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TMI Blog1992 (10) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... uiries revealed that investment companies in certain cases were utilised as a device to introduce the concealed income and that none of the share applicants to whom summonses were issued by him were produced by the assessee nor their sources for investment were proved. In other words, the AO held that the nature and source of the investment introduced in different names remained unapproved. He further held that the managing director and some of the shareholders of the company were staying in Bombay and it was not possible to make any enquiry in respect of them. However, by giving a credit for 25%, he treated the balance 75% of the share capital amount of Rs. 71,50,000 received by the assessee, as the income of the assessee from undisclosed sources. 3. The assessee appealed objecting inter alia to this addition and contended before the CIT(A) that the said addition was not justified as it was not an investment company as assumed by the AO but a manufacturing company and that it had placed all the materials that were within its power and control before the AO to prove the genuineness of the subscriptions received by it through its shares which were under-written by M/s. D.B. & Co., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal. 5. Shri S. R. Das, the learned counsel for the appellant, submitted that this was the first accounting year as well as the assessment year of the appellant-company, that it was incorporated on 13-6-1985 that the appellant-company raised share capital of Rs. 71 lakhs by public subscription through private placement by means of four issues on 20-11-1985, 18-2-1986, 27-3-1986 and 26-5-1986 and adding 5,000 shares subscribed by the promoters, the total share capital raised by the assessee by issue of these shares amounted to Rs. 71,50,000. The learned counsel next pointed out that the appellant is a public limited company which was incorporated for the purpose of manufacturing all types of synthetic polyester marble tiles with foreign collaboration as prescribed in the object clause of the Memorandum of Association by the company. He argued that the appellant was not an investment company as assumed by the Assessing Officer and as rightly accepted by the CIT(Appeals). He pointed out that pursuant to its objects the appellant-company had obtained an industrial licence from the Govt. of India on 27-12-1988 and had also taken several steps for erection of civil works by acqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(Appeals) who in one part of his order observed that it would be reasonable to disallow only 10 per cent of the total share capital on account of inability of the assessee to prove the identity of the shareholders. The learned counsel challenged the findings of the CIT(Appeals) in paragraph 2-8 of his order as unjustified and uncalled for and submitted that the said addition retained by the CIT(Appeals) should be deleted. In support of his submissions the learned counsel relied on the decision of the Allahabad High Court in the case of Chaturbhuj & Co. v. CIT [1959] 36 ITR 386 wherein it has been held that the very basis of assessing an income in the hands of a person is the ownership of the amount vesting in that person, and the burden of establishing that fact from some material rests initially on the Department in case that sum is not admitted by that person to be his own income or receipt. It was further held in this decision that where money appearing in the books of account of the assessee as belonging to another person, is sought to be taxed as income of the assessee, the assessee may be required to give an explanation in respect of the entry in the accounts, but the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year in which it is found credited in the books of account and that section 69 applies to unexplained investments which are not recorded in the books of account. This decision follows the decisions of the Calcutta High Court in CIT v. Ashok Timber Industries [1980] 125 ITR 336 and CIT v. Orissa Steel Corpn. (P.) Ltd. [1983] 144 ITR 662 and a decision of the Gujarat High Court in CIT v. Mansurali Valibhai Dudhani [1984] 148 ITR 526 (App.). In fact, the learned dept. representative submitted that these decisions supported the action of the Assessing Officer and that they should be followed in preference to the decisions rendered before the enactment of section 68 of the Act. 7. We have carefully examined the submissions set out above, in the light of the materials placed before us. In the present case there is no dispute that the appellant is a public limited company which was incorporated on 13-6-1985 with the object of establishing a factory for manufacture of all types of synthetic polyester marble tiles with foreign technology and know-how especially French technology from M/s. MFC, France. This company commenced its business on 21-8-1985 when it obtained the certificate for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had also taken steps for allotment of a suitable factory site at Aurangabad in a notified backward District. The annual report for 1990-91 further shows that the appellant-company had incurred capital expenditure to the tune of Rs. 103.48 lakhs up to 31-3-1991 towards project implementation and that the civil construction for the proposed factory buildings was making good progress. The assessee was also negotiating with the French company for obtaining upgraded technology. We are referring to all these facts only to show that the appellant-company is not an investment-company as assumed by the departmental authorities but a genuine manufacturing company which was in the process of setting up its factory by erecting the building and importing machinery by raising necessary capital from the public and the financial institutions with the help of foreign collaborators. In fact, the auditor's report in the annual report for 1990-91 shows that the assessee-company was still at construction stage and had not started any manufacturing activity. Thus, it would be clear that the appellant-company was still in its formative stage during the year under appeal as it had no other business activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Revenue. In our view the principle of this decision is equally applicable even under section 68 of the Act which has only codified the various principles laid down in the earlier decisions of the Supreme Court and various High Courts in regard to cash credits, under the old Act. 10. In the present case it would be noticed that the appellant-company was formed only in the year of appeal and that its only business activity was raising of capital by issue of shares by private placement. Apart from this, it is still in the process of setting up its factory at Paithan by acquiring necessary land in a backward area and also by entering into the necessary foreign collaboration agreement and also arranging for institutional finance from the IFC. The mere fact that the assessee-company was unable to produce 25 shareholders whose names are mentioned in the assessment order would not necessarily lead to the conclusion that the share capital amount received from them by the assessee-company represented the undisclosed income of the appellant-company much less it justify the further inference that a portion of the share capital represented undisclosed income of the appellant-company. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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