D.b. Income Tax Appeal v. M/S. Bhaval Synthetics

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJODHPUR ::JUDGMENT:: D.B. INCOME TAX APPEAL NO. 11/2008Commissioner of Income Tax, Udaipur Vs. M/s. Bhaval Synthetics. Date of Judgment :: 11[th]January 2013. HON'BLE MR. JUSTICE DINESH MAHESHWARIHON'BLE MR. JUSTICE ARUN BHANSALI Mr. K.K. Bissa, for the appellant. Mr.Dinesh Mehta for the respondent BY THE COURT: <<>> This appeal by the revenue under Section 260-A of theIncome Tax Act, 1961 [‘the Act’], directed against the order dated16.11.2007 as passed by the Income Tax Appellate Tribunal,Jodhpur Bench, Jodhpur [‘the Tribunal’] in ITA No.249/JU/2007 inrelation to assessment year 1997-1998, has been admitted onthe following substantial question of law:- “Whether in the facts and circumstances of the case aswell as in law, the learned I.T.A.T. was justified inupholding the order of the learned C.I.T.(Appeals)deleting the addition of Rs.58,40,000/- under Section 68of the Income Tax Act on account of unexplained sharecapital?” While passing the assessment order dated 28.02.2003under Section 143(3)/263 of the Act, the Assessing Officer [‘theAO’] ordered the addition which forms the subject matter of thisappeal under Section 68 of the Act, treating an amount ofRs.58.40 lakhs, received by the assessee on account of share application money, to be the unexplained share capital on theground that the assessee failed to furnish confirmation from theallottees/share holders. The Commissioner of Income Tax (Appeals), Udaipur [‘theCIT(A)’], in his order dated 15.01.2007, considered the appeal ofthe assessee against the aforesaid assessment order dated28.02.2003; and, as regards the addition under Section 68 of theAct, while referring to the decision of this Court in the case ofShree Barkha Synthetics Pvt. Ltd: [2006] 283 ITR 377 held that ifthe transactions were made through banking channel andexistence of persons in whose names shares had been issuedwas shown, the assessee-company could not be held responsibleto prove as to whether the person himself invested the money orsome other person did so and the burden shifted on the revenueto establish that the investment came from the assessee-company itself. It was also observed that if at all the investmentmade by the shareholders is to be added, the assessment has tobe carried out in their case and not in the hands of the appellant-company. The CIT(A), thus, deleted the additions made underSection 68 of the Act in the hands of the assessee-company. In the appeal filed by the revenue against the orderaforesaid, the Tribunal referred to the fact that pursuant to theassessment order, action was taken under Section 263 of the Actby the Commissioner of Income Tax; and when the matter cameup before the Tribunal, such an order was cancelled on28.03.2003 in ITA No.212/34/2001. After finding the subject-matter of the order under Section 263 being the same i.e.,relating to the introduction of share capital to the tune of Rs.58.40 lakhs, the Tribunal declined to interfere. Hence, this appeal. The learned counsel for the respondent-assessee submitsthat the question as formulated does not even arise in this casebecause it remains settled with the consistent decisions of theCourts that even in case of doubt about subscribers to theincreased share capital, the amount of share capital cannot beregarded as undisclosed income of the company. The learnedcounsel has referred to the decision in the case of Shree BarkhaSynthetics Pvt. Ltd (supra) wherein this Court has noticed that inSteller's case [(2001) 251 ITR 263], the Hon'ble Supreme Courthas affirmed the view of Delhi High Court in the case of CIT Vs.Stellar Investment Limited : (1991) 192 ITR 287 (Del.) that reads as under :- lakhs, the Tribunal declined to interfere. Hence, this appeal. The learned counsel for the respondent-assessee submitsthat the question as formulated does not even arise in this casebecause it remains settled with the consistent decisions of theCourts that even in case of doubt about subscribers to theincreased share capital, the amount of share capital cannot beregarded as undisclosed income of the company. The learnedcounsel has referred to the decision in the case of Shree BarkhaSynthetics Pvt. Ltd (supra) wherein this Court has noticed that inSteller's case [(2001) 251 ITR 263], the Hon'ble Supreme Courthas affirmed the view of Delhi High Court in the case of CIT Vs.Stellar Investment Limited : (1991) 192 ITR 287 (Del.) that reads as under :- “It is evident that even if it be assumed that thesubscribers to the increased share capital were notgenuine, nevertheless, under no circumstances,can the amount of share capital be regarded asundisclosed income of the assessee. It may be thatthere are some bogus shareholders in whose namesshares had been issued and the money may have beenprovided by some other persons. If the assessment ofthe persons who are alleged to have really advancedthe money is sought to be reopened, that would havemade some sense but we fail to understand as to howthis amount of increased share capital can be assessedin the hands of the company itself.” (emphasis supplied) The learned counsel for the appellant-revenue is not in a position to dispute the proposition aforesaid. In view of the above, we have no hesitation inupholding the objection of the learned counsel for the respondentthat the question as formulated does not arise in this casebecause so far as the assessee company is concerned, theamount referable to the share application cannot be attributed toit; and cannot be assessed in its hands. Thus, answer to the question as formulated necessarilyfollows in the affirmative i.e., against the revenue and in favour ofthe respondent-assessee. The CIT(A) has not committed anyerror of law in deleting the addition made under Section 68 of theAct in the sum of Rs.58.40 lakhs; and the Tribunal was justifiedin upholding the order as passed by the CIT(A). Consequently, the appeal fails and is, therefore, dismissed. (ARUN BHANSALI), J. (DINESH MAHESHWARI), J.