TMI Blog1995 (1) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order. The officer has made the addition on the ground that the assessee has failed to produce the parties, the identity of the parties have not been proved the capacity of the parties to invest the money has not been proved. He has also held that the parties in whose name the shares were allotted have transferred them within a few weeks to Shri J.K. Rishi and Smt. Nirmal Rishi and the members of their family. He has observed that the directors had purchased these shares within a few weeks of the allotment. None of the parties except Shri Brijlal was produced before the officer. 22. Though the addition of Rs. 10 lacs has been objected in the ground of appeals on the ground that sufficient opportunity has not been given, at the time of hearing of the appeal no argument was advanced. In the written submission made by the appellant's representative he merely stated that further opportunity should be granted for filing the confirmation letters. 23. A perusal of the record shows that the case had been taken up for hearing in 1989 and a no. of opportunities had been given to the assessee and the assessment order was passed only in December 1990 and a no. of questionna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... list of 20 parties with addresses requesting the Assessing Officer to issue summons to these parties was filed. Only one subscriber namely Shri Brijlal appeared before A.O. and his statement was recorded on 23rd March, 1990. The others, according to the Assessing Offlcer, did not appear. In fact, the summon sent to them returned undelivered by postal authorities. The Assessing Officer accordingly summoned Shri J.K. Rishi, the Director of the company had signed the return under section 131 of the Income-tax Act for some date in December 1990. On 14th December, 1990, CA appeared on behalf of the assessee and asked for adjournment. This request was refused and a penalty of Rs. 1,100 was imposed upon Shri J. K. Rishi under section 272A(1) of I.T. Act. The ITO completed the assessment on 21st December, 1990 adding Rs. 10 lakhs as assessee's income from undisclosed sources with the following observations: "13. The above 10,000 preference shares were allotted on three dates: 3,350 shares on 3-9-85, 2,650 shares on 19-11-1985 and 4,000 shares on 16-1-1986 respectively to those parties; whose capacity to purchase is non-existent and identity has not been proved. Interestingly these share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, 1992 of Honourable Delhi High Court in the case of ClT v. Kwick Travels [IT Case No. 168 of 1991] wherein their Lordships rejected reference application of the revenue under section 256(2) of the Income-tax Act challenging finding of the tribunal that under section 68 of Income-tax Act, assessee cannot be called upon to prove creditworthiness of persons making investment as share capital. The gist of the decision is reproduced in 199 ITR page 85 (Statute). Shri Aggarwal further submitted that Full Bench decision of Honourable Delhi High Court was not on merit but had only directed that a question of law under section 256(2) should be referred to the Honourable High Court. Shri Aggarwal relied upon certain decision of other Tribunals made part of the paper book. In particular he relied upon the decision reported in 24 ITD page 540 (sic) and in Sushila Forging (P.) Ltd. v. Dy. CIT [1993] 46 TTJ (Delhi) 66. He submitted that complete addresses of subscribers were furnished to the A.O. and in two cases those subscribers had asked for further time to make statements. The said request was not entertained nor any reference to above facts was made in the assessment order. Thus, when id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourable Delhi High Court in the case of Sophia Finance Ltd. The aforesaid decision no doubt is with reference to the application under section 256(2) of the Act but their Lordships made certain observations which are relevant and are reproduced below: " If the amount credited is a capital receipt then it cannot be taxed but it is for the Income-tax Officer to be satisfied that the true nature of the receipt is that of capital. Merely because the company chooses to show the receipt of the money as capital, it does not preclude the Income-tax Officer from going into the question whether this is actually so. Section 68 would clearly empower him to do so. Where, therefore, the assessee represents that it has issued share on the receipt of share application money than the amount so received would be credited in the books of account of the company. The Income-tax Officer would be entitled to enquire, and it would indeed be his duty to do so, whether the alleged shareholders do in fact exist or not. If the shareholders exist then, in fact, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons. The use of the words 'ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt of share application money. Then the amount received would be credited in the accounts of the company as the capital receipt. However, the existence of shareholders is essential. The Full Bench observed: "If the shareholders exist, then, possibly, no further enquiry need be made." The Income-tax Officer in the present case clearly applied more onerous test that what is laid down by the Full Bench while making enquiry under section 68 of the I.T. Act. 9. It is an admitted position that Shri Brijlal one of the shareholders appeared before the Assessing Officer in response to summons and his statement on oath was recorded. He confirmed the transaction of purchase and sale of shares but the said statement has been rejected without much discussion and on the ground that his reply were evasive on material points. At the time of hearing of appeal, Shri C.S. Aggarwal, learned representative of assessee filed before us copies of two letters dated 24th March, 1990 addressed to the Assessing Officer by Shri Ashok Kumar and Nandlal requesting the A. O to grant more time to these shareholders. It is not known why no reference to these letters was made by the Assessing Officer in the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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