TMI Blog1999 (5) TMI 614X X X X Extracts X X X X X X X X Extracts X X X X ..... quity shares of 170000 at ₹ 10 each for cash at par. The registered office of the assessee was at 1111-A, Raheja Chambers, 213, Backbay Reclamation Scheme, Nariman Point, Bombay 400 021. The authorised share capital was ₹ 30,00,000 divided into 3,00,000 equity shares of ₹ 10 face value out of which 30000 equity shares of ₹ 10 each was paid-up for cash at par to the Promoters, Directors and their friends. Excluding 30000 equity shares, 1,70,000 shares at the face value of ₹ 10 each were offered to the public. When offered to the public, the conditions were that on application ₹ 5 per equity share is to be paid and on allotment the remaining ₹ 5 per equity share is to be paid. One of the Board of Directors, inter alia, comprised of Shri Ravindra Kumar Mansingka of Amaravati, State Bank of India, Backbay Reclamation Scheme, Nariman Point, Bombay were the Bankers to the company, whereas Punjab National Bank, Foreshore Road (Gen. J. Bhosle Marg), Bombay, and Canara Bank, Regent Chambers, Nariman Point, Bombay were the Bankers to the issue. Besides several other individual brokers were appointed at Calcutta, Cochin, Hyderabad, Indore, Madras, New ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a member or sub-member of Bankers Clearing House located at the particular place where the application is submitted. It is stated that outstation cheques or drafts will not be accepted and applications accompanying such cheques or drafts will be rejected. It is specifically stated that Money Order will not be accepted. Non-resident Indians who are persons of Indian origin residing abroad may subscribe to equity shares in accordance with the rules of the Reserve Bank of India. The assessee will obtain necessary permission in this connection from the Reserve Bank of India and the applicants need not apply direct to the Reserve Bank of India for permission for subscription to the said shares. Allotment of shares to non-resident Indians shall be subject to the assessee obtaining such permission from the RBI. Non-resident Indians or persons of Indian origin resident abroad are eligible to subscribe to the equity shares offered from their funds held in India or by inward remittance subject to inter alia their giving an undertaking not to seek repatriation of capital or income arising thereon. The cheques/drafts should be made payable to the Bankers to the Issue and marked A/c Jhantla In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Com. Cir. III (14), Bombay accepting the total business loss of ₹ 2,22,311 and speculation loss of ₹ 6,54,947. 3. The above assessment dated 25-6-1983 was reopened on 2-1-1985 by issue of a notice under section 148 dated 2-1-1985. In response to the said notice, the assessee filed a return of loss of ₹ 8,77,258 stating that it was filed under protest and also commenting that the assessment was already completed. At that time, the assessee was represented by Chartered Accountant Shri S.L. Jain before the Assessing Officer and the assessee s representative wanted to know the reasons for reopening the case under section 148(2). The Assessing Officer held that the reason need not be furnished, in view of the two Supreme Court decisions in S. Narayanappa v. CIT (1967) 63 ITR 219and K.S. Rashid Son v. ITO (1964) 52 ITR 355. In the course of the assessment proceedings, on sample selection basis, certain questionnaire was sent to 20 shareholders listed out at page 2 of the reassessment order dated 29-2-1988. They were all returned unserved by the postal authorities. The Assessing Officer stated in para 3 of his assessment order adverted to above that investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. It was stated that as against public issue of 1,70,000 shares, the issue was oversubscribed inasmuch as 206950 share applications were received. Necessary remittances along with the share applications received by the Punjab National Bank and Canara Bank were enclosed to the reply under reference. After the receipt of applications, the basis for allotment was intimated to Bombay Stock Exchange and the said Stock Exchange had approved the basis of allotment on 30-10-1981 and the said approval was also enclosed to the reply under reference. After the said approval, allotment letters were prepared and dispatched by M/s. H.B. Financial Consultants (P.) Ltd. the Managers to the Issue on 4-11-1981 for which the postal acknowledgements were received and they were enclosed to the reply. After receipt of the allotment money, necessary share certificates were prepared and despatched by the Managers to the Issue to various shareholders on 24-12-1981 and necessary postal receipts were enclosed to the reply. On 4-11-1981, confirmation was given by M/s. H.B. Financial Consultants (P.) Ltd. stating the allotment letters were posted by them to various shareholders and share certificates were pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s go to show these shareholders were in existence of the material time. 4. In certain other cases also management could get changes of certain shareholders, list of such shareholder is enclosed herewith with new addresses. 6. In view of the above stated facts your honour will appreciate that in such type of cases provision of section 68 will not be applicable and after lapse of 6 years assessee should not be asked current addresses of such shareholders or to be proved the genuineness specially when assessee has lost contact of such shareholders after the transfer of share by them. Your honour will also appreciate proceedings under section 148 are not properly initiated in the present case. Ultimately, it was prayed that proceedings under section 148 may be dropped. 