TMI Blog2006 (5) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 under section 132(4) in the hands of the company and its directors. Later, Shri Y. Ravi Prasad and others retracted the admission by filing a letter dated 21-3-1996. However, before conclusion of the search, four affidavits dated 4-4-1996 were filed by Smt. B. Prabhavathi, wife of Shri B.P. Gupta, Shri Y. Ravi Prasad, Shri Y. Mahadev (Promoter) and Shri M.N.S. Venkateshawar Rao, admitting total undisclosed income of Rs. 40 lakhs. As per the Assessing Officer, the search operations were initiated mainly to unearth unaccounted money earned by rigging the prices of shares of Valueline Securities (India) Ltd., after the public issue during July 1995. 3. In response to notice under section 158BD, the company filed block return disclosing total undisclosed income at Nil. The assessment was made on 30-5-1997 determining the total undisclosed income at Rs. 38,64,000 which comprised of the following amounts:- Rs. 1. Amounts introduced in the names of 7,64,000 B. Ramakrishna 21 other investors- treated as benami investments and added as unexplained credits under section 68 in the hands of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified in making addition under section 68 disbelieving the share capital introduced by the shareholders, particularly when no material was found during the course of search and seizure operations. During the course of hearing, the appellant filed two volumes of paper books in the case of Valueline Securities (India) Ltd., besides filing paper books in the cases of Shri B.P. Gupta and Shri Y. Ravi Prasad, the Directors of the company. The Revenue also filed paper books. The paper books consist of the following:- (a) Paper book showing evidence of introduction of share capital by the shareholders of the Valueline Securities (India) Ltd. (b) Paper book (2nd volume) containing 13 pages, also filed by the appellant. This consists of the information regarding the details of search and seizure operations and the notice issued by the Assessing Officer before completion of assessment under section 158BC of the Act. (c) Department filed paper book dated 5-8-2004 containing 30 pages. (d) The second volume of the paper book filed by the department contains pages 31 to 67. (e) The appellant prepared a consolidated paper book containing pages 1 to 67 on 22-2-2006 (This paper book c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment under section 158BC expired by 30-4-1997 while the assessment order was passed on 30-5-1997. Therefore, appellant submits that the order passed on 30-5-1997 is not valid. On the other hand, the department is of the view that the assessment in the case of the appellant was made in accordance with the provisions of section 158BD and, therefore, the assessment was within the time. (3) There were search and seizure operations in the case of the appellant and the authorities also issued warrant in the case of the company. The following extracts indicate clearly that there were search and seizure operations in the case of the appellant itself. Extract of columns A B of Panchanama drawn on 27-1-1996 at the premises of the appellant "(A) Warrant in the case of : Valueline Securities Ltd. (B) Warrant to search : 6-2-6 (Details ownership of 1st Floor, B.J. Road place of search) Lakdi-ka-pul, Hyderabad" Extract of columns A B of Panchanama drawn on 31-1-1996 at the premises of the appellant "(A) Warrant in the case of : Valueline Securities Ltd. (B) Warrant to search : 6-2-6 (Details ownership of 1st Floor, B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer and his Assistant which reads as under: "CIT, A.P.I, order under section 127(2)(a), dated 11-3-1996 in S P/Jurn/CIT, A.P.I/95-96 (BLOCK PERIOD ASSESSMENT) is received and filed. As per the notification, in the above case Notice under section 158BC put up." It is clear from the above noting that the communication received from the Commissioner of Income-tax indicated issue of notice under section 158BC of the Act. A notice under section 158BC was put up by the Assistant and the Assessing Officer signed the notice. The said notice is at page 1 of the Consolidated paper book. (8) It can be seen from the order sheet submitted by the learned DR that the following matter is inserted above the typed note on the order sheet: "The materials gathered during search operations revealed that the genuineness of promoters equity of the company was not substantiated. I have perused the materials gathered and satisfied. Issue notice under section 158BD. Sd/ 22/4" It is clear from the order sheet noting that it is an interpolation. It was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 158BD is in substance and effect in conformity with the intent and purpose of the Act and, therefore, the assessment may be treated as valid without considering the trivialities in the process of making assessment. 9. The learned counsel for the assessee further submitted that even on merits the Assessing Officer is not justified in making the addition under section 68 of the Act for the following reasons:- The appellant is a company in which the public are substantially interested and during the previous year relevant for the assessment year 1996-97, it issued the shares to the public. The total share capital of the company as on 31-3-1996 was Rs. 3,24,98,500., Out of the said amount, the Assessing Officer treated the investment in the promoters' quota of share capital as the income of the appellant. The appellant had provided details of the shareholders before the Assessing Officer. The Assessing Officer issued letters of enquiry to the shareholders. Based on the response to such enquiry letters, the Assessing Officer made the additions. The details of additions made by the Assessing Officer and reasons for making such addition are as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... introduced by various shareholders represent the income of the appellant. Therefore, he submitted that the Assessing Officer is not justified in making any such addition under section 68 of the Act. 11. The appellant relies on the following decisions: (1) The decision of the Calcutta High Court in the case of Bhagwati Prasad Kedia v. CIT [2001] 248 ITR 562 wherein it is held that the Assessing Officer is not entitled to question in the block assessment any loan which was subject-matter of regular assessment. It is also held that the Assessing Officer was wrong in holding that the loan recorded in the books of account could be taxed in the block assessment. (2) The decision of the Delhi High Court in the case of CIT v. Ravi Kant Jain [2001] 250 ITR 141. (3) The decision of the Gujarat High Court in the case of CIT v. Shambhulal C. Bachkaniwala [2000] 245 ITR 488. (4) The decision of the Bombay High Court in the case of CIT v. Vinod Danchand Ghodawat [2001] 247 ITR 448. (5) The decision of the Bombay High Court in the case of CIT v. Vikram A. Doshi and Ms. Leena V. Doshi [2002] 256 ITR 129. The learned counsel submitted that the judicial opinion is uniform to the effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .02.1997 ------------------------------------------------------------- 11. 