Delhi High Court

Akriti Media (P) Ltd. vs Asstt. Cit on 19 August, 2003

Equivalent citations: (2004) 89 TTJ Del 836

ORDER

T.N. Chopra, AM:

This appeal filed by the assessed is directed against block assessment order dated 28-6-2002, made by Assistant Commissioner, Circle 11, New Delhi for the block. period 1-4-1986 to 19-4-1996.

2. Search operations were conducted by the IT authorities under section 132 of the Income Tax Act on the premises of Shri Alok Agarwal who is a practicing chartered accountant. During the course of such proceedings books of account and other documents pertaining to the assessed- company were found and seized by the authorised offider. Assessing Officer accordingly initiated proceedings, under section 158BC read with section 158BD and issued notice calling for the block return on 23-3-2001. The assessed-company filed a return in prescribed Form No. 2B showing the undisclosed income at nil figure. assessing officer, however, proceeded to make the block assessment computing the undisclosed income at Rs. 1,38,000 which is being assailed in the present appeal before us.

3. Ground Nos. 1 to 3 challenging the legality of the impugned block assessment have not been pressed by the learned counsel before us and the. same are, therefore, dismissed. The only ground pressed by the learned counsel is against the addition of Rs. 1,38,000 on account of share application money, being ground No. 4, which reads as under:

"That on facts and in law, the addition of Rs. 1,38,000 made on account of share application money deposited by several investors is illegal and unjust as all the parties are fully identifiable and had made investment by cheque and thus no addition in such a case could be made in the hands of the company in view of judgments of Hon'ble Delhi High Court (FB) in the case of CIT v. Sophia Finance ITD. (1993) 113 CTR (Del) JB) 472 : (1994) 205 ITR 98 (Del)(FB) and Hon'ble Supreme Court in case of CIT v. Steller Investment ITD. (2000) 164 CTR (S0 287: (2001) 251 ITR 263 (SC). " :

4. In the impugned block assessment order, assessing officer has made the addition of Rs. 1,38,000 on account of share application money reflected in the books in the' names of the following parties

Rs.

(i)

Share capital in the name of Shri Govind Mishra

20,000

(ii)

Share capital in the name of Shri Jaipal Sharma

20,000

(iii)

Share capital in the name of Shri Alok Goel

1,00,000

5. Assessing Officer has noted in the impugned order that investigations were made regarding the genuineness of share capital of the assessed- company and confirmations regarding the investment have been received from the shareholders except in the two cases, Shri Govind Mishra and Jaipal Sharma. assessing officer, therefore, treated the said investment of Rs. 38,000 as unexplained income by invoking the provisions of section 68. With regard to Shri Alok Goel, his confirmation was received wherein he pointed out that he was an existing assessed and has filed returns showing the investment before the IT authorities. Assessing Officer recorded his statement and proceeded to treat the investment of Rs. 1 lac as unexplained on the ground that creditworthiness of Shri Alok Goel has not been proved. P

6. Learned counsel assailing the aforesaid additions, filed written submissions before us and also invited our attention to the paper book earlier filed along with the stay application. Learned counsel submitted that the entire share capital of the assessed- company has been duly recorded in the regular books of account of the company which have been duly audited. On the basis of such books of account, no part of the share capital can be assessed as undisclosed income by invoking the provisions of section 68 particularly when entire share capital has been received by account payee cheques from genuine identifiable parties whose complete addresses have been furnished during the block assessment proceedings. Learned counsel argued that when certain information and details have already been recorded in books of account maintained in the regular course of business based on which returns of income have been regularly filed by the assessed- company, the very same information and -details cannot be the subject-matter of further scrutiny for the purposes of assessing undisclosed income under section 158BC. Reliance is placed on the decision of Delhi High Court in the case of CIT v. Ravi Kant Jain (2001) 167 CTR (Del) 566 : (2001) 250 ITR 141 (Del). Further reliance is placed on the following decisions :

(i) N R. Paper & Board ITD. & Ors. v. DY. CIT (1998) 146 CTR (GuJ) 612 : (1998) 234 ITR 733 (Gul)