4. However, in making reassessment, the Assessing Officer held that the contents of paras 3, 4 6 extracted above are not acceptable. Out of 70 summons returned by the postal authorities with the remark not known covered 18,300 shares of the value of ₹ 1,83,000 out of 1,70,000 shares issued by the assessee. He stated that M/s. H.B. Financial Consultants (P.) Ltd. in their letter dated 9-2-1987 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the following : (1) The alleged share considerations credited in the books of account of the assessee-company with reference to its alleged public share issue do not in fact represent considerations received from the alleged shareholders. The alleged shareholders did not either exist or were persons of means to invest in the shares of the assessee- company in such large amounts and large numbers. (2) From a perusal of share application money received by the assessee, it was seen that some of the shareholders had purchased drafts or cheques from Banks for remitting the share application money in consecutive numbers even though they were living in different places and stations as evident from the chart listed in the order. The chart is from pages 9 to 15 of his impugned order. 5. After examining all the details, the Assessing Officer held that people living in different places and different localities managed to purchase demand drafts or issued cheques in consecutive numbers which was highly impossible, unless there was one common cheque book from which the cheques were issued. Further the demand drafts of Bank of Maharashtra, Bank of Baroda, State Bank of India, Indian B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the substance of the matter. However, it is seen that the addition has been made only on the basis of the return of 70 summonses issued to shareholders by postal authorities. As against this 82 shareholders have acknowledged their investment. Regarding the others, there is no mention. The total number of shareholding is 1,70,000. Some of these shareholders had lodged already for transfer of their shares with Bharat Bhushan, share broker. The letters written by the share broker have also been filed before the Assessing Officer. This has not been put to further proof. It is also noted that the Mansingka group have only purchased shares to the extent of 88,150 out of 1,70,000 even as on 20-5-1983 subsequently. The other shareholders are outsiders and there is no evidence to indicate that they also hold the shares only representing the Mansingka group. One of the major shareholders outside the Mansingka group is Shri Shanti Narayan, who is with the share broker. He holds 27,750 shares even as on 21-4-1982 and continues to hold the same. No enquiries have been made from these outsiders. The bank accounts of those persons who have confirmed their investment have also not been verified. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the Assessing Officer, are the shareholders not interested in their own investment and returns thereon so as not to keep in touch with the brokers. If the share brokers maintain a regular mailing list to which the alleged shareholders belonged, how could it happen that those who are so regularly served with the circulars issued by the brokers could not be Found or Not known . Most of the shares so sold have come back to Shri N.K. Mansingka and his family members and associated concerns at a nominal price. All these peculiarities, according to the Assessing Officer, clearly indicated that this was not a genuine public issue. Further, the Assessing Officer held that provisions of sec. 68 of the Income-tax Act were clearly attracted. He further held that the share consideration credited in the books of account of the assessee-company with reference to its alleged public issue in fact does not represent share consideration received by the alleged shareholders because either they did not exist at all or they were persons of no means to invest in the share of the assessee in such large numbers and amounts. Therefore, he concluded that the explanation of the assessee was not at all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following: There is no denying the fact that while making the fresh assessment order the Assessing Officer has not taken pains to make enquiries with regard to the issue mentioned by CIT(A) in his order. It is on record that information was furnished with regard to all the person with names and addresses to whom the allotment of shares was made and share certificates were claimed to have been despatched or issued. A letter to this effect has been obtained from the Manager to the issue showing that allotment letters and share certificates were sent under certificate of posting and the lists bear the postal stamp of the concerned postal office. When subsequently the shares were lodged with the company for transfer, the details have also been furnished about the persons who lodged the transfer forms with the appellant-company and the names of the transferees. The Assessing Officer has not made any enquiries from those brokers or other persons through whom the share transfer forms were lodged or the new transferees to the shares. The Assessing Officer did not provide opportunity to the appellant to cross-examine those persons who denied having made investment in this company, thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore sustained only to the extent of ₹ 2,19,500 out of the total addition of ₹ 17 lakhs made by the Assessing Officer. Therefore, ITA No. 8452/Bom./92 is an appeal filed by the assessee against addition of ₹ 2,19,500 sustained by the CIT(A). I.T.A. No. 8931/Bom./92 is an appeal filed by the Revenue against restriction of the addition made under section 68 to ₹ 2,19,500 as against ₹ 17,00,000 made by the Assessing Officer. 