92 G. Rama Devi 25,000 24.04.1997 ------------------------------------------------------------- 12. 94 G.K. Narayana Rao 25,000 24.04.1997 ------------------------------------------------------------- 13. 98 Subba Reddy Bolla 25,000 06.03.1997 ------------------------------------------------------------- 14. 101 M. Srinivas 24.04.1997 ------------------------------------------------------------- 15. 104 M. Krishna Murthy 25,000 23.01.1997 ------------------------------------------------------------- 16. 115 B. Sesharatnam ------------------------------------------------------------- 17. 117 Y. Susheela 1,00,000 24.04.1997 ------------------------------------------------------------- 18. 119 Subhashini Ketpally 25,000 02.04.1997 ------------------------------------------------------------- 19. 122 Vasant Tirumal Raju 25,000 20.02.1997 ------------------------------------------------------------- 20. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------- 39. 220 K. Pawan Kumar 25,000 22.01.1997 ------------------------------------------------------------- 40. 224 K. Sujani Devi 25,000 20.01.1997 ------------------------------------------------------------- 41. 227 K. Padma 25,000 08.03.1997 ------------------------------------------------------------- 42. K. Kalpana 25,000 22.01.1997 ------------------------------------------------------------- 43. Jugal Kishore Nagala 25,000 24.04.1997 ------------------------------------------------------------- He submitted that from the letters of confirmation directly addressed to the Asstt. Commissioner of Income-tax, it is clear that the Assessing Officer himself addressed letters under section 133(6) of the Act requiring the shareholders to furnish the details of investment with the appellant company. They have responded and furnished the details as required by the Assessing Officer. None of the share-holders mentioned that they have not invested the amounts with the appellant company. All the shareholders who have responded to the letters issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the investors is on the appellant. The Assessing Officer also relied on the decision of the Delhi High Court in the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 98. The Assessing Officer also relied on various other judgments. It is mentioned by the Assessing Officer that in spite of the letters of enquiry under section 133(6) having been duly served, the investors failed to furnish letters of confirmation and therefore, the existence of the investors has not been proved. Finally, the Assessing Officer observed that it is clear that the names of friends and relatives of the assessee-company were used as a camouflage by the appellant company to put through its unaccounted money in the shape of share capital. He submitted that the appellant furnished detailed addresses of the shareholders. At page 13 of the assessment order it is mentioned by the Assessing Officer that "in the instant case, the enquiry letters under section 133(6) were duly served and still the alleged investors failed to furnish the confirmation letters". This observation of the Assessing Officer clearly shows that the letters were served. Some of these persons have sent replies which were not considered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omitted). In respect of the said eleven persons, the appellant provided the list of the investors. The said list consists of documents submitted in support of the investments made. It can be seen that in respect of the shareholders the appellant filed application forms for shares. In respect of item No. 4, i.e. Subhasini Katpally, the shareholder sent a letter of confirmation to the Assessing Officer and copy of the same is sent to the appellant. It is further submitted that item 12 mentioned by the Assessing Officer is with regard to late K. Venkateswera Rao represented by his son. The amount is Rs. 45,000. This is once again included in the table 4 as item No. 53 wherein the Assessing Officer mentioned that the evidence is not enough to prove the sources. Therefore, it is not correct for the Assessing Officer to mention that the notice issued to Venkateswera Rao was not served as his representative responded to the notice. In the circumstances it is submitted that the Assessing Officer is not justified in holding that the sources of investment was not proved as the appellant provided data as mentioned in table 2 which is in APB just before page No. 36. 17. The learned counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2000] 242 ITR 357, the Assessing Officer is not justified in making the addition. 19. During the course of search and seizure operations, the Income-tax authorities found share certificates at the Regd. Office of the appellant. The list of the share certificates as annexed to the panchnama is at pages 9 to 11 of the consolidated paper book filed by the appellant. The learned counsel for the assessee submitted that the reasons as to why the share certificates were available in the Regd. Office of the appellant-company were that the certificates are available either for despatch or as the shareholders are close relatives of the directors and that in the Regd. Office of the company, the directors have their own chambers and the share certificates found in their chambers are also considered as available with the company. The reasons for non-delivery of the share certificates and the reasons for availability of certificates at the premises of the appellant company, according to the learned counsel, are as under: ------------------------------------------------------------ Sl. Name of the holder Reasons for non-delivery/relation- No. ship with director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------ 19. Jugal Kishore Nagla Under dispatch ------------------------------------------------------------ 