TMI Blog1993 (8) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on June 11, 1986. It was also noted in the assessment order that the company had a declared paid up capital of Rs. 20 lakhs and that necessary details and confirmations had been furnished on record. The Commissioner of Income-tax issued a notice to the assessee to show cause as to why the assessment should not be revised under section 263 of the Act. After hearing the assessee, the Commissioner of Income-tax came to the conclusion that there was lack of enquiry by the Income-tax Officer in the present case and the same was patent from the record. The Commissioner of Income-tax came to the conclusion, following the decision of a Division Bench of this court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375, that there was non-enquiry at the time of assessment and that the said assessment order was erroneous and prejudicial to the interests of the Revenue. It was held, while setting aside the order of assessment, that with regard to issuance of the shares , it was the duty of the Income-tax Officer to enquire into the genuineness of the shareholders because in a large number of similar cases enquiries had revealed that either the shareholders did not exist at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quire opinion on any point of law decided by the Tribunal." When the petition came up for hearing before the Division Bench of this court, counsel for the assessee relied upon the aforesaid case of Stellar Investment Ltd. [1991] 192 ITR 287. It was observed in that case that (at page 288) : "... even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances could the amount of share capital be regarded as undisclosed income of the assessee." Counsel for the petitioner herein, however, submitted before the Division Bench that the provisions of section 68 of the Income-tax Act, 1961, were not referred to in the case of Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi) and the said section would come into play if the Income-tax Officer finds on enquiry that the shareholders were fictitious persons. As the submission of learned counsel for the petitioner could be construed as running contrary to the ratio of the judgment in Stellar Investment Ltd.'s case [1991] 192 ITR 287 (Delhi), the case was referred to a larger Bench and that is how it has come up for consideration before us. On behalf of the petitioner, it has been con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." Mr. Syali is right in contending that the aforesaid section merely codifies what was the state of law prior to its enactment. Even when the Indian Income-tax Act, 1922, was in force it had been held in all judicial pronouncements that if cash credits are found in the books of account of the assessee and no explanation about the nature and source thereof is given or the explanation is not found satisfactory then the same could be charged to income-tax as income from undisclosed sources. The only question which at times used to arise was as to in which year it could be said that the income had accrued, but that question can no longer arise because section 68 provides that the amount so credited is to be regarded as the income of the assessee for "that previous year", i.e., the previous year in which the same is found credited in the books of the assessee. It is not unknown that in order to avoid payment of tax an amount may be credited in the books of account in such a manner which may not disclose its tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to enquire, and it would indeed be his duty to do so, whether the alleged shareholders do in fact exist or not. If the shareholders exist then, possibly, no further enquiry need be made. But if the Income-tax Officer finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons. The use of the words "may be charged" (emphasis added) in section 68 clearly indicates that the Income-tax Officer would then have the jurisdiction, if the facts so warrant, to treat such credit to be the income of the assessee. It is neither necessary nor desirable to give examples to indicate under what circumstance section 68 of the Act can or cannot be invoked. What is clear, however, is that section 68 clearly permits an Income-tax Officer to make enquiries with regard to the nature and source of any or all the sums credited in the books of account of the company irrespective of the nomenclature or the source indicated by the assessee. In other words, the truthfulness of the assertion of the assessee regarding the nature And the source of the credit in its books of account c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing filed, the Supreme Court held that the Tribunal had not considered the identity and creditworthiness of the donors to the trust and it had also not considered the material collected by the Officer regarding the benami nature of the shareholders and, therefore, questions of law did arise. In the present case also, the Income-tax Officer did not make any enquiries as to the existence or genuineness of the shareholders and, therefore, the Commissioner of Income-tax revised the order under section 263 of the Act. The Tribunal did not advert to this finding of the Commissioner of Income-tax at all and it did not hold that enquiries as to the existence of the shareholders were made by the Income-tax Officer. What was relevant, in the first instance, was whether the shareholders existed and in the absence of such an enquiry whether action was validly taken under section 263 or not was certainly a question of law which should have been referred. The ratio of the decision of the Supreme Court in Biju Patnaik's case [1986] 160 ITR 674, is clearly applicable here. We may only note that learned counsel for the petitioner has relied on the following decisions of the various High Courts whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been filed in the High Court. " Earlier it was stated in the statement of facts drafted by the Department that the Commissioner had held that the assessment was made by the Income-tax Officer without making necessary and appropriate enquiries with regard to the share capital raised by the company and to that extent the order passed by the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue. By filing an application under section 256(1) and 256(2) what the Department is seeking to do is really to assail the conclusion of the Tribunal that the Commissioner of Income-tax was wrong in setting aside the assessment order. The only reason why the assessment order was set aside was that full enquiries had not been made by the Income-tax Officer. That was the only point in dispute which arose before the Tribunal and that is the only point which could be agitated in an application under section 256(2) of the Income-tax Act. The real controversy between the parties was with regard to the extent of enquiries which were made by the Income-tax Officer while framing the assessment. That was the real controversy in issue. In S. P. Gramophone Co. v. CIT [1986] 158 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t are applicable, with equal force, to the present case also and the question can be so refrained by this court in order to bring out the real issue between the parties. In CIT v. Electric Construction and Equipment Co. Ltd. (No. 1) [1990] 183 ITR 666 (Delhi) one of the questions sought to be raised was (at page 668) : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in allowing bad debts of Rs. 17,398 for which the assessee could not furnish any details ?" The contention of the Revenue was that before the Tribunal two letters were brought on record for the first time and the Tribunal had based its decision without any due verification of the said letters. Even though question with regard to verification of the letters was not sought, a Division Bench of this court nevertheless came to the conclusion that reliance on material without due verification raised a question of law and refrained the said question as follows (at page 670) : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in permitting deduction of Rs. 17,398 on the basis of the letters dated March 24, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
