Commissioner of Income Tax vs Misra Preservers (P.) Ltd.

We have heard Sri Shambhu Chopra for the appellant. Sri S.K. Garg appears for the respondent-assessee. This income tax Appeal u/s 260A of the income tax Act, 1961, filed by the Department is directed against the order dated May 31, 2001, passed by the income tax Appellate Tribunal, Agra Bench, Agra, in I.T. A. No. 7152/Del/1992 for the assessment year 1988-89.

The assessee-company is engaged in the business of running a cold storage. For the assessment year, the Assessing Officer made an assessment u/s 143(3) of the Act on March 16, 1992, on a total income of Rs. 25,59,137. The Assessing Officer made additions on account of unexplained share capital, unexplained share application money, unexplained sundry creditors, difference in the cost of construction being unexplained investment, FDRs purchased by the company, loading and unloading and salary expenses.

The Commissioner of income tax (Appeals) allowed the appeal on July 31, 1992, deleting the addition of Rs. 15,07,920 made against the unexplained share capital, Rs. 3,13,500 out of the addition made against the unexplained share application money of Rs. 4,68,100, and Rs. 46,500 out of the addition made against the difference in the cost of construction of Rs. 2,47,994, and confirmed the other additions made by the Assessing Officer. The Commissioner of income tax (Appeals) revised his earlier order dated July 31, 1992, and allowed further relief of Rs. 54,800 and Rs. 20,848 out of the total addition of Rs. 3,05,493 made on account of the unexplained sundry creditors for goods and expenses.

The Department filed an appeal before the Tribunal against the order of the Commissioner of income tax (Appeals) dated July 31, 1992. The asses-see also filed an appeal against the order of the Commissioner of income tax (Appeals) by which he upheld the addition of Rs. 5 lakhs made by the Assessing Officer in respect of FDRs purchased by the assessee.

The Tribunal decided all the three appeals on May 31, 2001, by partly allowing the appeals of the Department as well as the assessee.

This appeal u/s 260A of the Act was admitted for hearing on the following substantial questions of law:

Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was correct in law in deleting the additions made by the Assessing Officer regarding the unexplained share capital and the unexplained share application money relying on the decision of the Supreme Court in the case of Commissioner of Income Tax Vs. Steller Investment Ltd., whereas the assessee-company being a private limited company and the shares allotted on private placement basis and also the assessee failed completely to produce these shareholders and the summons issued by the Assessing Officer at the given addresses are received back unserved?

Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was correct in law in allowing the assessee''s appeal in respect of charging of interest u/s 215 /217 of the income tax Act, 1961, even when a direction to this effect had been given by the Assessing Officer in the assessment order?

We have gone through the orders passed by the. Assessing Officer, the Commissioner of income tax (Appeals) and the Tribunal find that the assessee had produced relevant evidence before the Commissioner of income tax (Appeals) establishing that all the persons, who had deposited the share application, were not fictitious persons. Most of them were identifiable; they made the payment by cheques and most of them were assessed to income tax. The Tribunal has given further relief to the assessee and has not accepted the argument of the Department that the explanation furnished by the assessee for the addition u/s 69 on account of the unexplained investment was not to the satisfaction of the Assessing Officer.

We do not propose to go into each and every investment made by the persons, as the Commissioner of income tax (Appeals) in his original order and the revised order as well as the Tribunal has considered these facts in detail and have recorded findings of fact that these persons are not fictitious.

The Supreme Court by order dated January 11, 2008, dismissed the special leave to appeal No. 11993 of 2007, arising out of the judgment of the court in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd., with following observations:

Delay condoned.

Can the amount of share money be regarded as undisclosed income u/s 68 of the income tax Act, 1961? We find no merit in this SLP for the simple reason 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 their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.

Subject to the above, SLP is dismissed.

In Commissioner of Income Tax Vs. Steller Investment Ltd., the Supreme Court held that no addition in share application can be made in the accounts of the company. In such case, the Department can assess the individuals, who have contributed the share.

This court in CIT v. Jay Dee Securities and Finance Ltd. (Income Tax Appeal No. 328 of 2010 decided on August 11, 2011) (since reported in (2013) 350 ITR 220 (All)) followed the judgment in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd.,

In view of the above, question No. 1 is decided against the Revenue, and in favour of the assessee.

So far as question No. 2 is concerned, the income tax Appellate Tribunal found, relying upon Commissioner of Income Tax and Others Vs. Ranchi Club Ltd., that the Assessing Officer did not make any specific order charging interest under any specific provision. He just mentioned at the end of the order:

charge interest as per the Rules

In CIT v. Deep Awadh Hotel P. Ltd. (Income Tax Appeal No. 81 of 2002 decided on August 3, 2011) (since reported in Commissioner of Income Tax-II, Kanpur Vs. M/s Deep Awadh Hotels (P.) Ltd., Kanpur, this court held as follows (page 188):

In Commissioner of Income Tax and Others Vs. Ranchi Club Ltd., decided by the three judges of the Supreme Court'', the SLP was dismissed on the merits. The facts stated in the note published in ITR demonstrate that the High Court had held that the order of the assessing authority in the assessment order to charge interest is to be specific and clear and the assessee must be made to know that the Assessing Officer after applying his mind, has ordered charging of interest We do not find that the judgment in Commissioner of Income Tax and Others Vs. Ranchi Club Ltd., has either been expressly overruled or any different view has been taken in Commissioner of Income Tax, Mumbai Vs. Anjum M.H. Ghaswala and Others, case. We also do not find force in the argument advanced by Shri Mahajan that even if the assessment order or the computation sheets do not provide for interest, since interest is mandatory, it can be charged in the demand notice, which, according to Shri Mahajan, is signed by the Assessing Officer.

Even if any provision of law is mandatory and provides for charging of tax or interest, the view taken in Commissioner of Income Tax and Others Vs. Ranchi Club Ltd., is that such charge by the Assessing Officer should be specific and clear and the assessee must be made to know that the Assessing Officer has applied his mind and has ordered charging of interest. The mandatory nature of charging of interest and the actual charging of interest by application of mind and the mention of the proviso of law under which such interest is charged are two different things.

Question No. 2, is thus decided against the Revenue and in favour of the assessee. The income tax appeal is dismissed.