20. Y. Sumathi Sister-in-law of director Y. Ravi Prasad ------------------------------------------------------------ 21. C. Mahender Under dispatch ------------------------------------------------------------ 22. G. Ramakrishna Under dispatch ------------------------------------------------------------ 23. P. Purushotham Brother-in-law of director Y. Ravi Prasad ------------------------------------------------------------ 24. K. Kalpana Under dispatch ------------------------------------------------------------ 25. K. Padma Under dispatch ------------------------------------------------------------ 26. R. Sumalatha Niece of director Y. Ravi Prasad ------------------------------------------------------------ 27. K. Hemalatha Niece of director Y. Ravi Prasad ------------------------------------------------------------ 28. R. Ajay Kumar Under dispatch ------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Mahender, Sri Kulkarni Dilip Kumar, K. Kanana Maha Lakshmi, P. Kalavathi, R. Ajay Kumar, Jugal Kishore Nagla, K. Kalpana and K. Pavan Kumar have replied mentioning that they have invested in share capital of the appellant company. From the observations of the Assessing Officer at paragraphs 12.2 and 12.3 of page No. 26 of the assessment order, 8 out of 10 persons responded and confirmed the investment in the share capital. Therefore, in view of the submissions made earlier, and in view of the decision of the Supreme Court in the case of Stellar Investment Ltd. and the decision of the Andhra Pradesh High Court in the case of Lanco Industries Ltd. the Assessing Officer is not justified in making the addition. Insofar as Smt. K Sujanadevi and K. Padma are concerned, they did not respond to the summon issued. However, the appellant submitted the copy of the application form for allotment of the shares, a copy of the certificate issued for deduction of tax at source in respect of dividend paid to them. In view of the above, the appellant submits that the Assessing Officer is not justified in making any addition. 20. The learned departmental representative, on the other hand, opposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tire assessment order is vitiated and bad in law when it is in substance and effect in conformity with or according to the intent and purpose of the Act. (4) The intention of the Assessing Officer is also evident from the following satisfaction recorded on the order sheet before the notice was served on the assessee on 10-5-1996: "The materials gathered during search operations revealed that the genuineness of promoters equity of the company was not substantiated. I have perused the materials gathered and satisfied. Issue notice under section 158BD." [DPB 31] The satisfaction of the Assessing Officer also finds place at para 2, page 2 of the block assessment order in the case of the assessee. Initially, a notice under section 158BC was prepared on 22-4-1996 as per the order sheet noting dated 22-4-1996. Subsequently, when the Assessing Officer learned from the ADIT that there was no warrant of authorisation in the case of the company, the satisfaction was recorded and the notice was issued under section 158BD. Therefore, before the notice was served on the assessee on 16-5-1996, the Assessing Officer duly recorded the satisfaction that it was a case covered under section 158B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Service Co-op. Federation [1981] 131 ITR 506 (Mad.). (v) Asstt. CIT v. M. Mani [1997] 63 ITD 393 (Cochin). (vi) Vijay Trading Co. v. ITO [1985] 13 ITD 526 (Nag.). (vii) Action for Welfare Awakening in Rural Environment (AWARE) v. Dy. CIT [2003] 263 ITR 13 (AP). (viii) Y. Subbaraju Co. v. Asstt. CIT [2004] 91 ITD 118 (Bang.) (SB). (ix) Smt. Mahesh Kumari Batra v. Jt. CIT [2005] 95 ITD 152 (Asr.)(SB). (x) L. Saroja v. Asstt. CIT [2001] 76 ITD 344 (Mad.). (xi) Biological E. Ltd. [ITAT 'A' Bench, Hyderabad]. (6) Without prejudice to the submission that non-scoring out of section 158BC in the notice was only an inadvertent mistake, the provisions of Chapter XIV-B had been substantially complied with and adequate opportunity had been given to the assessee in the course of block assessment proceedings and no prejudice was caused to the assessee and, therefore, the assessment is valid in the eye of law. At the worst, as already submitted, it was only a procedural irregularity which could be cured under section 292B of the Act. Further, under the doctrine of waiver/acquiscence, since the assessee had participated in the proceedings initiated by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal representative as follows:- (1) According to the learned DR, the assessment was made under section 158BD and, therefore, the assessment is within time. The appellant is submitting that the provisions of section 158BD have no application and the provisions of section 158BC only apply to the facts of the case. The notice under section 158BC was issued on the same date when similar notices were issued to the Directors of the company i.e., 22-4-1996, and when the Assessing Officer found that the assessment got barred by limitation, he mentioned in the assessment order that he was completing the assessment under section 158BD of the Act though he had issued notice under section 158BC of the Act. (2) The learned DR mentioned that the notice under section 158BD was issued to the appellant to examine certain issues arising out of search operations. According to the learned DR, the Assessing Officer mentioned that notice under section 158BD was issued to examine certain issues arising out of the search and seizure operations during the block assessments under section 158BC in the case of Sri B.P. Gupta and Sri Y. Ravi Prasad on 31-1-1997. This is not correct. At page 11 of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect, in conformity with or according to the intent and purpose of the Act. According to the learned DR the intention was to make an assessment under section 158BD and, therefore, any mistake committed by the Assessing Officer, would not invalidate the assessment. It is submitted that provisions of Chapter XIV-B of the Income-tax Act provide for two different types of assessments in respect of persons where search has been conducted and in respect of persons other than such persons whose books of account and other documents were found during the course of search of any other person. Section 158BE of the Income-tax Act provides different time-limits for those assessments to be made under section 158BC or