ORDER
B. M. Kothari, A.M.
This appeal by the assessee is directed against the order, dated 17-12-1990, of the Commissioner (Appeals) for assessment year 1986-87. The assessee has raised as many as 11 grounds in this appeal. However, at the time of hearing, the learned counsel appearing on behalf of the assessee submitted that he would like to press only ground Nos. 2(a), (b) and (c), ground Nos. 7 and 9 which are reproduced hereunder: :”2. (a) That the learned Commissioner (Appeals) has grossly erred on the facts of the case under the law in upholding the additions by the assessing officer of an amount of Rs. 38,65,000 out of the share subscription moneys of Rs. 50,00,000 received by the appellant company from several subscribers to its rights issue during the relevant previous year, merely on the ground that confirmations from the concerned shareholders were not available in the assessment record, in spite of the fact that the assessing officer had admittedly stated in his remand report dated 31-1-1990, that as a consequence to the directions of the Commissioner (Appeals), letters were issued to the parties who had invested in the shares and confirmations were received from the parties and were placed on the record.
(b) That having regard to the aforesaid remand report, the omission on the part of the learned Commissioner (Appeals) to make enquiries from the assessing officer about the confirmations from the share subscribers alleged to be missing from the assessment record has resulted in a grave miscarriage of justice.
(c) That the action of the learned Commissioner (Appeals) in upholding the aforesaid addition without confronting the appellant company with the remand report of the assessing officer and without giving to it an opportunity of inspecting the relevant records is patently violative of the principles of natural justice.
7. That the learned Commissioner (Appeals) has erred grossly in not adjudicating on ground No. 10 of the appeal of the company under which it had submitted during the hearing that the ad hoc disallowances of a sum of Rs. 50,000 by the assessing officer out of the various expenses debited to its profit and loss account was highly arbitrary, unwarranted and unjustified.
9. That on the facts and in the circumstances of the case, the appellant denied its liability to be charged with interest under section 217 of the Income Tax Act, 1961.”
The remaining grounds raised in this appeal are rejected, as not pressed.
2. The learned counsel for the assessee submitted a summary of relevant facts and submissions in support of ground Nos. 2(a), (b) and (c). He also made oral submissions in relation to the aforesaid grounds.
2. The learned counsel for the assessee submitted a summary of relevant facts and submissions in support of ground Nos. 2(a), (b) and (c). He also made oral submissions in relation to the aforesaid grounds.
2.1 The learned counsel submitted that the appellant company was incorporated as a public limited company in the State of West Bengal on 1-2-1983, with an authorised capital of Rs. 25 lakh consisting of 2,50,000 equity shares of Rs. 10 each. The signatory to the memorandum of association subscribed 70 shares of the value of Rs. 700 and the promoters of the company and their associates subscribed to 98,930 equity shares of the company of the value of Rs. 9,89,300. Thus, the aggregate paid up capital of the company was Rs. 9,90,000 soon after its incorporation. Thereafter in 1983, the company made a public issue of 1,50,000 shares of the face value of Rs. 15 lakh, which was fully subscribed and paid-up. The share capital during the previous year ended on 31-3-1984, relating to assessment year 1984-85 was thus Rs. 24,90,000. The equity shares of the company were listed in the stock exchange at Calcutta. The assessment of the company for assessment year 1984-85 was made under section 143(3) by Income Tax Officer, Company Circle-XXVI, New Delhi, vide order, dated 18-2-1986 on a total income of Rs. 1,461.
2.1 The learned counsel submitted that the appellant company was incorporated as a public limited company in the State of West Bengal on 1-2-1983, with an authorised capital of Rs. 25 lakh consisting of 2,50,000 equity shares of Rs. 10 each. The signatory to the memorandum of association subscribed 70 shares of the value of Rs. 700 and the promoters of the company and their associates subscribed to 98,930 equity shares of the company of the value of Rs. 9,89,300. Thus, the aggregate paid up capital of the company was Rs. 9,90,000 soon after its incorporation. Thereafter in 1983, the company made a public issue of 1,50,000 shares of the face value of Rs. 15 lakh, which was fully subscribed and paid-up. The share capital during the previous year ended on 31-3-1984, relating to assessment year 1984-85 was thus Rs. 24,90,000. The equity shares of the company were listed in the stock exchange at Calcutta. The assessment of the company for assessment year 1984-85 was made under section 143(3) by Income Tax Officer, Company Circle-XXVI, New Delhi, vide order, dated 18-2-1986 on a total income of Rs. 1,461.
