paradise Complex, Sayajigunj, Baroda-390005 and the field enquiry revealed that no such person have ever resided or worked at such a premises. The present occupants of the address is unable to supply any details. The Assessing Officer accordingly concluded that address given against the name of 20 persons is bogus. The names of these 20 persons as given by the Assessing Officer in the assessment order are as under: - ------------------------------------------------------- Sr. Sr.No. Name of Investment No. list investor/holder ------------------------------------------------------- 1. 115 Rajiv Parikh 10000 2. 116 Vishwas Parikh 10000 3. 117 Manoj A. Parikh 10000 4. 118 Samarath Sharm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment, treated the balance amount of ₹ 59,56,000 as income of the assessee. 6. The assessee carried the matter in appeal and before the CIT(A), assessee furnished copies of share application forms received from the 373 allottees relating to preferential allotment and also furnished a copy of return of allotment filed with the Registrar of Companies. The counsel of the assessee appeared before the CIT(A) also referred to the provisions of the Companies Act relating to share capital etc. and submitted that names of 373 allottees were filed before the Assessing Officer. The counsel of the assessee also drew attention to the individual share application forms and also to the contents stated in the list of 373 allottees to prove that all the contents stated therein had been adequately recorded and stated in the list filed before the Assessing Officer. In view of this fact before the CIT(A) it was submitted that contention of the Assessing Officer that complete details were not filed was wholly incorrect. 7. The CIT(A) forwarded the two paper books filed before him to the Assessing Officer and Assessing Officer with regard to admissibility of additional evidence, submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of CIT v. Vali Mohd. Ahmedbhai, 134 ITR 214. 3.52. I, therefore, hold that the entire share application money of ₹ 99,98,300 for which allotment was completed, were the share capital of the appellant company and cannot be treated as the income of the appellant company from undisclosed sources. The Assessing Officer is directed to delete the addition of ₹ 59,56,000 made to the total income." 8. Aggrieved by the order of learned CIT(A) revenue is in appeal before us on the following ground:- "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of ₹ 59,56,000 (inclusive of ₹ 2,00,000) in respect of share capital being non-genuine." 9. At the time of hearing before us on behalf of revenue Shri N.J. Doria, learned departmental representative appeared and submitted that share application amount of ₹ 59,56,000 was found credit in the books of the assessee company and as per provision of section 68, Assessing Officer was within his power to enquire about identity of the shareholder, their capacity to invest and genuineness of transaction. The learned DR drew our attenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the assessee which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessee." 10. The learned departmental representative finally submitted that there is no justification whatsoever on the part of learned CIT(A) in deleting the addition of ₹ 59,56,000 made by Assessing Officer because the addition of ₹ 2,00,000 was made by Assessing Officer on the ground that field enquiry could not prove the identity of the applicant who applied for share of ₹ 2,00,000. Assessing Officer concluded that in respect of amount of ₹ 59,56,000 assessee has not furnished confirmation from the persons who applied for shares. Therefore, it was not possible to make necessary enquiry as provided in section 68 of the I.T. Act, 1961. In the absence of confirmation, Assessing Officer was fully justified in invoking the provisions contained in section 68 of the I.T. Act, 1961 and CIT(A) in the impugned order is not justified in admitting the fresh evidence. In the impugned order, learned CIT(A) on the one hand stated that he is not admitted the fresh evidences and deciding the appeals without admitting the fresh evidence an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew the principle of natural justice should have confronted the assessee with the finding of inquiry report. Since this was not done, in my opinion, it will meet the end of justice, if the issue regarding addition of ₹ 2,00,000 is remitted to the file of Assessing Officer with the direction that Assessing Officer will inform the assessee the outcome of field report and re-adjudicate this addition afresh. 13. It is pertinent to note that in case of private placement through promoters quota generally no underwriter is involved. Therefore, in case of private placement, heavy burden lies on the assessee to prove three parameters stated earlier of section 68 of the Act. On share application form itself it has been stated "For Private Circulation Only'. This clearly indicates that in this issue neither any promoter nor any underwriter was involved. As per letter of consent of Rajyaguru and Associates dated 22-7-1992, they have agreed for underwrite 3500 Equity Shares of nominal value of ₹ 35,000 for which commission of ₹ 875 (@ 2.5% of ₹ 35,000) was paid in the previous year relevant to the assessment year 1993-94. 14. The question whether section 68 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the direction that assessee should furnish confirmation / authenticated application form to the Assessing Officer who will conduct the necessary enquiry as provided under section 68 and re-adjudicate the addition of ₹ 59,56,000 afresh in accordance with law after giving an opportunity of being heard to the assessee. 16. In the result, for statistical purposes, the appeal of the revenue is allowed. 1. Pursuant of difference of opinion amongst the Members constituting the Division Bench, the following point of difference is referred to the President, ITAT under section 255(4) of the I.T. Act, 1961: - "Whether on the facts and circumstances of the case, the Accountant Member is justified in deleting the impugned addition of ₹ 59,56,000 on account of investment of share capital OR whether Judicial Member is justified in setting aside the issue of the file of the Assessing Officer for fresh adjudication." THIRD MEMBER ORDER Order under section 255(4) on difference Per Shri R.P. Garg, Vice President. - On a difference of opinion between the Accountant Member and the Judicial Member, the following point is referred by the Hon'ble President, Income tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the balance of ₹ 59,56,000 to the income of the assessee by observing that the assessee was given ample opportunity to provide the details of balance amount but has failed to produce any details. The share certificate showing allotment of shares were not produced and, therefore, the assessee had been unable to discharge its obligation to contact its shareholders and made unable the Department of Income-tax to verify the sources of investments. 