under section 158BD. Therefore, the Legislature provided for different treatment with regard to the persons covered by the provisions of section 158BC and those who are covered by the provisions of section 158BD. When the question of time-limit under section 158BE is to be examined, it is to be seen whether the assessment has to be completed in accordance with the provisions of section 158BC or section 158BD. Therefore, the learned DR is not correct in mentioning that the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n inadvertent mistake. It is submitted that in the case of the appellant, notice was issued on 22-4-1996, one day prior to the date of closure of the search. Section 158BC is retained and 158BD is struck off. Therefore, the learned DR is not correct in mentioning that it is a mere mistake in not scoring out the relevant portion in the notice. From the facts enumerated above, it is submitted that in the case of the appellant notice under section 158BC has to be issued. Therefore, the notice was correctly issued under section 158BC. Further, the Assessing Officer retained section 158BC and scored out section 158BD correctly. (3) In the case of CIT v. Jai Prakash Singh [1996] 219 ITR 737, decided by Hon'ble Supreme Court, notice was not served on all the legal representatives, but served on one out of ten legal representatives. Therefore, the Supreme Court observed that the assessment was irregular and it is only a curable defect. In the case of the appellant the question is whether the assessment was made within the time or not. If the assessment is not made wit~ the time allowed by the statute, the assessment is void. The contention of the appellant is that the assessment was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere conducted. It is the contention of the appellant that the assessment was not completed within the time and therefore got barred by limitation. (12) The decisions of the Hon'ble Supreme Court in the case of DIT (Inv.) v. Pooran Mal Sons [1974] 96 ITR 390, and the ITAT Allahabad Bench in the case of Dr. R.M.L. Mehrotra v. Asstt. CIT [1999] 68 ITD 288, have no application to the facts of the appellant's case. It is not the contention of the appellant that he did not understand implications of the notice issued and it is submitted that the company very well understood the notice issued under section 158BC. When the assessment got barred by limitation, the Assessing Officer chose to mention the assessment to be under section 158BD and not 158BC. Therefore, the appellant submits that the assessment is not valid. (13) Even in respect of the decisions of the Hon'ble Rajasthan High Court in the case of Birla Cotton Spg. Wvg. Mills Ltd. v. ITO [1994] 209 ITR 434, and Special Bench of the ITAT, Lucknow, in the case of Nawal Kishore Sons Jewellers v. Dy. CIT [2003] 87 ITD 407, the proposition is that the assessee, having participated in the assessment proceedings, cannot mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer is very clear to make an assessment under section 158BC of the Act. The learned counsel for the assessee emphasized that the notice under section 158BC was issued to the appellant company on the same day on which the notices under section 158BC were issued to the Directors of the Company i.e., on 22-4-1996, just a day before closing the search and seizure operations. 24. When the assessment was getting barred by limitation in view of section 158BE of the Act, the Assessing Officer made an attempt to show that the assessment was being made under section 158BD of the Act. This attempt is only to save the assessment order from being called time-barred. In that process, the Assessing Officer mentioned that the assessment was being made under section 158BD. He also mentioned at page 2: "The block assessments under section 158BC in the case of Shri B.P. Gupta and Shri Y. Ravi Prasad were completed on 31-1-1997. A notice under section 158BD was issued to M/s. Value Line Securities (P.) Ltd., to examine certain issues arise out of search and seizure operations." The Assessing Officer by writing the above paragraph wants others to understand that the notice under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the company Value Line Securities (India) Ltd., the appellant explained that the entire share capital was introduced in the regular books of account. He contended that there is no evidence in the seized documents that the share capital was introduced by the Directors or by the company. The appellant also submitted clearly the reasons as to why the share certificates were found at the premises of the company. It was also submitted that the share certificate found at the residential premises of the appellant belong to the close relatives of the directors. Therefore, availability of the share certificate at the premises of the company or at the residential premises of the directors cannot lead to the conclusion that the share capital is not genuine. The appellant had submitted evidence to show that the share capital introduced is genuine. The company submitted the list of shareholders, copies of the applications, and other evidences to prove the genuineness of the share capital. Therefore, the learned counsel submitted that the Assessing Officer is not justified in making any addition under section 68 of the Act. He relied on the submissions made by the company in this regard an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information that the director introduced his own money in the names of various shareholders, no addition can be made in the case of the director. He submitted that no such information was found during the course of search nor could such information be gathered by the Assessing Officer during the course of assessment proceedings. He thus contended that the Assessing Officer is not justified in making any addition on this count. 