3. Thereafter the authorised share capital was raised from Rs. 25 lakh to Rs. 75 lakh. The company issued a right issue of share capital in the ratio of 2 shares to one existing equity shareholder. The right issue consisted of 5 lakh right shares of a total face value of Rs. 50 lakh. This right issue remained open from 21-2-1985 to 20-4-1985. In response to the said right issue, the assessee-company received subscription towards its newly issued 5 lakh equity shares from 12 of its existing shareholders. Thus, Rs. 50 lakh was received by way of share capital during the year under consideration. Out of these 12 shareholders, one was an industrial shareholder, namely, Raj Kumar Kedia from whom a subscription of Rs. 7,88,000 was received by an account payee demand draft dated 28-3-1985, in April 1985. The other 11 shareholders were corporate entities from whom the total amount of share subscriptions received in April, 1985 during the year under consideration, amounted to Rs. 42,12,000. Thus an aggregate sum of Rs. 50 lakh was received by account payee cheques/demand drafts. The appellant company had complied with all formalities relating to grant of the approval from the Calcutta Stock Exchange Ltd. and it had also furnished various statutory returns as required under the provisions of Companies Act in respect of the aforesaid right issue of shares.
3. Thereafter the authorised share capital was raised from Rs. 25 lakh to Rs. 75 lakh. The company issued a right issue of share capital in the ratio of 2 shares to one existing equity shareholder. The right issue consisted of 5 lakh right shares of a total face value of Rs. 50 lakh. This right issue remained open from 21-2-1985 to 20-4-1985. In response to the said right issue, the assessee-company received subscription towards its newly issued 5 lakh equity shares from 12 of its existing shareholders. Thus, Rs. 50 lakh was received by way of share capital during the year under consideration. Out of these 12 shareholders, one was an industrial shareholder, namely, Raj Kumar Kedia from whom a subscription of Rs. 7,88,000 was received by an account payee demand draft dated 28-3-1985, in April 1985. The other 11 shareholders were corporate entities from whom the total amount of share subscriptions received in April, 1985 during the year under consideration, amounted to Rs. 42,12,000. Thus an aggregate sum of Rs. 50 lakh was received by account payee cheques/demand drafts. The appellant company had complied with all formalities relating to grant of the approval from the Calcutta Stock Exchange Ltd. and it had also furnished various statutory returns as required under the provisions of Companies Act in respect of the aforesaid right issue of shares.
4. The appellant company filed a return of income declaring loss of Rs. 7,450 and claimed a refund of TDS from its interest income to the tune of Rs. 46,654. This return was duly accompanied with the audited statements, etc. The assessment was initially completed under section 143(1) but the return was later on chosen for sample scrutiny under section 143(2)(b). The assessment of the company for assessment year 1986-87 was completed by the assessing officer on 27-3-1989, ex parte under section 144 of the Act, for the reason that the assessee company did not comply with the notices under section 143(2) fixing the hearing of the case successively on 14 & 23-3-1989. The learned counsel submitted that these notices were in fact not at all received by the appellant-company, they had been erroneously issued to the original address of the company at 29, India Exchange Place, Calcutta, although the administrative offices of the company had been shifted to Delhi and necessary intimation was given to the concerning income-tax authorities. In the said ex parte assessment, the assessing officer, inter alia, included in the total income of the assessee-company the entire amount of share capital of Rs. 50 lakh raised by it in its aforesaid rights issue of share capital, as its income from own disclosed sources on the ground that the assessee has not filed confirmations nor they have proved the genuineness of such share capital received during the year. The assessing officer has also made various other additions with which we are not concerned in the present appeal. The Commissioner (Appeals) directed the assessing officer to verify the genuineness of the receipt by the company of share subscriptions of Rs. 50 lakh towards the rights issue of its share capital. The assessing officer sent a letter dated 28-12-1989, to the Commissioner (Appeals) stating that he had looked into the income-tax records of four companies, namely, Marble Leasing Ltd., Victor Leasing Ltd. Majestic Leasing Industry Ltd. and Lark Leasing and Finance Ltd. and found that the investments said to have been made by those companies in the share capital of the company were not found to be reflected on the asset side of the balance sheet of these four companies relating to assessment year 1986-87. The assessment records of the remaining six other corporate shares subscribers mentioned in the letter dated 28-12-1989, were not available as either those records were sent to the appellate authorities or to the audit parties.