10. We have heard Shri Y.P. Trivedi, the learned advocate for the assessee and Shri V.S. Jadhav, the learned departmental representative. All the three appeals are heard together. Paper books were filed on behalf of the assessee. Reference to the paper book and its contents would be made in this order as and when it is felt necessary. The first question which is argued by Shri Y.P. Trivedi, the learned advocate for the assessee was that the re-assessment is bad in law and there are no grounds for reopening, since full and true particulars of share investments by several shareholders were furnished to the ITO even at the time of original assessment which culminated in the assessment order dated 25-6-1983. About two years after t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. It is argued that reasons must be recorded and it must be shown to the court which should be satisfied on going through them that the assessee failed to furnish material particulars while framing the assessment etc. Now, in this case, the learned counsel for the assessee Shri Y.P. Trivedi brought to our notice the docket order dated 5-9-1995 which is as follows: Certain clarifications sought for. They have not been submitted. Adjourned at the request of the D.R. to 14-11-1995. Parties informed. It implies, according to the learned counsel for the assessee from the above order, that the Bench wanted to see the reasons recorded for reopening and the learned departmental representative in fact agreed to furnish the reasons and ultimately failed to file the same and failed to show it to the Tribunal. The only place where a semblence of reasons for reopening were found was at para 3 in the reassessment proceedings by the Assessing Officer. After giving out the list of 20 persons to whom questionnaire was said to have been sent on sample selection basis, he held the following : The investigation in the assessee s group concerned M/s. Shree Salaskar Investment Co. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite as to what are the reasons which motivated the Revenue to reopen the proceedings. We have to hold that such reasons were not even extracted by the Assessing Officer who completed the reopened assessment proceedings. The only place where the semblence of reasons for reopening found in the Assessing Officer s order completed under section 143(3) read with 147(a) dated 27-2-1988 is recorded in para 3 of his order as follows : The investigation in the assessee s group concerned M/s. Shree Salaskar Investment Co. Ltd. has given rise to the belief that the shareholders may not be genuine one. Since questionnaries mailed have come back unserved considering other facts of this case, it was found necessary to reopen the case as the assessee has not disclosed fully and truly all material facts necessary for the assessment for the assessment year 1982-83. In this respect, the relevant facts obtaining in this case are the following: After the issue of notice under section 148, the learned Chartered Accountants who represented the assessee before the Assessing Officer issued a letter dated 7-3-1987 a copy of which is furnished at pages 1 to 5 of the paper book. (Reference to paper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as approved by it on 30-10-1981 and a copy of the said approval was enclosed to the reply under reference. Allotment letters were prepared and despatched by M/s. HBF on 4-11-1981 and postal acknowledgements were all enclosed to the reply under reference. The share certificates were despatched by the Manager to the issue to various shareholders on 24-12-1981 and postal receipts were also enclosed to the reply under reference. The confirmation from the HBF that allotment letters were posted by them to the various shareholders on 4-11-1981 and share certificates were posted by them on 24-12-1981 and none of the undelivered allotment letter or share certificates were received back by them from the postal authorities, was also enclosed to the reply under reference. The company was registered in the Bombay Stock Exchange as well as Delhi Stock Exchange on 16-12-1981 and 22-12-1981 and the said listing letters were enclosed to the reply under reference. Answering to the allegation made in the letter dated 16-1-1987 issued to the assessee that summons issued to 70 shareholders were returned unserved, it was stated in reply that they have written a letter to HBF on 29-1-1987 requiring them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded the reasons, the conclusion was escapable that exercise of powers was without any jurisdiction. Further, it could not be said that reasons as set out in the letter were sufficient compliance of requirement u/s 148. Therefore, exercise of jurisdiction by the respondents (Revenue) u/s 148 was unsustainable. In Sharad L. Patel s case (supra), notice u/s 148 read with sec. 148 was issued. However, the ITO refused to give reasons for issue of notices and also refused to disclose whether the assessment would be reopened u/s 147(a) or (b). The only reason for reopening was that interest on amount advanced by minor son to the assessee and which was invested was not disclosed. The son also was an assessee and his assessment was duly completed. In the facts of this case, it was held that the ITO could have easily found out why interest was not disclosed at the time of assessment. The Bombay High Court held that failure to do so would not entitle him to reopen the proceedings and notices for reopening u/s 147 read with 148 was held to be invalid. In Madnani Engg. Works Ltd. s case (supra) the facts and decision of the Hon ble Supreme Court are set out in the Head Note of the decision at p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndis on this strength of which it had obtained loans from creditors as also entries in the books of account showing payment of interest and it was for the ITO to investigate and determine whether these documents were genuine or not: the respondent could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the ITO that the hundis and the entries in the books of account produced by it were bogus. CIT v. Burlop Dealers Ltd. (1971) 79 ITR 609(SC) applied. (iii) That, as the ITO had in the second affidavit merely stated his belief but did not set out any material on the basis of which he had arrived at such belief, there was nothing on the basis of which the court could be satisfied on the affidavit that he had reason to believe that a part of the income of the respondent had escaped assessment by reason of