TMI Blog2003 (7) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... res have been allotted through private placement. Copy of share application forms submitted to the assessee company in respect of private placement quota are also included in this paper book. 3. Briefly stated the facts are that the assessee company was incorporated under the Companies Act on 27-11-1991 as per the certificate of incorporation placed at page 1 of the paper book I. The Assistant Registrar of Companies has issued the certificate for commencement of business on 2-12-1991. The Company commenced commercial production of cement from 27-2-1992 with the installed capacity of 35 tons per day. Assessment year 1992-93 is thus the first year of commercial production. The authorized share capital of the assessee company is ₹ 5 crores divided into 50 lakh shares of ₹ 10 each. The company has been allowed allotment of 9.90 lakhs of shares by private placement and the balance shares have been offered to the public. The assessee company received contribution through private placement in the promoters quota ₹ 98,99,300 from 373 applicants. During assessment proceedings the Assessing Officer called upon the assessee to produce the persons to whom preferential shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that these shares were allotted through the brokerage of M/s. Rajyaguru Associates whose business premises were situated at 18, Semi Basement, Paradise Complex, Sayajigunj, Baroda. The CIT(A) forwarded the documents and papers filed by the assessee in the two paper books to the Assessing Officer for comments. The Assessing Officer forwarded her comments on 12-7-1995 which have been considered by the CIT(A) while deleting the impugned addition. The CIT(A) held that the assessee has duly furnished the evidence in support of genuineness of the share application money received from the allottees of the preferential quota and the impugned addition made by the Assessing Officer cannot be sustained. With regard to the evidence filed by the assessee at the appellate stage, the CIT(A) observed vide para 3.9 of the appellate order that even if share application forms of the allottees are being filed at the appellate stage for the first time yet the assessee has duly furnished full information regarding the allotment of shares at the assessment stage. The CIT(A) further observed that the Assessing Officer has not made any adverse comments in her written submissions dated 12-7-1995 regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em. All that the assessee had produced before the CIT(A) is copies of the share application forms received from the 373 allottees which cannot be considered as additional evidence inasmuch as the entire information had earlier been furnished at the assessment stage. The ld. counsel further submitted that the CIT(A) has duly taken note of Rule 46A of I.T. Rules 1962 and also referred to the fact that no adverse comments have been made by the Assessing Officer in her written submissions dated 12-7-1995 before the CIT(A). Shri Patel further referred to the decision of Gujarat High Court in the case of Pari Mangaldas Girdhardas v. CIT [1977] CTR (Guj.) 647 wherein the High Court has considered at length the basis criteria for admission of additional evidence by the Tribunal under Rule 29 of Income Tax Appellate Tribunal Rules 1963. According to the ld. counsel the discretion given to the appellate authority to receive and admit additional evidence is a judicial one and such evidence may be allowed in the interest of justice. The ld. counsel submitted that there is no infirmity in the impugned order of the CIT(A) in considering the share application forms filed by the assessee. Regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in CIT v. Steller Investment Ltd. [2001] 251 ITR 263. Further reliance is placed on the following decisions: 1. Dy. CIT v. Core Healthcare Ltd. [2001] 251 ITR 61 (Guj.). 2. CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570 (SC). 3. CIT v. Ramanathapuram Distt. Co-op. Central Bank Ltd. [2002] 255 ITR 423 (SC). 4. CIT v. Lanco Industries Ltd. [2000] 242 ITR 357 (AP). 8. We have given our thoughtful consideration to the rival contentions and also gone through the facts and material on record. In our considered opinion the finding reached by the ld. CIT(A) and the reasoning adopted in support thereof are entirely well conceived and no interference on our part is called for. The very first objection raised by the revenue against entertainment of additional evidence by the CIT(A) lacks substance and is liable to be rejected. The ld. CIT(A) has duly considered the issue of admitting fresh evidence in the light of Rule 46A of I.T. Rules, 1962 and took note of the fact that the Assessing Officer in her written submissions dated 12-7-1995 did not make any adverse comments with regard to the evidence produced by the assessee company. We are inclined to agree with the ld. CIT(A) th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee company. The Assessing Officer has not disputed the fact that these 20 allottees have been allotted shares on the basis of share application forms submitted through Rajyaguru Associates share broker. The said broker has been remunerated for the services rendered to the assessee firm. Once the basic fact is accepted that share application money has been received through Rajyaguru Associates along with the share application forms, the Assessing Officer should have examined the share broker before jumping to the conclusion that the allottees are not available at the said address. We find that there is not even a whisper of any enquiry made by the Assessing Officer from the said broker regarding the identity or whereabouts of the applicants who have made applications along with the share