4. The appellant company filed a return of income declaring loss of Rs. 7,450 and claimed a refund of TDS from its interest income to the tune of Rs. 46,654. This return was duly accompanied with the audited statements, etc. The assessment was initially completed under section 143(1) but the return was later on chosen for sample scrutiny under section 143(2)(b). The assessment of the company for assessment year 1986-87 was completed by the assessing officer on 27-3-1989, ex parte under section 144 of the Act, for the reason that the assessee company did not comply with the notices under section 143(2) fixing the hearing of the case successively on 14 & 23-3-1989. The learned counsel submitted that these notices were in fact not at all received by the appellant-company, they had been erroneously issued to the original address of the company at 29, India Exchange Place, Calcutta, although the administrative offices of the company had been shifted to Delhi and necessary intimation was given to the concerning income-tax authorities. In the said ex parte assessment, the assessing officer, inter alia, included in the total income of the assessee-company the entire amount of share capital of Rs. 50 lakh raised by it in its aforesaid rights issue of share capital, as its income from own disclosed sources on the ground that the assessee has not filed confirmations nor they have proved the genuineness of such share capital received during the year. The assessing officer has also made various other additions with which we are not concerned in the present appeal. The Commissioner (Appeals) directed the assessing officer to verify the genuineness of the receipt by the company of share subscriptions of Rs. 50 lakh towards the rights issue of its share capital. The assessing officer sent a letter dated 28-12-1989, to the Commissioner (Appeals) stating that he had looked into the income-tax records of four companies, namely, Marble Leasing Ltd., Victor Leasing Ltd. Majestic Leasing Industry Ltd. and Lark Leasing and Finance Ltd. and found that the investments said to have been made by those companies in the share capital of the company were not found to be reflected on the asset side of the balance sheet of these four companies relating to assessment year 1986-87. The assessment records of the remaining six other corporate shares subscribers mentioned in the letter dated 28-12-1989, were not available as either those records were sent to the appellate authorities or to the audit parties.
4.1 The assessing officer further sent a letter dated 31-1-1990, to the Commissioner (Appeals) informing him that in accordance with the directions given by the Commissioner (Appeals), letters were issued to 12 parties, who had invested Rs. 50 lakh for purchase of the right shares issued by the assessee- company. After quoting the names of the 12 parties, who had contributed a total sum of Rs. 60 lakh, the assessing officer stated as under : “confirmation of the parties are placed on record.” Thereafter it appears that the jurisdiction over the aforesaid appeal from the Commissioner (Appeals)-V, was transferred to Commissioner (Appeals)-XV who disposed of the said appeal vide order dated 17-12-1990. The Commissioner (Appeals) in the impugned order has observed that the assessing officer has, however, not discussed the fact as to from whom such confirmations had been received. He, therefore, examined the assessment records and gave the following findings :
4.1 The assessing officer further sent a letter dated 31-1-1990, to the Commissioner (Appeals) informing him that in accordance with the directions given by the Commissioner (Appeals), letters were issued to 12 parties, who had invested Rs. 50 lakh for purchase of the right shares issued by the assessee- company. After quoting the names of the 12 parties, who had contributed a total sum of Rs. 60 lakh, the assessing officer stated as under : “confirmation of the parties are placed on record.” Thereafter it appears that the jurisdiction over the aforesaid appeal from the Commissioner (Appeals)-V, was transferred to Commissioner (Appeals)-XV who disposed of the said appeal vide order dated 17-12-1990. The Commissioner (Appeals) in the impugned order has observed that the assessing officer has, however, not discussed the fact as to from whom such confirmations had been received. He, therefore, examined the assessment records and gave the following findings :
“The assessment records which have been made available to me now contain the letters which have been sent by the assessing officer to the various parties. The postal acknowledgement slips which are available on record show that the enquiries were made by him. The confirmations are available in respect of the following parties only :
1.
India Factors Ltd.,
3,75,000
2.
Yellow Valley Leasing Finance Ltd.
3,85,000
3.
Victor Leasing Ltd.