30. The learned counsel further submitted that the director had admitted the share capital introduced by his father Shri Y. Venkata Narayana in the company and that this does not mean that the entire share capital in the names of all other shareholders was introduced by him. Further, wherever the Assessing Officer sent letters of enquiry, the shareholders accepted the investment made by them. None of the shareholders explained that the share capital does not relate to them. 31. He further submitted that the Assessing Officer has no basis to estimate the addition to be made in the case of the director as 50% of the share capital and that the very fact that the Assessing Officer resorted to an estimation indicates clearly that the Assessing Officer has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that Shri Y. Mahadeva and Shri M.N.S. Venkateswara Rao, promoters of the company, and Shri Y. Ravi Prasad, director, admitted as undisclosed income the investment in the names of some of the said persons. Further, some such share certificates were found at the premises of Shri Y. Ravi Prasad, who admitted the investment of Rs. 2,00,000 in the name of Shri Y. Venkata Narayana, and at the premises of Shri B.P. Gupta, who admitted such investment to the extent of Rs. 5,98,050. Thus, he submitted, overwhelming and specific evidences were found during the search operations which prompted the Assessing Officer to make further enquiries about the sources of the share capital introduced in the books of Value Line Securities Ltd. and that the enquiries conducted and statements recorded by the ADIT and the Assessing Officer were with reference to the positive and specific evidences found and, therefore, the material gathered was relatable to such evidences. He further submitted that the details of bank drafts/cheques issued in some cases for acquisition of shares in the promoters' quota of the assessee-company show that the demand draft numbers are continuous numbers, though the alleged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and such other materials or information as are available with the Assessing Officer. Thus, he submitted, under section 158BC(b) read with section 158BB, the provisions of section 143(3) have been specifically made available to the Assessing Officer while making block assessment. Section 143(3) empowers the Assessing Officer to make an assessment of income on the basis of the material which has been gathered by him. The process of assessment under section 158BC, read with section 158BB is not merely computation of income but a process of evaluation of evidence and material found during the course of the search and derived from the books of account, documents and other information. 35. The learned departmental representative reiterated that in the instant case, incriminating documents in the form of share certificates in various names were found and seized as a result of search and when confronted, the promoters of the company admitted part of the share capital introduced in the said names as undisclosed income of the promoters and that, in the circumstances, the Assessing Officer made further enquiries and the assessment was made on the basis of material found during the search an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of the promoters on substantive basis, the learned departmental representative submitted that share capital of Rs. 116.20 lakhs had been introduced in the names of relatives and friends at the time of public issue in July 2005 and that the addition was made after elaborate enquiry regarding the genuineness of the transactions, identity of the persons and creditworthiness of the persons and after affording adequate opportunity to the assessee. He submitted that the substantive addition was made in the hands of Shri Y. Ravi Prasad and Shri B.P. Gupta for the reason that they were looking after the day to day affairs of the company as evidenced by the prospectus of the public issue (DPB-67) and the statement of Shri Y. Ravi Prasad dated 24-1-1996 (DPB-41). In this connection, the learned departmental representative placed reliance on the following decisions:- 1. CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 (Delhi)(FB) 2. CIT v. Kundan Investment Ltd. [2003] 263 ITR 626 (Cal.) 3. CIT v. Ruby Traders Exporters Ltd. [2003] 263 ITR 300 (Cal.) 4. CIT v. Nivedan Vanijya Niyojan Ltd. [2003] 263 ITR 623 (Cal.) 5. Ram Kumar Jalan v. CIT [1976] 105 ITR 331 (Bom.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relatives were available at the premises of the company. The Assessing Officer examined the share certificates so issued and available at the premises. In respect of the share certificates found at the premises of the company also, the shareholders confirmed having invested the amount with the appellant company. The availability of share certificates by themselves would not lead to the conclusion that the company invested the share capital. The appellant submits that to invoke the provisions of section 68 while completing the assessment under section 158BC of the Income-tax Act, the authorities should find information in the seized material to the effect that the share capital was introduced by the appellant company from its income not disclosed to the department. Such information was not available in the seized documents. The availability of share certificates, which were confirmed to be belonging to the shareholders at a later date by the respective shareholders, cannot be considered as the reason for inclusion of the income under section 68 of the Income- tax Act, particularly in view of the fact that the appellant submitted a detailed explanation as to why the share certificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates found. The learned DR filed a copy of the affidavit of Shri Y. Mahadeva. It can be seen that he mentioned that he invested the amount of Rs. 4 lakhs in the names of five different persons and offered for assessment the said amount of Rs. 4 lakhs. Here also, the information does not lead to the presumption that the appellant company invested the amount from out of its own income. It is Sri Y. Mahadeva who invested the amount and, therefore, the said amount cannot be considered as the income of the appellant. (5) Insofar as the affidavit of Sri M.N.S. Venkateswera Rao, referred to by the learned DR, is concerned, the said person is engaged in the business of purchase and sale of shares like Sri Y. Mahadeva. Sri Venkateswera Rao accepted that the amount was invested by him. Therefore, there is no possibility to hold that this amount is invested by the appellant company. (6) The learned DR is referring the affidavit of Sri Y. Ravi Prasad. He stated that he was declaring the investments made by his father Sri Y. Venkatanarayana as his income. It can be seen from the affidavit that what was admitted by him is investment made by his father Sri Y. Venkatanarayana. Therefore, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the sources for the amount. They have annexed pass book of the Central Bank of India, certificate from the Sarpanch and confirmation from the loanees for perusal of the Assessing