application money for allotment of shares out of preferential quota. Without making any enquiries from the broker the Assessing Officer has proceeded to treat the investment as undisclosed income of the assessee company. If the investment belongs to the assessee company, there was no occasion for the Assessing Officer to allow deduction for under writing commission or brokerage to M/s. Rajy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t clearly emerges that the assessee has discharged the onus which lay upon it by virtue of provisions of section 68. Regarding the contention of the Assessing Officer that share certificates have not been produced, we feel that such a requirement has no nexus with the issue of onus under section 68. There are as many as 373 allottees spread all over the country and allotments have been made in conformity with the procedure laid down under the Companies Act. Share application forms submitted by the allottees are available on record. The assessee has furnished copy of return of allotment filed with the Registrar of Companies, Gujarat. The Assessing Officer has examined as many as 30 allottees who have confirmed the investment with regard to 20 allottees with the same address as 18, Semi Basement, Paradise Complex, Sayaji Gunj, Baroda it is amply established that M/s. Rajyaguru Associates was the share broker who was the broker and under writer to the issue duly approved by the Baroda Stock Exchange and it was through this broker that share application money as well as share applications have been filed with the assessee company. The question of onus of proving the source and nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umber of persons together with their confirmations and bank passbook for confirming their investments. The assessee produce none of the parties called for. The Assessing Officer finally conducted field enquiries and out of total of 373 allottees, 50 people were interrogated. Out of 50, 30 people have confirmed their investments. However, a total of 20 people could not be located at the address which was given to the Assessing Officer. All these 20 people have given the address of 18, Semi Basement, Paradise Complex, Sayajigunj, Baroda-390005 and the field enquiry revealed that no such person have ever resided or worked at such a premises. The present occupants of the address is unable to supply any details. The Assessing Officer accordingly concluded that address given against the name of 20 persons is bogus. The names of these 20 persons as given by the Assessing Officer in the assessment order are as under: - ------------------------------------------------------- Sr. Sr.No. Name of Investment No. list investor/holder ------------------------------------------------------- 1. 115 Rajiv Parikh 10000 2. 116 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total allotment of shares of ₹ 98,99,300 assessee company was able to provide the confirmation for the amount of ₹ 39,43,300. The Assessing Officer allowed ample opportunity to the assessee to provide the details of the balance amount but the same were not produced. The Assessing Officer accordingly observed that the view of the fact that assessee has not been able to discharge its obligation to contact its share holders and unable the department of Income tax to verify the source of their investment, treated the balance amount of ₹ 59,56,000 as income of the assessee. 6. The assessee carried the matter in appeal and before the CIT(A), assessee furnished copies of share application forms received from the 373 allottees relating to preferential allotment and also furnished a copy of return of allotment filed with the Registrar of Companies. The counsel of the assessee appeared before the CIT(A) also referred to the provisions of the Companies Act relating to share capital etc. and submitted that names of 373 allottees were filed before the Assessing Officer. The counsel of the assessee also drew attention to the individual share application forms and also to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case. In fact no additional evidence adduced by the appellant before me have been considered for the purposes of arriving at the decision. 3.51. This appeal has been decided on the evidences recorded on the course of assessment proceedings only. In absence of any proof against the appellant's version, in my view the Assessing Officer should not have rejected the claim of the appellant that the amounts received were the share application money. For the purposes, reliance is placed on the decision in the case of CIT v. Vali Mohd. Ahmedbhai, 134 ITR 214. 3.52. I, therefore, hold that the entire share application money of ₹ 99,98,300 for which allotment was completed, were the share capital of the appellant company and cannot be treated as the income of the appellant company from undisclosed sources. The Assessing Officer is directed to delete the addition of ₹ 59,56,000 made to the total income. 8. Aggrieved by the order of learned CIT(A) revenue is in appeal before us on the following ground:- On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of ₹ 59,56,000 (inclusive of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney in the purchase of shares then the amount received by the company would be regarded as capital receipt and to that extent the observations in the case of Stellar Investment Ltd. (1991) 192 ITR 287 (Delhi) are correct but if, on the other hand, the assessee offers no explanation at all or the explanation offered is not satisfactory then, the provisions of section 68 may be invoked. In the latter case section 68, being a substantive section, empowers the Income-tax Officer to treat such a sum as income of the assessee which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessee. 