3,75,000
Regarding the remaining parties no confirmations appear to have been received because no confirmations are available on the record made available to me. As such the addition of the balance amount is confirmed.”
5. The learned counsel submitted that the Commissioner(Appeals) has grossly erred in confirming the addition of Rs. 38,65,000 out of the share subscriptions of Rs. 50 lakh received by the assessee-company towards the right issue of its share capital from its existing shareholders. The main submissions made by the learned counsel as mentioned in the written submissions dated 29-7-1998, are reproduced hereunder :
5. The learned counsel submitted that the Commissioner(Appeals) has grossly erred in confirming the addition of Rs. 38,65,000 out of the share subscriptions of Rs. 50 lakh received by the assessee-company towards the right issue of its share capital from its existing shareholders. The main submissions made by the learned counsel as mentioned in the written submissions dated 29-7-1998, are reproduced hereunder :
(i) The rights issue of share capital was made by the assessee- company in full conformity with the relevant provisions of the company law and the stock exchange regulations. A return of allotments of the shares was duly filed with the Registrar of Companies in the prescribed form together with a statement containing names and addresses and occupation of the share allottees, and the amounts of the share allotted to them. The shares were duly listed on the stock exchange.
(ii) The share subscribers were existing shareholders of the company and the genuineness of their original investments in the share capital has been accepted in the relevant income-tax assessment of the company for the assessment year 1984-85.
(iii) Under the provisions of section 68A of the Companies Act, 1956, the act of making of an application for acquiring or subscribing to any class of shares in a company in fictitious name or inducing a company to allot or register any shares in a fictitious name is a punishable offence and the offender is liable to imprisonment upto a term of five years. Further, a company is prohibited under the provisions of section 77(1) of the Companies Act, 1956, from buying its own shares except in the event of a reduction of its share capital effected and sanctioned under the provisions of sections 100 to 104 or of section 402 of the Act. In the face of these penal and prohibitory provisions in the company law, the presumption that the share subscriptions in question, to any extent, were not genuine is, in the absence of any iota of supporting tangible evidence in this behalf, wholly unwarranted and untenable.
(iv) It is altogether inconceivable that in the accounting year 1984-85, prior to the issue of its rights share capital to which subscriptions were received in April, 1985, the assessee-company which had an issued, subscribed and paid up share capital of Rs. 24.90 lakh only, held by it mostly as bank deposits and advances, could have been in a position to earn income from undisclosed sources of the magnitude of Rs. 50 lakh.
(v) All the share subscriptions in question were tendered and received by the assessee-company through account payee bank chequs/drafts from the concerned share subscribers. The names and addresses of each of the share subscribers, of whom 11 subscribers were corporate entities, are borne on the record. It is also an admitted fact that the postal acknowledgment slips of all the letters of inquiry issued to them by the assessing officer are borne on the assessment record. The assessing officer also reported to the Commissioner (Appeals) in his letter dated 31-3-1990 (vide copy at p. 18 of the paper-book) that “Confirmations of the parties are placed on the record.” If confirmations from some of these parties had not been received, he would have stated so. Apparently, the circumstance that when the Commissioner (Appeals) looked into the assessment records after about eight months, she could find only three confirmatory letters indicates that, in the meanwhile, other confirmatory letters got detached from the relevant file or were misplaced.
(vi) The circumstances that in the case of four corporate shareholders whose assessment records relating to the assessment year 1986-87 were looked into by the assessing officer, the assets side of the balance sheets borne on the assessment records did not reflect any investment by them in the shares of the assessee-company was presumably/apparently due to the sale by them of their shareholdings in the assessee- company before the end of the relevant accounting year.
(vii) In the case of CIT v. Orissa Corpn. Ltd. (1986) 159 ITR 78 (SC), the Apex Court of India has held that when the assessee-company had given the names and addresses of its alleged creditors and their assessment particulars, and apart from issuing summons to them under section 131 of the Act, the revenue did not pursue the matter further, the Tribunal was right in holding that the assessee-company had discharged the burden that lay upon it of proving the genuineness of the credits in question. In the case under consideration, besides furnishing the names and addresses of all the share subscribers to its rights issue and establishing that all the subscriptions towards its Rights issue had been received by it through account payee chequs/bank drafts, the assessee-company had also furnished the assessment particulars of most of the share subscribers.