3. Before the CIT(A), the assessee furnished copies of the share application forms received from the aforesaid 373 people including the 20 which were filed before the Assessing Officer and also furnished a copy of the return of allotment filed with the Registrar of Companies. The CIT(A) forwarded the said documents to the Assessing Officer for her comments who reported that share application forms were not produced for the purpose of examination during the course of assessment proceedings and that some of the application forms did not carry any signature of the applicants. It was also contended by the assessee before the CIT(A) that the field enquiry was made by the Assessing Officer from the 50 people at the back of the assessee. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been submitted before him carried the signatures of the applicants and, therefore, the observation of the Assessing Officer to the effect was incorrect. The ld. CIT-DR pointed out four such instances from the application forms wherein the signatures have not been put by the applicants which are amongst the 20 people. They are at page 561 of the paper book in the case of Shri Mukesh Patel, page 507 Shri O. Mehta, page 452 Shri Chandrakant Patel and page 396 Shri P. Mehta. The deletion of addition of ₹ 2 lakhs by the CIT(A) is not justified also in view of the fact that none of the aforesaid 20 people have filed their confirmations for investment in shares of the assessee company which by itself could not prove the identity of those persons. In respect of the other 323 shareholders the assessee has given only the names and addresses of these persons and not given any material before the Assessing Officer either in the shape of the application form or their confirmation letters of source for making the investment in the shares of the company. They were placed before the Commissioner of Income-tax (Appeals) for the first time and in that connection, the Assessing Officer made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. In some of the other application forms name of one "K.B. Jain" stands on the right corner of the application but what does that denote also was not clarified. Further, the observation of the ld. Accountant Member that spot enquiries have been made at the back of the assessee and proper opportunity has not been afforded to the assessee thus violated the principle of natural justice as well as express provisions of section 142(3) of the Act all the more requires that the matter should have been set aside for making the said field enquiry report available to the assessee for its comments as directed by the ld. Judicial Member and then make the fresh assessment instead of endorsing the conclusion of the CIT(A) that the addition of ₹ 2 lakhs made by the Assessing Officer was without substance and liable to be deleted. 7. The ld. counsel of the assessee Shri K.C. Patel submitted that the assessee is a public limited company incorporated on 27-11-1991, that it started production only on 27-2-1992 with an installed capacity of 35 tons per day and thus it was in existence for commercial field for about a month. He submitted that it had a share capital as on 31-3-1992 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the assessee company could have in this short period earned profit to the extent of ₹ 4,40,000. 8. I have considered the rival submissions and gone through the record. Difference of the two Members in this case is whether the amount credited by the assessee in share capital in promoters quota of ₹ 59,56,000 is to be deleted on the material on record or it requires to be set aside for further verification and gather material to come to a conclusion, one way or the other. The Assessing Officer says assessee has not filed confirmations with regard to investment of ₹ 59,56,000 and on field enquiries 20 out of 50 allottees were not found even existing at the given common address 18, Semi Basement, Paradise Complex, Sayajigunj, Baroda-390005, though for 30 he accepts have confirmed their investment. The CIT(A) says necessary details were given by assessee to Assessing Officer and in a change from before him i.e. the copies of application forms submitted by them to assessee company and on having same made available the Assessing Officer did not advance any adverse comment on merits except objecting for admission of evidence on the ground of its being new. The CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, the applicability of which is agreed to by both the Members. 11. The ld. counsel of the assessee also submitted that the investment of ₹ 3 lakhs by 30 persons who have appeared before the Assessing Officer and confirmed their investment has also been added by the Assessing Officer as he has given benefit of ₹ 39,43,300 the confirmation of which was filed by the assessee and that this sum does not include the above ₹ 3 lakhs from the said 30 people in whose cases the assessee did not file any confirmation but who have confirmed directly before the Assessing Officer aforesaid. In my opinion, that should not have been added by the Assessing Officer to the income of the assessee and therefore, the sum of ₹ 3 lakhs out of ₹ 65,56,000 is required to be deleted in any case. I direct accordingly. 12. The case of Steller Investment Ltd. relied upon by the ld. counsel was for seeking a question of law under section 256(2) of the Act and in that connection, it was observed that no question of law arose because the amount of share capital cannot be regarded as undisclosed income of the assessee. The Revenue carried the matter to the Supreme Court and the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 years during the previous year relevant to the asst. year 1968-69. On November 15,1967 she had purchased 16 cents of land in Ernakulam and the amount spent by her, inclusive of stamp and registration charges, for this purchase of ₹ 34,628. On November 27, 1968 she purchased another 12 cents also at Ernakulam and the total investment for this purchase was ₹ 25,902. The explanation of the assessee regarding the source of the purchase money for these investments was that the same was financed from out of the savings from the income of the properties which were left by her mother's first husband. The Tribunal though agreed with the Assessing Officer that the explanation about the nature and source of purchase money was not satisfactory, but in the facts and circumstances of the case, it observed that it was not possible for the assessee to earn the amount invested in the property and that by no stretch of imagination could the assessee be credited with having earned this income in the course of assessment year or was even in a position to earn it for a decade or more. This finding was agreed with by the High Court and the Supreme Court did not find any error in the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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