TMI Blog2002 (8) TMI 796X X X X Extracts X X X X X X X X Extracts X X X X ..... e sake of convenience they were heard together and are disposed of by a common order. 2. The brief facts of the case as gathered from the record are as follows. M.K. Securities Limited was incorporated on 4-10-1994 and the Core Promoters of the company are Sri Ch. Mohan Rao and Sri B. Hanumantha Rao. Search operations were conducted under section 132 of the Income-tax Act on 24-1-1996 at the residential premises of the directors. The business premises of the assessee-company were also searched though there was no separate warrant in the name of the company. The entire issue involved in all these appeals is regarding the investment made in the assessee-company under Promoters quota by the promoters associates, friends, relatives and employees. The Assessing Officer added an amount of Rs. 25,00,000 as undisclosed income in the hands of the company under section 68 of the Act. The same amount was equally divided and added in the hands of the promoters as their undisclosed income. It is the case of the Revenue that 56 investors had contributed Rs. 35.75 lakhs as share capital in the assessee-company, that on enquiry made by the Revenue only 22 investors confirmed their investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onies were received by the company only through crossed cheques or crossed demand drafts and were credited to the bank account of the company. Copies of paying-in-slips/remittances of such shareholders were filed before the Assessing Officer. He further submitted that the Board of Directors of the company had taken up the share applications for scrutiny and thereupon allotted shares to the various shareholders by passing resolutions. All the names, addresses and details of allotment of shares were forwarded to the Registrar of Companies, A.P., Hyderabad, as required under the Companies Act. He further submitted that in pursuance to the allotment of shares, share certificates were delivered to each shareholder with distinctive numbers and number of shares held and these particulars were also recorded in the Register of Members maintained in accordance with the requirement of Companies Act. He submitted that postal receipts for despatch of Share Certificates were also filed before the Assessing Officer. He vehemently argued that while several such particulars relating to the 56 shareholders were on record before the Assessing Officer, the Assessing Officer, upon suspicions and surmis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0] 110 Taxman 172 (AP) held that such additions are not permissible in the hands of the company. He also placed reliance on the judgment of the Hon ble Delhi High Court in the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 1 (FB). He further submitted that addition cannot be made by the Assessing Officer on the basis that the assessee had failed to produce certain shareholders and for this proposition he relied on the decision of the Hon ble Supreme Court in the case of CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78 2 . He also relied on the decision of the Delhi Bench of the ITAT in the cases of Allen Bradley India Ltd. v. Dy. CIT [2002] 80 ITD 43, Rishi Electronics Ltd. v. Asstt. CIT [1995] 53 ITD 10, and Standard Cylinders (P.) Ltd. v. ITO [1988] 24 ITD 504 (Delhi), and submitted that the propositions laid down therein are that there should be a special treatment to share capital in a company as compared with loan or other credits. He also relied on the judment of the Hon ble Patna High Court in the case of Sarogi Credit Corpn. v. CIT [1976] 103 ITR 344, and the Tribunal s decision in CIT v. Metachem Industries [2001] 116 Taxman 572 (MP). Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re capital by the promoters associates, friends, relatives and employees. The enquiry by the Assessing Officer, he submitted, was restricted to this particular category of persons from whom the company had received Rs. 35,75,400. He referred to page 10 of the assessment order in the case of Sri Ch. Mohan Rao and submitted that the contents therein the subsequent pages reveal the fact that the Assessing Officer had made enquiries. In fact, letters under section 133 of the Income-tax Act were issued to all the above investors. He submitted that many of the letters came back and then only the assessee was asked to furnish details, confirmations etc. The confirmation letters, he submitted, were produced by the assessee only at the time of assessment of the company M.K. Securities Ltd. He argued that these confirmation letters were not filed before the Assessing Officer while framing the assessment in the case of Sri Ch. Mohan Rao and Sri B. Hanumantha Rao. He strongly controverted the argument of the learned counsel for the assessee that the issue is covered in his favour by the judgment of the Hon ble Supreme Court in the case of Stellar Investment Ltd. ( supra ) and took this Benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll force to the facts of the case before us. 15. Further, he relied on the decision of the jurisdictional High Court in the case of Lanco Industries Ltd. ( supra ) and submitted that the Hon ble High Court has held that the Tribunal should have considered the question of reliability of confirmation letters on the intrinsic worth and tenor of such letters. This, he argued, would go to support the view of the Revenue that mere filing of confirmation letters from the shareholders is not sufficient proof. He referred to the confirmation letters filed by the assessee before the Assessing Officer (pages 99 to 116 of the assessee s paper book) and submitted that the letters are stereotyped and unreliable. He argued that the assessee has not discharged its liability and that the addition made should be sustained either in the hands of the company or in the hands of the promoters. On a query from the Bench, he submitted that the same Rs. 25 lakhs is added both in the hands of the company and in the hands of the promoters. 