(viii) In the case of CIT v. Sophia Finance Ltd. (1995) 205 ITR 98 (Del)(FB), a Full Bench of the jurisdictional High Court of Delhi has held that if shareholders are identified and it is established that they had invested money in the purchase of shares in a company, then the amount received by the company would be regarded as a capital receipt in its hands. It is respectfully submitted that the ratio of the above cited decision is fully applicable in the case under consideration.
The learned counsel thus strongly urged that the addition of Rs. 38,65,000 should be cancelled.
6. The learned Departmental Representative supported the order of the Commissioner (Appeals). He submitted that burden lies on the assessee to prove the credits including the credits on account of share capital received during the year under consideration. He drew our attention towards the judgment of the Honble Full Bench of the Delhi High Court in the case of CIT v. Sophia Finance Ltd. (supra) to support his contention. The learned Departmental Representative also submitted that the Commissioner (Appeals) after going through the letter dated 31-1-1990, sent by the assessing officer to the Commissioner (Appeals) has himself called for the assessment records and has given a definite finding of fact that only confirmations from three parties were available in the assessment records. It is, therefore, clear that the remaining shareholders did not even send their confirmations to the assessing officer in spite of issue of notice under section 131 to them. The learned Departmental Representative placed reliance on the judgment CIT v. United Commercial & Industrial Co. Ltd. (1991) 187 ITR 596 (Cal) and Ramkumar Jalan v. CIT (1976) 105 ITR 331 (Bom). He also submitted that the judgment of the Honble Supreme Court in the case of CIT v. Orissa Corpn. (P) Ltd. (supra), does not in any manner help the assessee, because the onus had been again shifted to the assessee after the notice sent by the assessing officer to the various shareholders had been received back unserved. He also submitted that the assessee has now taken the plea that a long time has already passed and it would be futile to send back the matter to the Commissioner (Appeals) or to the assessing officer. He cannot take advantage of the long lapse of time because the delay of not furnishing proper evidence to prove the genuineness of the share capital in question is attributable to assessees own defaults. The assessing officer had to make an ex parte order for defaults committed by the assessee. The learned Departmental Representative strongly supported the order of the Commissioner (Appeals) and relied upon the elaborate reasons mentioned in the assessment order.
6. The learned Departmental Representative supported the order of the Commissioner (Appeals). He submitted that burden lies on the assessee to prove the credits including the credits on account of share capital received during the year under consideration. He drew our attention towards the judgment of the Honble Full Bench of the Delhi High Court in the case of CIT v. Sophia Finance Ltd. (supra) to support his contention. The learned Departmental Representative also submitted that the Commissioner (Appeals) after going through the letter dated 31-1-1990, sent by the assessing officer to the Commissioner (Appeals) has himself called for the assessment records and has given a definite finding of fact that only confirmations from three parties were available in the assessment records. It is, therefore, clear that the remaining shareholders did not even send their confirmations to the assessing officer in spite of issue of notice under section 131 to them. The learned Departmental Representative placed reliance on the judgment CIT v. United Commercial & Industrial Co. Ltd. (1991) 187 ITR 596 (Cal) and Ramkumar Jalan v. CIT (1976) 105 ITR 331 (Bom). He also submitted that the judgment of the Honble Supreme Court in the case of CIT v. Orissa Corpn. (P) Ltd. (supra), does not in any manner help the assessee, because the onus had been again shifted to the assessee after the notice sent by the assessing officer to the various shareholders had been received back unserved. He also submitted that the assessee has now taken the plea that a long time has already passed and it would be futile to send back the matter to the Commissioner (Appeals) or to the assessing officer. He cannot take advantage of the long lapse of time because the delay of not furnishing proper evidence to prove the genuineness of the share capital in question is attributable to assessees own defaults. The assessing officer had to make an ex parte order for defaults committed by the assessee. The learned Departmental Representative strongly supported the order of the Commissioner (Appeals) and relied upon the elaborate reasons mentioned in the assessment order.
7. We have carefully considered the submissions made by the learned representatives of the parties and have also gone through the orders of the learned departmental authorities. We have also gone through the various judgments cited by the learned representatives of both sides.
7. We have carefully considered the submissions made by the learned representatives of the parties and have also gone through the orders of the learned departmental authorities. We have also gone through the various judgments cited by the learned representatives of both sides.
