1992 (2) TMI 4 - HC - Income Tax

Summary

Issues Involved:
The judgment involves a reference under section 256(1) of the Income-tax Act, 1961 for the assessment year 1986-87, questioning the validity of an order under section 263 of the Act.

Summary of Judgment:

Issue 1: Validity of Order u/s 263 of the Income-tax Act, 1961
The Commissioner of Income-tax initiated proceedings under section 263 based on inadequate scrutiny of the genuineness and creditworthiness of shareholders by the Assessing Officer. The Commissioner found discrepancies in the assessment process, such as lack of detailed inquiries and examination of shareholders. The Commissioner's decision was influenced by the case law of Gee Vee Enterprises [1975] 99 ITR 375 (Delhi). The Tribunal, however, disagreed with the Commissioner's assessment, stating that the assessment order was not erroneous or prejudicial to the Revenue's interests.

Issue 2: Authority of Assessing Officer to Inquire into Shareholders' Investments
The High Court observed that the Assessing Officer has the jurisdiction to inquire into the source of investment of shareholders in a company. The Court highlighted the importance of establishing a link between shareholders' unaccounted money and the company's undisclosed income before making any additions to the company's income. The Court emphasized that the Assessing Officer's inquiry should be based on the facts and circumstances of each case.

In conclusion, the High Court ruled in favor of the Revenue, stating that the Commissioner's decision was not erroneous based on the facts presented. The Court emphasized the importance of proper inquiries into shareholders' investments and upheld the validity of the Commissioner's order under section 263 of the Income-tax Act, 1961 for the assessment year 1986-87.