Delhi High Court

Alankit Assignments Ltd. vs Joint Cit on 14 February, 2003

Equivalent citations: (2004) 89 TTJ Del 1053

ORDER

Keshaw Prasad, A.M.

The appeal has been directed by the appellant against the order of the assessing officer dated 20-3-2001, for block period 1-4-1986 to 19-4-1996. As mentioned by the assessing officer in the impugned block assessment order search and seizure operation under section 132 of the Income Tax Act were carried out at the business premises of the assessed-company and at the residence of the Director Sh. Alok Aggarwal and his wife Smt. Alka Aggarwal on 19-4-1996 (Smt. Alka Aggarwal was not director).

2. Assessment in this case was originally completed under section 158BC/143(3) at an undisclosed income of Rs. 2,97,58,916 as against nil undisclosed income declared by the appellant in response to section 158BC. But on appeal, the Tribunal set aside the said assessment order with a directions to the assessing officer to frame a fresh assessment order de novo on the ground that the appellant had not been provided proper and adequate opportunity in the course of assessment proceedings thereby violating of principles of natural justice.

3. In the course of the fresh block assessment proceedings, the assessing officer had issued a questionnaire to the assessed on 9-1-2001, and the case was heard up to 23-3-2001, regularly as observed by the assessing officer in para 3 of the impugned order. The assessing officer completed the fresh assessment vide order dated 30-3-2001, by making additions of Rs. 58,38,000 on account of bogus share capital on protective basis and Rs. 22,40,500 on account of bogus share capital of the appellant-company, against which the appellant has filed this appeal, raising the following grounds of appeal :

"1. That the impugned order redetermining total undisclosed income of the appellant at Rs. 80,78,500 out of issued, subscribed and paid up share capital of the appellant- company (Rs. 58,38,000 on protective basis and Rs. 22,40,500 on substantive basis) is founded on unauthorised and illegal grounds.

2. The learned assessing officer misdirected himself in law in adding Rs. 58,30,000 out of share capital of the assessed-company, subscribed and paid up by corporate shareholders during the block period on protective basis, by wrongly and improperly disregarding the proof of identity and genuineness of their investment.

2.1 The impugned addition of Rs. 58,30,000 out of share capital of the appellant- company, contributed by the corporate shareholders, could not have been lawful made on protective basis when no addition on substantive basis is made in the hand of some other entity.

2.2 Even the impugned addition of Rs. 58,30,000 which stood disclosed both in the hands of the shareholders as well as in the hands of the appellant-company, prior to the date of search, was unauthorised and without jurisdiction.

3. Even the impugned addition of Rs. 22,40,500 out of share capital, contributed by individual shareholders was illegally and unauthorisedly made by wrongly rejecting the evidence adduced in proof of their identity and genuineness of their investment, and also without due regard to this amount of share capital invested by the named shareholders already disclosed, prior to the date of search, both in the respective hands of the shareholders as well as in the hands of the assessed-company.

4. That both the aforesaid additions of Rs. 58,38,000 on protective basis and Rs. 22,40,500 on substantive basis out of the disclosed share capital of the appellant- company were not liable to the added under section 68 in view of the of Full Bench decision of the Delhi High Court in Sofia Finance & Investment Ltd. (1994) 205 ITR 98 (Del)(FB) and the Apex Court decision in the case of CIT v. Steller Investment (2001) 115 Taxman 99 (SC), which ratios fully applied to the facts of the case of the assessed.

5. That the learned assessing officer further went wrong in law in determining total tax payable by the assessed at Rs. 55,74,165 including surcharge levied at Rs. 7,27,065 which included tax and surcharge even in respect of addition of Rs. 58,38,000 made on protective basis. The appellant- company objects to levy of surcharge, which is not legally chargeable, and also objects to the balance deemed of tax and surcharge, attributable to substantive additions in view of the challenge to the legality and propriety of the balance additions made on substantive basis, as urged in the appropriate preceding grounds.

Various observations made by the learned assessing officer while making the above additions are either incorrect or are untenable. The learned assessing officer had either ignored the submissions made and evidence produced or had not given due weight to the same.

6. The appellant craves leave of this Hon'ble Tribunal to add to, alter, vary, modify or otherwise amend the grounds of appeal before the appeal is finally disposed of."

4. Shri O.P. Sapra, Shri J.K. Khanna, advocates and Shri Ashuthosh Aggarwal, CA appeared and filed synopsis besides a paper book, copies whereof were duly given to the learned Departmental Representative who too was heard.