8. The Honble Delhi High Court (Full Bench) in the case of Sophia Finance Ltd. (supra) has clearly held that the use of the words “any sum credited in the books” under section 68 indicates that the section is very widely worded and the Income Tax Officer is not precluded from making an enquiry as to the true nature and source of a sum credited in the account books, even if it is credited as receipt of share application money. The burden lies on the assessee to prove the identity of the shareholders and the assessee is also required to establish that the shareholders have in fact invested money in the purchase of shares. In the present case, it is claimed that of the 12 persons who contributed, a total amount of Rs. 50 lakh towards the right issue of equity shares in the year under consideration, are existing shareholders of the company. It is beyond comprehension that why the assessee could not produce confirmations from all those 12 existing shareholders before the assessing officer or before the Commissioner (Appeals). Those confirmations have not even been produced before the Tribunal. Even if the 12 shareholders were not willing to extend cooperation to the assessee-company, it would not have been difficult for the assessee to obtain certified copies of the balance sheets of such corporate shareholders from the office of the respective Registrar of Companies and could prove the fact those 11 corporate shareholders had in fact invested money for purchase of right shares and such investments made by them are duly reflected in their respective balance sheets. The Commissioner (Appeals) has mentioned that notices sent to the remaining parties (other than the three parties from whom confirmations were received by the assessing officer) have remained un complied with. He, therefore, confirmed the action of the assessing officer with regard to the remaining shareholders. As regards those three parties from whom confirmations were received, the matter was restored back to the file of the assessing officer for making enquiries with reference to their assessment records.
8. The Honble Delhi High Court (Full Bench) in the case of Sophia Finance Ltd. (supra) has clearly held that the use of the words “any sum credited in the books” under section 68 indicates that the section is very widely worded and the Income Tax Officer is not precluded from making an enquiry as to the true nature and source of a sum credited in the account books, even if it is credited as receipt of share application money. The burden lies on the assessee to prove the identity of the shareholders and the assessee is also required to establish that the shareholders have in fact invested money in the purchase of shares. In the present case, it is claimed that of the 12 persons who contributed, a total amount of Rs. 50 lakh towards the right issue of equity shares in the year under consideration, are existing shareholders of the company. It is beyond comprehension that why the assessee could not produce confirmations from all those 12 existing shareholders before the assessing officer or before the Commissioner (Appeals). Those confirmations have not even been produced before the Tribunal. Even if the 12 shareholders were not willing to extend cooperation to the assessee-company, it would not have been difficult for the assessee to obtain certified copies of the balance sheets of such corporate shareholders from the office of the respective Registrar of Companies and could prove the fact those 11 corporate shareholders had in fact invested money for purchase of right shares and such investments made by them are duly reflected in their respective balance sheets. The Commissioner (Appeals) has mentioned that notices sent to the remaining parties (other than the three parties from whom confirmations were received by the assessing officer) have remained un complied with. He, therefore, confirmed the action of the assessing officer with regard to the remaining shareholders. As regards those three parties from whom confirmations were received, the matter was restored back to the file of the assessing officer for making enquiries with reference to their assessment records.
9. The various arguments submitted by the learned counsel for the assessee which have been reproduced hereinbefore would not automatically lead to the conclusion that the addition made on account of unexplained share capital should be cancelled because the share capital was claimed to have been contributed by the existing shareholders and because the issue of right shares was in conformity with the provisions of the Companies Act. The initial onus of proving the identity of the shareholders, and establishing the fact that the shareholders had in fact contributed the share capital lies on the assessee. Therefore, the burden to prove this aspect in conformity with the provision of section 68 was primarily on the assessee.
9. The various arguments submitted by the learned counsel for the assessee which have been reproduced hereinbefore would not automatically lead to the conclusion that the addition made on account of unexplained share capital should be cancelled because the share capital was claimed to have been contributed by the existing shareholders and because the issue of right shares was in conformity with the provisions of the Companies Act. The initial onus of proving the identity of the shareholders, and establishing the fact that the shareholders had in fact contributed the share capital lies on the assessee. Therefore, the burden to prove this aspect in conformity with the provision of section 68 was primarily on the assessee.