its failure to make a true and full disclosure of the material facts. (iv) That, therefore, the notice of reassessment was void. 13. The latest decision of the Hon ble Supreme Court on the question of validity of reopening which contain an exhaustive exposition of law on the subject is found to have been cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in character, but which relates to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of original assessment. In such a case, reopening u/s 147(a) is held to be perfectly justified. Drawing distinction between re-appraisal of the same facts and acquiring fresh information about the facts already on record which are specific in nature and reliable in character and which exposes the statement, if any, made in the original assessment, their Lordships laid down the law as follows at page 473 of the reported judgment : The present is thus not a case where the ITO sought to draw any fresh inference which could have been raised at the time of the original assessment on the basis of the material placed before him by the assessee relating to the loan from Calcutta company and which he failed to draw at that time. Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of the original assessment is different from drawing a fresh inference from the same facts and material which were available wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by the ITO and examine whether there was any material available on the record from which the requisite belief could be formed by the ITO and further whether that material had any rational connection or a live link for the formation of the requisite belief. It would be immaterial whether the ITO, at the time of making the original assessment, could or could not have found by further enquiry or investigation, whether the transaction was genuine or not if, on the basis of the subsequent information, the ITO arrives at a conclusion after satisfying the twin conditions prescribed in section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and, therefore, income chargeable to the tax had escaped assessment. The High Courts which have interpreted Burlop Dealers case (1971) 79 ITR 609(SC) as laying down the law to the contrary fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d which would show that the share subscriptions made by other shareholders were bogus and unbelievable and the subscription amounts represent nothing but unexplained investment of the assessee-company which justifies the addition under section 68 of the Income-tax Act. Before dealing with this issue, even the broad probabilities if taken into consideration would not justify any addition under section 68. We have already catalogued the various dates on which the company was incorporated and was issued certificate for commencement of its business, prospectus was issued offering to the public 170000 equity shares of ₹ 10 face value etc. The share application money was received by the Bankers, i.e., Punjab National Bank and Canara Bank, but none of the shareholders were examined or their statements recorded. Further, the issue was oversubscribed and subscription for the issue of 206950 shares was received as against 170000 shares and in fact the basis of allotment was not approved by the Bombay Stock Exchange. All the primary material about the allotment letters, postal acknowledgements of having posted allotment letters to the shareholders, share certificates despatched to them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld these shares. 73 enquiry letters representing 27450 shares were returned by the postal authority unserved. Subsequently 47 out of 73 applicants on whom enquiry letters could not be initially served, file confirmation letters covering 18,900 shares. The Assessing Officer completed the assessment by making an addition of ₹ 4,40,000 to the total income of the assessee under the provisions of section 68 of the Income-tax Act, which represented the value of shareholding of 73 shareholders on whom enquiry letters could not be initially served as also the value of shareholding of 38 persons who had originally denied having any interest in the share capital of the company. The Tribunal noted the fact that there had been no change in the shareholders register on account of any transfer. The Tribunal also noted that it would be impossible for the assessee to satisfy itself by making enquiries at the stage of receiving applications whether the applicants were genuine investors. The subscription to the issue was started by the applications from the members of the public and these applications were all available with the assessee and these applications which gave the names and address ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Canara Bank, the appointment of Manager M/s. HBF to the issue, their certificates certifying that allotment letters were made and share certificates were also duly despatched and postal acknowledgments were received were all before the Assessing Officer. In the face of so much of unimpeachable documentary evidences, can it be believed that simply because the questionnaire addressed by the Assessing Officer were returned unserved by the postal authorities, the public issue was not genuine. If 5 persons only denied having subscribed to the shares of the assessee-company, why they were not examined and why they were not confronted with the share application forms, the amount of moneys deposited in the bank, their share certificates, their names entering in the books of shareholding of the assessee-company, etc.? The only suspicious circumstance which weighed with the Revenue was that some of the shareholders sold them away at heavy loss at ₹ 2.50 to ₹ 3.50 per share and most of those shares were purchased by Shri R.K. Mansingka and his family members and associate concerns. From this, it is concluded that it was not a genuine public issue. After having considered the w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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