5. The first grievance of the appellant is against the addition of Rs. 58,38,000 made on protective basis out of share capital account of the appellant-company subscribed and paid up by the following corporate shareholders :

S. No.

Name of the company

Amount of investinent in share capital of Alankit Assignments Ltd. added on protective basis Rs.

Real Overseas (P) Ltd.

3,00,000

Parul Poly Products (P) Ltd.

5,00,000

Garg Polymers (P) Ltd.

10,00,000

Alankit Imaginations (P) Ltd.

4,75,000

Makhani & Tyagi (P) Ltd.

4,00,000

Vikas Polyester (P) Ltd.

3,95,000

Npar Drugs (P) Ltd.

15,68,000

Npar Cans (P) Ltd.

12,00,000

6. The assessing officer has discussed this issue in paras 4-8 of the impugned assessment order. The assessing officer has observed that there are 64 shareholders in this company and the total share capital is Rs. 1,49,57,300 share holding with out of which 13 Cos. is at Rs. 98,23,000 and investment of 51 individuals is at Rs. 51,34,300. The assessing officer asked the appellant to produce the shareholders and directors of the shareholder company to prove their identity. The appellant produced directors of 5 companies. As per details given at p. 3 of the impugned assessment order who had made investment in the share capital aggregating at Rs. 39,85,000. The investment to this extent which has been accepted by the assessing officer. As the director of the above named 8 companies were not produced, the assessing officer has observed that the identity of the aforesaid companies is doubtful even though the appellant had filed necessary evidence on their being assessed to income-tax because according to the assessing officer the appellant had merely proved the physical identity of the above companies but not the genuineness of the transactions and capacity to invest. The assessing officer has further observed that the returns filed by the aforesaid 8 companies did not establish that the said companies were in a position to make huge investment for the purpose of shares of the appellant company and consequently the assessing officer treated the share capital subscribed by the aforesaid companies as bogus but assessed the same on protective basis.

7. The learned counsel of the appellant-company took us through the evidence produced before the assessing officer with regard to each of the above corporate shareholders to prove their identity by filing copies of their PAN cards and their assessment particulars (copies placed at pp. 62-67 of the paper book) along with relevant records viz., balance sheet, copies of returns, bank statements showing investment in the share capital of the appellant- company as filed before assessing officer and also appellant's letter dated 19-2-2001 (copy placed at pp. 118-178 of the paper book). The learned counsel further brought to our notice that Sh. Mukesh Gupta, director of Npar Cans (P) Ltd. and M/s Npar Drugs (P) Ltd. had duly appeared on 7-2-2000, as was evident form the order-sheet entry of the assessing officer (copy placed at p. 113 of the paper book). Further, Sh. Alok Aggarwal, director of the appellant- company has been appearing before the assessing officer from time to time besides the fact that Smt. Alka Aggarwal, director of Makhani & Tyagi (P) Ltd. and M/s Garg Polymers (P) Ltd. was assessed to tax by the same assessing officer. It was further submitted that Sh. Pankaj Aggarwal, director of Real Overseas (P) Ltd. was also produced before the assessing officer and copy of his statement as recorded had been duly filed. The learned counsel, therefore, emphasized that the observations of the assessing officer that the appellant had not produced directors of the aforesaid 8 companies were not correct. Our attention was also drawn to a letter dated 22-3-2001, copy of which has been placed on record by which the appellant had made request that if inspite of the overwhelming documentary evidence filed in respect of the above companies, the assessing officer still require production of books of accounts and records of such companies the same could be called and summoned particularly when the Directors had already sent written confirmations regarding investment made by their companies. It is, therefore, argued that no adverse inference could be drawn against the appellant in such circumstances in view of the Allahabad High Court judgment in Nathu Ram Prem Chand v. CIT (1963) 49 ITR 561 (All). The learned counsel also emphatically argued that when all the 8 companies mentioned above had duly recorded and declared their respective investments in the shares of the appellant-company in their respective account books before the date of search viz., 19-4-1996, the same could not by any stretch of imagination constitute undisclosed income and provisions of Chapter XIV-B of the Income Tax Act were, therefore, not at all applicable. He went on to argue that without disproving the evidence filed before assessing officer in respect of the 8 companies, the assessing officer was not justified in holding that their identity was doubtful because the onus squarely lay on the assessing officer to prove that the addition made by him actually represented undisclosed income of the appellant-company with reference to the material found during search which had not at all been discharged. Accordingly to the learned counsel, such addition was also not legally permissible in view of Hon'ble Delhi High Court judgment in the case of CIT v. Steller Investment Ltd. in (1991) 192 ITR 287 (Del) approved by the Supreme Court in (2001) 251 ITR 263 (SC). Even Hon'ble Delhi High Court (Full Bench) judgment in the case of Sophia Finance Ltd. (supra) had laid down that in the case of share capital of a company only the identity of subscribers had to be proved which in this case had been proved by overwhelming documentary evidence and in fact the assessing officer has not disputed this fact. The learned counsel also relied on Tribunal, Madras Bench, judgment in the case of L. Saroja v. AsstIt. CIT (2001) 71 TTJ (Mad) 158, where at p. 174 it has been held by the Tribunal that legally there cannot be addition under Chapter XIV-B of the Income Tax Act.