10. It is true that the letter of the assessing officer dated 31-1-1990 sent to the Commissioner (Appeals) contains the names of these 12 shareholders to whom notices were sent by the assessing officer pursuant to the directions given by the Commissioner (Appeals). It is also true that the assessing officer in the last line of the aforesaid letter has mentioned that confirmations of the parties are placed on records. The said expression by the assessing officer is vague. He does not specify that confirmations from which of the 12 parties had been received and were placed on records. Likewise he also did not say that confirmations of only three parties were received and had been placed on records. Therefore the Commissioner (Appeals) himself called for the records and examined the confirmations available in the assessment records and found that confirmations of only three parties were available. It is difficult to arrive at the conclusion as to whether confirmations of all the parties had been received by the assessing officer or confirmations were received from only a few of them. The assessee has expressed its grievances that the remand report submitted by the assessing officer to the Commissioner (Appeals) was not even confronted to the appellant company and no opportunity of inspecting the relevant records was provided to the assessee. The confirmation of the addition without providing such opportunity to the assessee by the Commissioner (Appeals) is being challenged as violative of principles of natural justice. In our view, the Commissioner (Appeals) ought to have given a copy of the remand reports submitted by the assessing officer to the Commissioner (Appeals) to the assessee and he should have also given adequate and reasonable opportunity to the assessee for inspecting the entire relevant assessment records. The assessee should have been granted an opportunity to inspect as to whom and where the notices were sent to the 12 shareholders. Whether those notices were duly served at the given addresses. Whether any replies were received from those shareholders in response to such notices.
10. It is true that the letter of the assessing officer dated 31-1-1990 sent to the Commissioner (Appeals) contains the names of these 12 shareholders to whom notices were sent by the assessing officer pursuant to the directions given by the Commissioner (Appeals). It is also true that the assessing officer in the last line of the aforesaid letter has mentioned that confirmations of the parties are placed on records. The said expression by the assessing officer is vague. He does not specify that confirmations from which of the 12 parties had been received and were placed on records. Likewise he also did not say that confirmations of only three parties were received and had been placed on records. Therefore the Commissioner (Appeals) himself called for the records and examined the confirmations available in the assessment records and found that confirmations of only three parties were available. It is difficult to arrive at the conclusion as to whether confirmations of all the parties had been received by the assessing officer or confirmations were received from only a few of them. The assessee has expressed its grievances that the remand report submitted by the assessing officer to the Commissioner (Appeals) was not even confronted to the appellant company and no opportunity of inspecting the relevant records was provided to the assessee. The confirmation of the addition without providing such opportunity to the assessee by the Commissioner (Appeals) is being challenged as violative of principles of natural justice. In our view, the Commissioner (Appeals) ought to have given a copy of the remand reports submitted by the assessing officer to the Commissioner (Appeals) to the assessee and he should have also given adequate and reasonable opportunity to the assessee for inspecting the entire relevant assessment records. The assessee should have been granted an opportunity to inspect as to whom and where the notices were sent to the 12 shareholders. Whether those notices were duly served at the given addresses. Whether any replies were received from those shareholders in response to such notices.
10.1 On a careful consideration of the entire relevant facts and material, we are of the view that it would be just and proper to set aside the order of the Commissioner (Appeals) in relation to the aforesaid ground and the matter should be restored back to the file of the Commissioner (Appeals) for deciding the aforesaid issue afresh after providing copies of the remand reports submitted by the assessing officer, to the Commissioner (Appeals), to the appellant and also after allowing inspection of the entire relevant assessment records. In case it is found after inspection of the entire relevant assessment records that only three shareholders had in fact sent the confirmations in response to the notices issued to them by the assessing officer, the burden will lie on the assessee to prove the genuineness of the share capital claimed to have been contributed by the remaining shareholders. The assessee will be at liberty to furnish evidence before the Commissioner (Appeals) to prove the genuineness of such share capital contributed by the remaining shareholders. In case the assessee finds it difficult to obtain the confirmations directly through the shareholders, on account of genuine and compelling reasons, the Commissioner may give necessary directions to the assessing officer to issue summons to the shareholders, to the Registrar of Companies having jurisdiction over the shareholder companies and to other connected persons as may be considered proper by the Commissioner (Appeals). The purpose of such an enquiry is to find out whether the shareholders had in fact contributed the share capital as claimed by the assessee or not. The initial burden lies on the assessee. In case the assessee finds it difficult to obtain such evidence directly from the shareholders, he may make suitable request to the learned Commissioner (Appeals) for directing the assessing officer to exercise his powers under section 131 for obtaining such details from the concerned persons. The Commissioner (Appeals) will decide this point afresh in accordance with the provisions of law and after providing reasonable opportunity to the assessee.