officer. Therefore, the investment of Rs. 5,98,050 was made by the respective persons and not by Sri B.P. Gupta. The appellant herein submits that the investment by the shareholders was not from out of the company's income. It is further submitted that all the persons are close relatives of Sri B.P. Gupta and, therefore, the share certificates were available at the premises of Sri B.P. Gupta. (8) In the case of Sri Y. Ravi Prasad the share certificates belonging to his father Sri Y. Venkata Narayana were available and in the case of Sri B.P. Gupta the share certificates of his close relatives were available at his residence. Therefore, there cannot be any presumption that the investment was made by the appellant company in the names of those shareholders. (9) The learned DR listed the demand drafts/cheques issued for purchase of shares and this is annexed to the written submissions filed by the learned DR. Insofar as the share certificates are concerned, the amount is brought by some of the sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edabad Bench of the ITAT in the case of Cas Card Finance Ltd. v. Asstt. CIT [2003] 84 ITD 1, has no application to the facts of the appellant's case. (3) In the case of Khopade Kisanrao Manikrao v. Asstt. CIT [2000] 74 ITD 25 (TM), it is held by the Pune Bench of ITAT that the Assessing Officer can base the assessment on the evidence found during the course of assessment proceedings. In the present case, the Assessing Officer did not gather any information even during the course of assessment proceedings contrary to the submissions made by the appellant. Therefore, the said decision has no application to the facts of the appellant's case. (4) In the cases of CIT v. Elegant Homes (P.) Ltd. [2003] 259 ITR 232 (Raj.) and CIT v. Ajay Kumar Sarma [2003] 259 ITR 240, the Hon'ble Rajasthan High Court observed that entries were made in the books of account and the assessee could not explain. In such circumstances, the amount can be treated as undisclosed income. In the case of the appellant, the appellant produced proof to the effect that the share capital was genuine. Further, during the course of search and seizure operations no material was found and, therefore, the said decisions h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 623 (Cal.). In the case of Ruby Traders Exporters Ltd. the company did not provide the identity of the shareholders but in the case of the appellant all the information necessary to prove the genuineness was filed. The Assessing Officer made an effort to examine the issue on his own and wrote letters to the shareholders. All the shareholders, excepting a few, responded and confirmed the fact of investment. The facts were not put to the assessee. Therefore, the decisions of the Calcutta High Court have no application to the facts of the case. (9) The decision of the Hon'ble Bombay High Court in the case of Ram Kumar Jalan v. CIT [1976] 105 ITR 331, has no application to the facts of the appellant's case as the Assessing Officer did not issue any show cause letter to the appellant requiring the appellant to explain. (10) In the case of R.B. Mittal v. CIT [2000] 246 ITR 283, decided by Hon'ble Andhra Pradesh High Court, the issue is on cash credits and not share capital. Therefore, the said decision has no application in this case. (11) The decisions of the Hon'ble Calcutta High Court in the case of CIT v. Precision Finance (P.) Ltd. [1994] 208 ITR 465, CIT v. Korlay Tradi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was found at the time of search and there is no reason for the Assessing Officer to reject the contention of the appellant. (3) The decision of the Hon'ble Supreme Court in the case of CIT v. Stellar Investment Ltd. [2001] 251 ITR 263. (4) The decision of the Hon'ble Andhra Pradesh High Court in the case of CIT v. Lanca Industries Ltd. [2000] 242 ITR 357. 41. In view of the submissions made above, the appellant prays for deletion of the addition made by the Assessing Officer. 42. We have heard rival submissions and perused the orders of the revenue authorities as well as all the papers filed before us. The entire dispute in these cases pertains to additions made under section 68 of the Income-tax Act, 1961, in respect of share capital introduced in the case of Value Line Securities (India) Ltd. During the course of search and seizure operations, certain share certificates were found by the search party either in the premises of the company or in the personal chambers of the directors, Shri Y. Ravi Prasad and Shri B.K. Gupta. No other material was found to indicate that investments made in these shares were from out of undisclosed money earned and secreted either by Shri Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Directors. The assessee has filed a detailed chart explaining the reasons why some of the certificates were still in its possession. The reasons can be classified as follows:- (1) Certificates belong to close relatives of the Directors. (2) Certain certificates were under dispatch. (3) There were 47 share certificates, which were not delivered. Many of the persons in respect of whom certificates were found, have on enquiry made directly by the Assessing Officer, replied that they had invested in the share capital of the assessee-company and this explanation has been accepted by the Assessing Officer. Thus, the presumption that mere possession of a share certificate leads to a conclusion of benami investment, stands prima facie rebutted. 43. The legal propositions on the issue of addition in respect of share capital have been brought out by Hyderabad Bench 'A' of the Tribunal in the case of M.K. Securities Ltd. v. Asstt. CIT [IT (S.S) Appeal No. 196 (Hyd.) of 1997], order dated 30-8-2002. For ready reference, we quote from the said order:- "22. As regards the first issue, a lot has been argued on the right of the Assessing Officer to assume jurisdiction under section 68 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the Full Bench felt, possibly no further enquiries need to be made. From sections 68A, 72, 75 and 77 of the Companies Act, it is very clear that any company who invite application for allotting the shares to public; is entitled only to issue shares against the applications received by it. As per section 72 of the Companies Act, a company can only seek certain limited information from the shareholders. However, in the case of Standard Cylinders (P.) Ltd. v. ITO [1988] 24 ITD 504 (Delhi), the Tribunal has held that company cannot even seek information from the shareholders , regarding the source of their investment in those shares'. 