8. The learned counsel also brought to our notice that assessments in the cases of all the above mentioned companies had been completed under section 158BD/BC also as per copies of their orders brought on record and, therefore, from this angle also, the addition in the hands of the appellant-company was not at all justified.

9. On the other hand, learned Departmental Representative relied upon the assessment order and submitted that the assessing officer was justified in making the addition even on protective basis because the appellant had failed to prove the genuineness of the transactions and capacity of the companies to subscribe the share capital. She placed reliance on the judgment of Kerala High Court in the case of T.S. Sujatha v. Union of India & Ors. (1999) 238 ITR 599 (Ker).

10. We have given our thoughtful consideration to the facts of the case and have perused the evidence filed before the assessing officer, copies of which were filed before us in the form of paper book. We find that even the assessing officer has not disputed the fact that all the aforesaid companies were already existing assesseds and each one of them had recorded its respective investment in the share capital of the appellant- company in its account books before the date of search. No seized documents had been brought to our notice by the learned Departmental Representative to show that the appellant- company has made its own investment in the form of share capital of the aforesaid 8 companies. We, therefore, agree with the learned counsel that provisions of Chapter XIV-B of the Income Tax Act were not applicable to the facts of this case. Even otherwise, we find that the identity of all the 8 companies having been proved by the appellant, no addition on account of share capital could be made in the hands of the appellant- company in view of Hon'ble Delhi High Court (Full Bench) judgment in the case of Sophia Finance Ltd. (supra). Learned Departmental Representative could not rebut or controvert the facts stated by the appellant's counsel duly supported by documentary evidence brought on record. When all the 8 companies had recorded their investments in the share capital of the appellant-company in their respective books of accounts before the date of search, it does not lie in the mouth of the assessing officer to say that the genuineness of the transactions and capacity to invest by such companies were not proved even though as mentioned above, the appellant- company was required to prove only identity of the 8 companies as per jurisdictional Delhi High Court Full Bench judgment in (1993) 205 ITR 98 (Del)(FB) (supra). Therefore, we have no hesitation in deleting the addition of Rs. 58,38,000 made by the assessing officer. As regards the ratio laid down in (1999) 238 ITR 599 (Ker) (supra) relied upon by the learned Departmental Representative, we find that the same was not applicable to the facts of appellant's case because that was a judgment delivered in a writ filed by the wife whose bank account was found during search in case of husband and when the husband disputed such addition in an appeal filed by him, notice under section 158BD was issued to assess the same bank deposits as undisclosed income of wife in whose name the bank account stood when no satisfactory explanation from wife came forth regarding the source of these bank deposits. The challenge against the validity of issuance of notice under section 158BD against wife was turned down by the Kerala High Court. Thus, the reliance on this case is misplaced.

11. The other grievance of the appellant-company is against the addition of Rs. 22,40,500 out of share capital subscribed by individual shareholders made by the assessing officer vide paras 9 to 11 at pp. 3-4 of the impugned assessment order. The assessing officer has observed that there were 51 individual shareholders who have contributed to the capital of the appellant-company. Nine shareholders were produced before the assessing officer. The share capital subscribed by them aggregating at Rs. 28,93,800 has been accepted by the assessing officer. Regarding the balance amount, the assessing officer in his order vide paras 10 and 11 has observed as under :

"10. Since the assessed has failed to produce the remaining shareholders inspite of number of opportunities provided to him, the assessed has submitted only photocopies of acknowledgement receipts of returns filed which were already produced during the course of original assessment proceedings and before the Hon'ble Tribunal. To prove the genuineness of the shareholders the assessed was specifically asked again and again to produce the shareholders but he could produce only 9 shareholders as stated above.

11. Although the assessed has taken the plea that by filing the acknowledgement receipts of these shareholders they have proved the identity and relied on the judgment of Hon'ble Delhi High Court in the case of CIT v. Sofia Finance & Investment Ltd. (supra). Another judgment of Hon'ble Supreme Court in case of CIT v. Steller Investment (supra), as discussed above, the assessed has failed to produce the shareholders for examining their identity and genuineness of the transaction. Therefore, balance amount of Rs. 22,40,500 (Rs. 51,34,300-28,93,800) is treated as bogus capital of the company and added back to the income of the assessed.