10. The learned departmental representative finally submitted that there is no justification whatsoever on the part of learned CIT(A) in deleting the addition of ₹ 59,56,000 made by Assessing Officer because the addition of ₹ 2,00,000 was made by Assessing Officer on the ground that field enquiry could not prove the identity of the applicant who applied for share of ₹ 2,00,000. Assessing Officer concluded that in respect of amount of ₹ 59,56,000 assessee has not furnished confirmation from the persons who applied for share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 2 lakhs were not genuine as the address given against their names is bogus. The Assessing Officer has also mentioned that the share application money has been paid by all these 20 persons in cash and same is dated 20-1-1992. Since due to paucity of the time, it was not possible for the Assessing Officer to conferred the assessee with field inquiry report, Assessing Officer made the addition of ₹ 2 lakhs. In my opinion the Assessing Officer, after obtaining the field inquiry report, keeping in view the principle of natural justice should have confronted the assessee with the finding of inquiry report. Since this was not done, in my opinion, it will meet the end of justice, if the issue regarding addition of ₹ 2,00,000 is remitted to the file of Assessing Officer with the direction that Assessing Officer will inform the assessee the outcome of field report and re-adjudicate this addition afresh. 13. It is pertinent to note that in case of private placement through promoters quota generally no underwriter is involved. Therefore, in case of private placement, heavy burden lies on the assessee to prove three parameters stated earlier of section 68 of the Act. On share a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication form/confirmation from persons who applied for shares along with other particulars like Pan No. if any, brief source of income of the applicant so that Assessing Officer may conduct necessary enquiry as provided in section 68 of the I.T. Act. The facts of the case clearly indicates that before the Assessing Officer the assessee has neither furnished confirmation nor authenticated application form. I therefore, set-aside the order of ld. CIT(A) and remit this issue to the file of Assessing Officer with the direction that assessee should furnish confirmation / authenticated application form to the Assessing Officer who will conduct the necessary enquiry as provided under section 68 and re-adjudicate the addition of ₹ 59,56,000 afresh in accordance with law after giving an opportunity of being heard to the assessee. 16. In the result, for statistical purposes, the appeal of the revenue is allowed. 1. Pursuant of difference of opinion amongst the Members constituting the Division Bench, the following point of difference is referred to the President, ITAT under section 255(4) of the I.T. Act, 1961: - Whether on the facts and circumstances of the case, the Account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benami as the company has not been able to prove the whereabouts of these investors. He also noticed that in the share application money account all the receipts were in cash on the same date i.e. 20th January, 1992. He, therefore, added the said sum of ₹ 2 lakhs in respect of the above 20 people to the income of the assessee. He further observed that out of the total allotment of ₹ 98,99,300 the assessee has furnished the confirmation in respect of the amount of ₹ 39,43,300. He added the balance of ₹ 59,56,000 to the income of the assessee by observing that the assessee was given ample opportunity to provide the details of balance amount but has failed to produce any details. The share certificate showing allotment of shares were not produced and, therefore, the assessee had been unable to discharge its obligation to contact its shareholders and made unable the Department of Income-tax to verify the sources of investments. 3. Before the CIT(A), the assessee furnished copies of the share application forms received from the aforesaid 373 people including the 20 which were filed before the Assessing Officer and also furnished a copy of the return of allot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see should furnish confirmation/authenticated application forms to the Assessing Officer who may conduct the necessary enquiries as provided under section 68 of the Act to readjudicate the addition afresh in accordance with law and after giving an opportunity of being heard to the assessee. 5. The first dispute of the CIT-DR is that the CIT(A) was not justified in making an observation that he has verified the original application forms as well as the copies and found that all the application forms that have been submitted before him carried the signatures of the applicants and, therefore, the observation of the Assessing Officer to the effect was incorrect. The ld. CIT-DR pointed out four such instances from the application forms wherein the signatures have not been put by the applicants which are amongst the 20 people. They are at page 561 of the paper book in the case of Shri Mukesh Patel, page 507 Shri O. Mehta, page 452 Shri Chandrakant Patel and page 396 Shri P. Mehta. The deletion of addition of ₹ 2 lakhs by the CIT(A) is not justified also in view of the fact that none of the aforesaid 20 people have filed their confirmations for investment in shares of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese 20 people is not born out of the record. This was not the case of the assessee either before the Assessing Officer or before the CIT(A). There is also no evidence on record that it was through the said broker. The ld. CIT-DR also doubts as to whether the private placement could be through the broker because it has to be arranged