23. The judgment of the Hon'ble Andhra Pradesh High Court in the case of CIT v. Lanco Industries Ltd. [2000] 110 Taxman 172, clearly lays down the law on the issue. At page 275, it is held as follows:- 'The Tribunal no doubt should have considered the question of reliability of confirmation letters on the intrinsic worth and tenor of such letters. If crucial facts throwing light on the source of investment are not discernible from the letters, the Tribunal could have very well eschewed those letters from consideration. But, this is a matter of appre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer. The jurisdictional High Court has clearly held that unsatisfactory explanation relating to the source of investment of a shareholder does not by itself permit the amount of investment to be treated as income of the assessee-company. Applying this proposition, we hold that the amount of Rs. 25 lakhs cannot be added in the hands of the company for the mere reason that the assessee has not established the creditworthiness of the investor. If the shareholder has not proved his creditworthiness, applying the judgment of the jurisdictional High Court, the investment should be treated as unexplained income in the hands of that investor. As there is no finding that these shareholders are mere name-lenders and that the money allegedly invested by them really belonged to the directors of the assessee-company, applying the judgment of the jurisdictional High Court, we cannot sustain the addition made by the Assessing Officer. There is no finding that the persons to whom the share certificates were issued in fact are dummies or stooges of the directors of the assessee-company. Thus, in view of the facts and circumstances discussed above, we have no other alternative but to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters were returned unserved. In this case, the Assessing Officer had not conducted any further enquiry, nor had he directed the assessee concerned to produce, necessary evidence as to the identity of these shareholders. When an enquiry has been independently conducted by the Assessing Officer and when a notice issued to the concerned shareholder has been returned, natural justice demands that the same be placed before the assessee concerned with a direction that necessary details from these shareholders be obtained by them. Adding these amounts straightaway as undisclosed income of the assessee is not warranted. The list of such cases is given in paragraph 11(4) of the assessment order at pages 14 and 15. Though this would appear to be a fit issue for setting aside, we do not do so, as the addition itself fails on further legal grounds which are discussed hereinafter. (3) A further addition of Rs. 1,25,000 was made on the ground that in five cases, the enquiry letters sent by the Assessing Officer did not receive either replies or acknowledgement. This is at pages 15 and 16 of the assessment order. In this case also, as in the earlier case, the Assessing Officer should have condu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be highly arbitrary and without any basis. There is no specific finding whatsoever that any particular shareholder is a benami of Sri Ch. Mohan Rao or Sri B. Hanumantha Rao. Without such specific finding, a general addition made in the hands of each of these persons on 50:50 basis is unwarranted. It is also noticed that no addition was made in the hands of the third promoter Smt. Ch. Aruna. We have to keep in mind that the addition made in the hands of Sri Ch. Mohan Rao and Sri B. Hanumantha Rao is not under section 68 of the Income-tax Act for the simple reason that no credit appeared in their books. The only basis on which the addition is made is that 34 shareholders are benamidars of these promoters. The law on the subject is clearly stated by the Hon'ble Allahabad High Court in the case of Prakash Narain v. CIT [1981] 20 CTR (All.) 147, wherein the following propositions with regard to benami have been laid down:- '34.....The following propositions seem to be well-established: 1. The burden of proof regarding benami is upon the one who alleges benami. 2. To prove benami the most important point is to examine the source of consideration and along with that there are cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) motive, if any, for giving the transaction a benami colour; (4) the position of the parties and the relationship, if any, between the claimant and the alleged benamidar; (5) the custody of the title-deeds after the sale; and (6) the conduct of the parties concerned in dealing with the property after sale. The above inidicia are not exhaustive and their efficacy varies according to the facts of each case. Nevertheless No. 1, viz. the source whence the purchase money came, is by far the most important test for determining whether the sale standing in the name of the one person, is in reality for the benefit of another.' Applying this judgment to the facts of the case on hand, we delete the additions of Rs. 12.5 lakhs each made in the hands of both the promoters Sri Ch. Mohan Rao and Sri B. Hanumantha Rao. 25. Coming to the judgment of the jurisdictional High Court in the case of R.B. Mittal [165 CTR 366] relied upon by the learned departmental representative, we find that that was a case of cash credits and not of share capital raised by a company. In that judgment itself, the Hon'ble High Court has laid down the proposition, while not agreeing with the decision of the Patna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the seized material there is an indication of undisclosed income or undisclosed investment, which can be said to be the cause of this addition. The list of seized material is given in paragraph 6 at page 6 of the assessment order in the case of Shri Y. Ravi Prasad. There is no finding that any of the loose sheets discloses any undisclosed income. There was a disclosure on the day of search and thereafter there was a retraction. Later, affidavits were filed making the following disclosures:- 1. Smt. P. Prabhavathi Rs. 6,00,000 2. Shri Y. Ravi Prasad Rs. 16,00,000 3. Shri Y. Mahadev Rs. 10,00,000 4. Shri M.N.S. Venkateswara Rao Rs. 8,00,000 There is no discussion in the assessment order to the effect that the seized material indicates that the money of these persons has been invested in benami names. Only official share certificates and disclosed registers were found. The enquiries on these documents can as well be made in regular assessment. Only post-search enquiries were conducted to come to a conclusion as to whether these investments were made by the persons named in the certificates or by somebody else. Without such post-search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndisclosed income is taxed by way of block assessment as a result of search and seizure. The logic behind the two different modes of assessment is that concealment of income and claiming deduction or exemption in respect of a disclosed income cannot be treated at part. The former is an offence which goes to the root of the matter and the other is on the basis of the causes shown by the assessee where the Assessing Officer is free to accept the justification shown or reject the same." CIT v. Vikram A. Doshi and Ms. Leena V. Doshi [2002] 256 ITR 129 (Bom.)