(ii) Sunder Agencies v. Dy. CIT (1997) 59 TTJ (Mumbai) 610 : (1997) 63 ITD 245 (Mumbai)

(iii) Prakash Foods ITD. v. Dy. CIT (1998) 64 ITD 396 (Pune)

(iv) JK. Narayanan (HUF) v. Assistant Commissioner (1999) 64 TTJ (Mad)(TM) 823: (2000) 242 ITR 45 (Mad)(AT)

7. Learned counsel further referred to the decision of the Hon'ble Supreme Court in CIT v. Steller Investment (supra) and argued that once the shareholders are genuine parties and confirm the investment, there is no question of making any addition in the hands of company by invoking the provisions of section 68 of the Income Tax Act, 1961.

8. Even on merits, learned counsel submitted that all the three shareholders, namely, S/Shri Govind Mishra, Jaipal Sharma and Alok Goel are genuine parties assessed to tax and have disclosed the investment in the share capital of the assessed- company in the IT returns. He invited our attention to p. 68 of the paper book wherein there is a confirmation from Shri Jaipal Sharma wherein it has been stated that amount of Rs. 18,000 has been invested for acquiring shares of the assessed- company out of saving account maintained with State bank of India, G.T. Karnal Road, Delhi. At p. 49, application filed by the said Shri Jaipal Sharma for allotment of Permanent Account Number has been filed. At pp. 50 to 63 of the paper book, copies of IT returns filed by Shri Jaipal Sharma have been placed for assessment years 1991-92 to 2001-02. Similarly, with regard to Shri Alerk Goel, it is pointed out that he was assessed to tax at GIR No. A. 206 in Ward 14(9), Delhi and has been filing his IT returns. Copies of such returns for assessment years 1992-93 to 1994-95 are placed at pp. 65 to 70. The said Shri Alok Goel was also examined by the assessing officer on 19-3-2001, and copy of the statement recorded is filed before us as per Annex. 5 to the written submissions. Regarding Shri Govind Mishra, learned counsel invited our attention to Annex. 2 to the written submissions wherein year-wise shareholding of the assessed- company along with distinctive numbers have been given. This list includes the particulars of Shri Govind Mishra, 234, DDA Office Complex, Jhandewalan Extension, New Delhi.

9. On the basis of the above facts, learned counsel submitted that provisions of section 68 are not invocable inasmuch as the assessed has already discharged the onus of establishing the genuineness of the share capital duly reflected in the regular books of account.

10. Learned departmental Representative, on the other hand, supported the impugned addition of Rs. 1,38,000 made by the assessing officer as undisclosed income and argued that the onus to establish the genuniness of the share capital, which lay upon the assessed by virtue of the provisions of section 68 has not been established. Learned departmental Representative placed reliance on the Full Bench decision of the Delhi High Court in the case of CIT v. Sophia Finance ITD. (supra).

11. We have carefully considered the rival submissions and gone through the paper book as well as other compilation of papers filed by the learned counsel before us. Chapter XIV-B of the Income Tax Act, 1961, lays down a special procedure for assessment of search cases and provides for assessment of undisclosed income as a result of search. Block assessment made under the said chapter is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials unearthed during search. The assessment for the block period can only be done on the basis of evidence found as a result of search and such other materials or information as are available with the assessing officer. Evidence found as a result of search is clearly relatable to sections 132 and 132A. Provisions for regular assessment are independent and would operate irrespective of block assessment procedure resorted to by the assessing officer in the case of a search. Regular assessment and block assessment are thus not mutually exclusive. The legal position, as laid down by the Gujarat High Court in N.R. Paper & Board ITD. & Ors. v. Dy. CIT (supra) and Khandu Bhai Vasanfl Desai & Ors. v. Dy. CIT (1998) 150 CTR (Gul) 577 : (1999) 236 ITR 73 (Guj) has been explicitly enacted into the block assessment scheme by *the legislature by insertion of the Explanation below section 158BAQ) by the Finance (No. 2) Act, 1998, further clarifies the position. The said Explanation reads as under :

(a) the assessment made under this chapter shall be in addition to the regular assessment in respect of each previous year included in the block period;

(b) that total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period;

(c) the income assessed in this chapter shall not be included in the regular assessment of any previous year included in the block period.