16. Referring to the argument of the learned counsel for the assessee on the despatch of share certificates etc., the learned departmental representative submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -company, there was a delay in despatch of share certificates. This, he submitted, was a mere suspicion and the Assessing Officer has not referred to this delay as a reason for the addition. Similarly, on the issue of purchase of demand drafts etc. from certain bank on certain day, he submitted that this is in the realm of possibility and that the Assessing Officer has also not drawn any adverse inference on this point. He contended that the learned departmental representative cannot and should not travel beyond the findings and reasons recorded by the Assessing Officer. If he wants to press this point, adequate opportunity of rebutting this presumption should be given to the assessee. As for the doubts expressed by the learned departmental representative regarding filing of certain evidences, he drew the attention of the Bench to page 122 of the paper book and submitted that this is proof of having filed all these evidences. He once again relied on the judgment of the Supreme Court in the case of Stellar Investment Ltd. ( supra ) and that of the jurisdictional High Court in the case of Lanco Industries Ltd. ( supra ) in support of his case. He further relied on the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he alleged shareholders actually existed or not. From this observation at page 105 (para E) of 205 ITR, it is clear that the Supreme Court decision affirming the Delhi High Court judgment in the case of Stellar Investment Ltd. ( supra ) does not mean that the Income-tax Officer does not have jurisdiction to make enquiry on share capital. The Delhi Bench B of ITAT in Allen Bradley India Ltd. s case ( supra ), has brought out the position clearly. In the head-note at pages 45 (last para) and 46, it is stated as follows: "In CIT v. Sophia Finance Ltd. [1994] 205 ITR 98/[1993] 70 Taxman 69 (Delhi)(FB) it has been held that the Assessing 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. It was further observed by the High Court that if the shareholders exist then possible no further enquiry need be made, but if the Assessing Officer finds that the alleged shareholders do not exist, then, in effect, it would mean that there was no valid issuance of share capital as shares could not be issued in the name of non-existing persons. There was no dispute that in such a case the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e must be a further finding that in fact the shareholders were mere name-lenders and the money allegedly invested by them really belonged to the directors of the assessee-company. In the absence of a finding that the persons to whom the share certificates were issued on receipt of consideration as per the Book entries were in fact dummies or stooges of the directors of the assessee-company, the same cannot be treated as unaccounted income of the assessee. There was no such finding by the assessing authority." Applying the law laid down by the jurisdictional High Court to the facts of the case on hand, we find that out of the letters issued to 56 investors under section 133(6) of the Income-tax Act, only 5 letters have been returned as not served. This fact is evident from page 10 of the assessment order in the case of Sri Ch. Mohan Rao. It is stated by the Assessing Officer on pages 10 and 11 of his order as follows: "Thus, 51 letters out of the 56 letters issued under section 133(6) as per the addresses furnished by the assessee were duly served on the investors. Out of the 28 investors in respect of whom Commission was issued to the ITO, Karimnagar, for causing necessary e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 [1982] 134 ITR 364 1 , 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 certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the purchases; (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 the sale. The above indicia 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 ( supra ) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utation of undisclosed income of the block period. (1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence, as reduced by the aggregate of the total income, or, as the case may be, as increased by the aggregate of the losses of such previous years determined, ****** ( c )Where the due date for filing a return of income has expired, but no return of income has been filed, (A)on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of search or requisition where such entries result in computation of loss for any previous year falling in the block period; or (B)on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not have been disclosed for the purpose of this Act but if it is established from the surrounding circumstances that the assessee has maintained the books of account only for the purpose of this Act and none else, only an inference can be drawn that the books are maintained for the purpose of the Act and the income declared therein cannot be called to have been fallen within the category of income which would not have been disclosed for the purpose of this Act." Similarly, in the case of Shradha Construction v. Asstt. CIT [2001] 76 ITD 85 (Pune), it is held as per headnote as under: "Section 158BB of the Income-tax Act, 1961 - Block assessment - Undisclosed income - Block period 1-4-1986 to 8-8-1996 - At time of raid, time limit for filing return for assessment years 1996-97 and 1997-98 was not over - According to assessee, income for assessment year 1996-97 was Rs. 1,52,29,500 and for assessment year 1997-98 it was Rs. 51,81,310 - Records revealed that assessee had been maintaining proper books of account and was assessed to income-tax - In years in dispute assessee was maintaining accounts on computer - Assessing Officer treated amounts in question as undisclosed inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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