10.1 On a careful consideration of the entire relevant facts and material, we are of the view that it would be just and proper to set aside the order of the Commissioner (Appeals) in relation to the aforesaid ground and the matter should be restored back to the file of the Commissioner (Appeals) for deciding the aforesaid issue afresh after providing copies of the remand reports submitted by the assessing officer, to the Commissioner (Appeals), to the appellant and also after allowing inspection of the entire relevant assessment records. In case it is found after inspection of the entire relevant assessment records that only three shareholders had in fact sent the confirmations in response to the notices issued to them by the assessing officer, the burden will lie on the assessee to prove the genuineness of the share capital claimed to have been contributed by the remaining shareholders. The assessee will be at liberty to furnish evidence before the Commissioner (Appeals) to prove the genuineness of such share capital contributed by the remaining shareholders. In case the assessee finds it difficult to obtain the confirmations directly through the shareholders, on account of genuine and compelling reasons, the Commissioner may give necessary directions to the assessing officer to issue summons to the shareholders, to the Registrar of Companies having jurisdiction over the shareholder companies and to other connected persons as may be considered proper by the Commissioner (Appeals). The purpose of such an enquiry is to find out whether the shareholders had in fact contributed the share capital as claimed by the assessee or not. The initial burden lies on the assessee. In case the assessee finds it difficult to obtain such evidence directly from the shareholders, he may make suitable request to the learned Commissioner (Appeals) for directing the assessing officer to exercise his powers under section 131 for obtaining such details from the concerned persons. The Commissioner (Appeals) will decide this point afresh in accordance with the provisions of law and after providing reasonable opportunity to the assessee.
11. As regards ground No. 7 the learned counsel for the assessee submitted that the point relating to ad hoc disallowance of Rs. 50,000 out of expenditure claimed by the assessee was raised before the Commissioner (Appeals). He has not rendered any decision thereon. The learned Departmental Representative pointed out that no such specific ground was raised by the assessee before the Commissioner (Appeals). In reply, the learned counsel for the assessee submitted that this point was specifically mentioned in para six of the statement of fact, the ground is covered by general ground No. 2.
11. As regards ground No. 7 the learned counsel for the assessee submitted that the point relating to ad hoc disallowance of Rs. 50,000 out of expenditure claimed by the assessee was raised before the Commissioner (Appeals). He has not rendered any decision thereon. The learned Departmental Representative pointed out that no such specific ground was raised by the assessee before the Commissioner (Appeals). In reply, the learned counsel for the assessee submitted that this point was specifically mentioned in para six of the statement of fact, the ground is covered by general ground No. 2.
11.1 After considering the submissions made by the learned representatives of the parties, we find that the assessee had specifically mentioned in para six of statement of fact that the assessing officer had added a lump sum amount of Rs. 50,000 in the income out of expenses without looking into the detailed facts and circumstances of the case. The total disallowances were challenged in ground No. 2. The Commissioner (Appeals) has not given any decision in relation to this point. This matter is also, therefore, restored back to the Commissioner (Appeals) who will decide the aforesaid point in accordance with the provisions of law and after allowing opportunity to both sides.
11.1 After considering the submissions made by the learned representatives of the parties, we find that the assessee had specifically mentioned in para six of statement of fact that the assessing officer had added a lump sum amount of Rs. 50,000 in the income out of expenses without looking into the detailed facts and circumstances of the case. The total disallowances were challenged in ground No. 2. The Commissioner (Appeals) has not given any decision in relation to this point. This matter is also, therefore, restored back to the Commissioner (Appeals) who will decide the aforesaid point in accordance with the provisions of law and after allowing opportunity to both sides.
12. In ground No. 9, the assessee has challenged the levy of interest under section 217. This matter is also restored back to the Commissioner (Appeals) for deciding the same in accordance with the provisions of law and after hearing both the sides.
12. In ground No. 9, the assessee has challenged the levy of interest under section 217. This matter is also restored back to the Commissioner (Appeals) for deciding the same in accordance with the provisions of law and after hearing both the sides.
In the result, the assessees appeal is treated as partly allowed for statistical purposes.