(HN): "Block assessment-undisclosed income-undisclosed transactions assessed in block assessment - Tribunal finding transactions disclosed in return which were subject-matter of regular assessments-transactions in question not to be considered in block assessment - Income-tax Act, 1961, sections 143, 158B." CIT v. Shamlal Balram Gurbani [2001] 249 ITR 501 (Bom.)(HN): "A search was conducted at the residential premises of the assessee on March 25, 1996, and a notice under section 158BC of the Income- tax Act, 1961, was issued. The assessee did not file the returns for the years 1993-94, 1994-95 and 1995-96. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [2005] 95 ITD 1 (TM), while considering an identical situation, held as follows:- "8. Block period for which the assessment is to be made under Chapter XIV-B means the period comprising previous years relevant to ten assessment years preceding a previous year in which the search was conducted under section 132 or any requisition was made under section 132A, and also includes in the previous year in which such search was conducted or requisition made, the period up to the date of the commencement of such search or, as the case may be, the date of such requisition. Therefore, the assessment for the block period under Chapter XIV-B can be made of the undisclosed income only up to the date of commencement of search or the date of the requisition and not of the period thereafter. Section 158BA provides for assessment of undisclosed income as result of search for the block period and computation of income and the computation of undisclosed income for the block period to be made as per the provisions of section 158BB and assessment has also to be made under section 158BC of the block period. The undisclosed income for which the assessment is to be made, is defined in section 158B(b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded in the books of account of the assessee and the depreciation and rent income on the basis of such lease agreements have been recorded in the books of account, as income of the assessee and the depreciation and interest with regard to the very lease transactions have been claimed as deduction. Lease agreements may be an evidence by itself but there, is nothing in those agreements which could establish that assessee had undisclosed income. On the contrary, disclosure of income has been made by the assessee in the books and return of income pursuant to these very lease agreements. The department has no doubt collected the material subsequent to raid, but that may not be very material and relevant for framing the assessment under Chapter XIV-B of the case be, cause of the mandate given under section 158BB it has to be the income computed on the basis of evidence found as a result of search and not otherwise. If any material is collected by the Revenue after the search, that may not give authority to the department to make the computation of undisclosed income under section 158BB of assessment under section 158BC of the Act. Reference in this connection may be had to the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken a view that the transactions relating to share capital are reflected in the books of account of the company, the Board of Directors have considered the share applications and have passed resolutions allotting share capital and the statutory requirements of furnishing the full details of the share applications received and the allotments made, were met by furnishing the same to the Registrar of Companies and thus, this cannot be said to be a transaction representing wholly or partly income or property which had not been or would not have been disclosed for the purposes of the Income-tax Act so as to be termed as undisclosed income as defined in Chapter XIV-B. As regular returns have been filed by the assessee-company, such enquiries should always be made in such regular assessments. Applying the propositions culled out from various judgments of Hon'ble High Courts and the Tribunal, we have necessarily to uphold the contention of the assessee that the addition in question is beyond the jurisdiction of Chapter XIV-B. On this ground, the addition has to be deleted. 48. Coming to the addition made on ad hoc basis in the hands of each of the directors, we hold that the addition ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Securities (India) Ltd. When the argument of the Revenue is such, we do not know how in the three Panchanamas drawn up, against the column "Warrant in the case of", the name of the company, Value Line Securities (India) Ltd. has been given. Moreover, in the case of Shri Y. Ravi Prasad, in paragraph 3 on page 2 of the assessment order, it is stated by the Assessing Officer that "Search operations were initiated in M/s. Value Line Securities Ltd.". In paragraph 12 on page 12, it is stated that "During the course of search operations, share certificates worth Rs. 11.70 lakhs were seized from the Registered Office of Value Line Securities Ltd." Further, in paragraph 13 on page 14 of the assessment order in the case of Shri Y. Ravi Prasad, it is stated as follows: "During the course of search operations at the Registered Office of Value Line Securities (I) Ltd., a document showing a list of investors was found (Annexure. VLS/S)...". Thus, whatever may be the internal records with the Revenue, the documents given to the assessee have to be the basis of conclusion. The Panchanamas and assessment orders are in the public domain and can be held as carrying more weight, as compared to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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