12. In the view of the aforesaid Explanation, the contrary decisions rendered by Punjab & Haryana High Court in Raja Ram Kulwant Rai v. Assistant Commissioner (1997) 142 CTR (P&H) 292 : (1997) 227 ITR 187 (P&H) and by Kerala High Court in N.T. John v. CIT & Anr. (1997) 137 CTR (Ker) 656 : (1997) 228 ITR 314 (Ker) are no longer good law. The decision of Delhi High Court in CIT v. Raid Kant Jain (supra) cited by the learned counsel further supports the proposition enunciated by us above.

13. At this juncture, it would be relevant to take note of the basis on which the assessing officer has proceeded to make the impugned addition of Rs. 1,38,000 as undisclosed income. Assessing Officer has proceeded on the basis that with regard to the share capital introduced in the names of S/Shri Jaipal Sharma, Alok Goel and Govind Mishra aggregating to Rs. 1,38,000 in the books of the company, the assessed has not discharged the onus under section 68 of the Income Tax Act. A bare perusal of the assessment order would indicate that the assessing officer was proceeding as if he was exercising the jurisdiction of making a regular assessment in assessed's case. The basic ingredients for computation of undisclosed income are conspicuous by their absence in the instant case inasmuch as there is no indication in the impugned block assessment order as to what materials and evidence has been unearthed during search which supports the finding of the assessing officer that the share capital in question represents unexplained credit under section 68. Section 158B specifically provides that computation of undisclosed income is to be made "on the basis of evidence found as a result of search or other documents and such other materials or information are available with the assessing officer and relatable to such evidence." Merely because the assessing officer believes that the onus of proving the genuineness of share capital has not been discharged under section 68 would not by itself entitle the assessing officer to treat. the said amount as 11 undisclosed income for the purposes of block assessment". Out of the three shareholders, two shareholders, namely, S/Shri Jaipal Sharma and Alok Goel are existing assesseds and have disclosed the investment in their IT returns as borne out from the details contained in the paper book referred hereinbefore. Regarding Shri Govind Mishra, even if his confirmation has not been received yet share capital introduced in his name is duly supported by entries in the books of account and the share application money has been received through crossed cheques deposited in the Benaras State bank ITD. reflected at p. 75 of the paper book. Even with regard to Shri Govind Mishra, no material or information or evidence has been found during the search which may support the conclusion that the share application money of Rs. 20,000 introduced in the books in his name represents fictitious capital. Thus, in the absence of the vital ingredient for treating any amount as undisclosed income, namely, evidence, material or information found during search, we feel that the impugned addition made by the assessing officer in the block assessment deserves to be deleted.

14. Learned counsel has referred to the two decisions rendered by jurisdictional High Court, i.e., Delhi High Court in CIT v. Steller Investment (supra) as well as CIT v. Sophia Finance ITD. (supra), wherein issue concerning genuineness of share capital in the books of limited company by invoking the provisions of section 68 has been considered and decided. In these decisions, it has been held by the Delhi High Court that if the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by thecompany would be treated as genuine share capital. Applying the ratio of these decisions to the facts of the instant case, we feel that there is nothing on record to treat the impugned investment of Rs. 1,38,000 as nongenuine. In any case, the entire issue of genuineness of share capital, as we have already discussed above, would have to be examined in the context of the scheme of block assessment and not the regular assessment. Facts are undisputed that no material or information has been unearthed by the department during the course of search to support the inference that investment in the share capital is non-genuine and, therefore, there is no occasion for treating the impugned amounts as undisclosed income of the assessed- company.

15. For the aforesaid reasons, the addition of Rs. 1,38,000 made on account of share application money is deleted.

16. In the result, the appeal is allowed as above.