12. The learned counsel placed reliance on the appellant's letters dated 19-3-2001 and 23-3-2001, filed before assessing officer copies of which are placed at pp. 52-55 and 60-61 and also order-sheet entry dated 22-2-2001, at p. 106 of the paper book in which the assessing officer has himself recorded that the identity of the shareholders had been established. The learned counsel then took us through the entire documentary evidence produced before the assessing officer with regard to each individual shareholder to prove their identity by filing copies of their PAN card/ration card/election card/driving licenses and their assessment particulars because all the shareholders were existing assesseds as per details placed on pp. 62-67 of the paper book. The learned counsels also took us through their respective balance sheets with copies of their returns Along with bank statements showing investment in the share capital of the appellant-company as per copies placed at pp. 180 to 426 and submitted that the share capital stood recorded in the account books of such individuals prior to the date of search-a fact not denied or doubted even by the assessing officer. It was further submitted that the assessing officer had ignored the fact that many of the shareholders had also appeared before him and yet he chose to observe that they were not produced as stands proved as under :

(i) Sh. Ashutosh Agarwal-ordersheet entries pp. 106-107 and 108-113.

(ii) Sh. Alok Goel-statement as recorded by the assessing officer is placed at pp. 74-76.

(iii) Sh. Mukesh Gupta-copy of the reply to the questionnaire placed at pp. 77-79.

(iv) Master Parag Sareen through his father Sh. Rakesh Sareen-copy of statement as recorded by assessing officer is placed at pp. 80-87.

(v) Sh. Vikas Agarwal through his further. Sh. R.P. Aggarwal-copy of his reply to assessing officer's questionnaire placed at pp. 85-87.

(vi) Sh. Ashok K. Aggarwal-copy of his statement as recorded by assessing officer is placed at pp. 88-89.

(vii) Sh. Manoj Tayal who had appeared on behalf his family member namely:

(a) Bimla Devi Tayal (Mother)

(b) Madhvi Tayal (Sister)

(d) Krishna Tayal (Sister-in-law)

(e) Geeta Tayal (Sister-in-law)

(f) Kaushal Mani Tayal (Brother's HUF)

(g) Prabhat Kumar Tayal (Brother's HUF)

copy of his statement as recorded by assessing officer is placed at pp. 90-91.

(viii) Sh. Manoj Aggarwal on behalf of wife Smt. Nidhi Aggarwal-copy of statement is placed at pp. 100- 105.

13. It is further submitted that the assessing officer without disproving the documentary evidence filed before him in respect of all the individual shareholders was not at all justified in holding that their identity was not proved. Further, contention of the learned counsel was that onus was squarely on the assessing officer to prove by bringing some evidence of conclusive nature on record that the addition made by him represented undisclosed income of the appellant-company with reference to search material as found. The learned counsels again relied on the case law quoted supra.

14. The learned Departmental Representative relied on the assessment order.

15. On careful consideration of the facts as stated above and the documentary evidence placed on record, we are of the considered opinion that this addition too has to be deleted because we find that the share capital as subscribed by such individuals has been recorded in their respective account books and duly disclosed to the Income Tax department in their respective hands before the date of search. The assessing officer has made the addition in respect of share capital subscribed by those individuals who according to him could not be produced before him but he having not controverter or disproved the voluminous documentary evidence was not at all justified in holding such amount as undisclosed income of the appellant-company. The Supreme Court in the case of CIT v. Orissa Corporation Ltd. (1986) 159 ITR 78 (SC) had held that where an, assessed had given the names and addresses of the alleged creditors and it was in the knowledge of the revenue that the said creditors were income-tax assesseds and their index numbers were in the file of the revenue, the assessed could not do anything further and in such circumstances, the assessed had discharged the burden that lay on it.

16. Moreover, even as per jurisdictional Delhi High Court judgment in CIT v. Sofia Finance & Investment Ltd. (supra), if the identity had been proved the addition on account of share capital could not be made. In the instant case not only the identity of the subscribers to the share capital has been proved but also the fact that they had duly recorded such share capital in their account books prior to the date of search is also disclosed to the Income Tax department. On the facts of this case, therefore, as brought out by the learned counsel which had neither been controverter nor disproved by the learned Departmental Representative, we hold that provisions of Chapter XIV-B had no application at all.

17. The assessing officer had utterly failed to show that the amount of 22,40,500 subscribed by various individuals was bogus capital of the appellant as observed by him. The addition is, therefore, deleted.

18. The appeal is allowed.