by the promoter from his friends and relatives. The forms of the said 20 applicants, copies of which are also filed do not show any such endorsement as they were through the brokers. In some of the other application forms name of one K.B. Jain stands on the right corner of the application but what does that denote also was not clarified. Further, the observation of the ld. Accountant Member that spot enquiries have been made at the back of the assessee and proper opportunity has not been afforded to the assessee thus violated the principle of natural justice as well as express provisions of section 142(3) of the Act all the more requires that the matter should have been set aside for making the said field enquiry report available to the assessee for its comments as directed by the ld. Judicial Member and then make the fresh assessment instead of endor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like section 68 and the Apex Court has upheld the view of the Tribunal that the investment could not be treated as income of the assessee which was based upon taking into account the circumstances in which the assessee was placed. He also referred to the unreported decision of Bombay High Court in the case of CIT v. Belenje Investment Trading Co. [IT Application No. 314 of 1993, dated 8-12-1993] dismissing an application under section 256(2) of the act by observing that it was difficult to hold that the assessee company could have in this short period earned profit to the extent of ₹ 4,40,000. 8. I have considered the rival submissions and gone through the record. Difference of the two Members in this case is whether the amount credited by the assessee in share capital in promoters quota of ₹ 59,56,000 is to be deleted on the material on record or it requires to be set aside for further verification and gather material to come to a conclusion, one way or the other. The Assessing Officer says assessee has not filed confirmations with regard to investment of ₹ 59,56,000 and on field enquiries 20 out of 50 allottees were not found even existing at the given common ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and those investments made by them unless the documents are proved by confirmation of the parties and sources of investment by them. I however, feel that it should be left to the assessee as to how he proves that and we should refrain ourselves to restrict the way and mode of enquiry of material to be gathered or produced by the parties. The Assessing Officer would readjudicate the issue on the basis of material brought and sufficiently thereof in the light of the provisions of section 68 of the Act, the applicability of which is agreed to by both the Members. 11. The ld. counsel of the assessee also submitted that the investment of ₹ 3 lakhs by 30 persons who have appeared before the Assessing Officer and confirmed their investment has also been added by the Assessing Officer as he has given benefit of ₹ 39,43,300 the confirmation of which was filed by the assessee and that this sum does not include the above ₹ 3 lakhs from the said 30 people in whose cases the assessee did not file any confirmation but who have confirmed directly before the Assessing Officer aforesaid. In my opinion, that should not have been added by the Assessing Officer to the income of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs do not exist, then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the names of non-existing persons. The use of the words may be charged in section 68 clearly indicates that the ITO would then have the jurisdiction if the facts so warrant, to treat such a credit to be the income of the assessee . In the case of Smt. P.K. Noorjahan before the Supreme Court the assessee was a Muslim lady aged about 20 years during the previous year relevant to the asst. year 1968-69. On November 15,1967 she had purchased 16 cents of land in Ernakulam and the amount spent by her, inclusive of stamp and registration charges, for this purchase of ₹ 34,628. On November 27, 1968 she purchased another 12 cents also at Ernakulam and the total investment for this purchase was ₹ 25,902. The explanation of the assessee regarding the source of the purchase money for these investments was that the same was financed from out of the savings from the income of the properties which were left by her mother's first husband. The Tribunal though agreed with the Assessing Officer that the explanation about the nature and source of purchase money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... menced its production. Be that as it may, after introduction of section 68, this plea does not seem to have much relevance and as held by the Full Bench decision in the case of Sophia Finance Ltd. the use of the words may be charged in section 68 clearly indicates that the ITO would then have the jurisdiction, if the facts so warrant, to treat such credit to be the income of the assessee. However, as the matter is to be set aside to the file of the Assessing Officer for determination of the issue afresh the assessee would be at liberty to raise this issue before the Assessing Officer in the fresh proceedings who shall deal with the plea and dispose of the same in accordance with law. Order under section 255(4) of the I.T. Act Per Shri T.K. Sharma, J.M. - There being a difference of opinion, the matter was referred to a Third Member. 2. In accordance with the majority view, we set-aside the order of ld. CIT(A) and remit the issue pertaining to addition of ₹ 59,56,000 to the file of Assessing Officer for deciding the same afresh in accordance with law after giving opportunity of being heard to the assessee. 3. In the result, for statistical purposes, the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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