Asstt. C.I.T. vs Geera Finance Ltd.

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K.S. Jhaveri, J.—By way of these appeals, the Revenue has challenged the order dated 21.07.2000 passed by the Income Tax Appellate Tribunal, Ahmedabad (for short "the ITAT").

While admitting these appeals on 19.03.2001, the Court had formulated the following substantial questions of law:-

"1. Whether, the Appellate Tribunal is right in law and on facts in deleting the addition of Rs. 50,00,000/- made under Section 68 of the Act?''

Whether, the Appellate Tribunal is right in law and on facts in deleting the charging of interest under Section 217 of the Act when the assessment under Section 143(3) read with Section 147 has to be treated as an original assessment?"

Learned advocate for the appellant has contended that issue No. 1 is covered by the decision of this Court passed in Tax Appeal No. 457 of 1999 decided on 09.08.2010 and issue No. 2 is also covered by the decision of Punjab and Haryana High Court in the case of Darshan Lal Gulati Vs. Commissioner of Income Tax and Another, ].

We have heard learned advocate for both the parties and perused the material on record as well as the decisions relied upon by the learned advocate for the appellant. The issue No. 1 is already answered by this Court in favour of the assessee and against the revenue in the decision rendered in Tax Appeal No. 457 of 1999 relied upon by the learned advocate for the appellant. In the above decision, the Court has referred the decision in the case of Commissioner of Income Tax Vs. Lovely Exports (P) Ltd., . Paragraph Nos. 7, 8 and 9 of the aforesaid decision reads as under:-

On the other hand, Mr. S.N. Soparkar, learned Senior Advocate has placed reliance upon the decision of the Supreme Court in the case of Commissioner of Income Tax Vs. Lovely Exports (P) Ltd., .

As can be seen from the impugned order made by the Tribunal, the Tribunal has recorded the following findings:

"[7] Coming to the merits of the case, we find that the assessee has made out a good case in support of its plea that no addition u/s. 68, is called for inasmuch as the source of the funds has been traced to some specific persons as mentioned in the assessment order. We agree with the contention of the learned counsel for the assessee that the company could not have earned an income of Rs. 50 lacs immediately after its incorporation when practically no business was done. The only conclusion is that the funds in the form of share capital came from persons other than the company. It is true that the majority of the persons whose names appeared in the shareholders list admitted to having invested no money at all in the company, but at the same time, they have explained the circumstances under which they were asked to sign the application form on behalf of certain persons named by them. These specific persons, as we have noted earlier, have been summoned and examined by the A.O. himself. In this view of the matter, we find that the source of funds can be clearly related to the persons as specified by the A.O. Therefore, the A.O. was not justified in brining to tax the entire amount of Rs. 50 lacs in the hands of the assessee-company by treating it as unexplained credit or investment u/s. 68 of the I.T. Act."

Thus, from the facts emerging on record, it is apparent that during the period immediately after its incorporation the assessee company had practically done no business so as to generate income of Rs. 50 lakhs. The Assessing Officer on inquiry has found many of the alleged shareholders to be benamidars or having not invested the money, but at the same time, he has traced out the source of money to some specific persons, who were the real investors. The Supreme Court has in the case of Commissioner of Income-tax v. Lovely Exports (P) Ltd., (supra), held that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen the individual assessments in accordance with law. Such amounts cannot be regarded as undisclosed income under section 68 of the assessee company. Applying the said principles to the facts of the present case, the Assessing Officer having traced out the source of funds to specific persons who had invested the same in shares of the assessee company, it was open for the Assessing Officer to proceed against the said persons. The funds not having emanated from the assessee company, there was no warrant for making addition of the said amount as undisclosed income under section 68 of the Act in its hands. In the circumstances, the Tribunal was justified in deleting the addition of Rs. 50,00,000/- made under section 68 of the Act. The question stands answered accordingly, that is, in favour of the assessee and against the revenue."

Insofar far as issue No. 2 is concerned, the same is already concluded by the decision of the Punjab and Haryana High Court in the case of Darshan Lal Gulati (supra), wherein, it is held that in case an assessment had been framed in response to original return filed by assessee, first or initial assessment made by Assessing Officer would be treated as regular assessment and in that situation, assessment in pursuance to reassessment proceedings could not be termed as ''first assessment'' so as to come within the meaning of expression ''regular assessment'' and, accordingly interest under Section 217 could not have been charged. Thus, the question No. 2 is also answered in favour of the assessee and against the revenue.

In view of the above, the questions are answered in favour of the assessee and against the revenue. Both these appeals are, accordingly, dismissed.