N.L. Kalra, A.M. -
(1.) THE revenue has filed an appeal against the order of learned CIT(A)-VT, Bangalore, dated 18th December, 2001.
(2.) The grounds of appeal raised by the revenue are as under:
i) The CIT(A) erred in holding that the notices issued for reopening for making protective addition are bad in law.
ii) The CIT(A) erred in holding that there can never be any concept of protective assessment arising out of a search under the present provisions of Chapter XIV-B.
iii) The CIT(A) erred in deleting the addition being unexplained credit towards share application, the source of which has neither been proved before the AO nor before the CIT(A).
iv) The CIT(A) erred in not considering the assessee's non cooperation before the AO to prove the credit worthiness of the parties in respect of whom there are credits in the books of the assessee and hence, the AO was justified in treating the same as unexplained investment.
v) The CIT(A) erred in holding that the decision of the Supreme Court in the case of Stellar Investment 251 ITR 263 is application to the facts of this case.
2.1 In this case, the assessee filed the return on 23rd February, 1996 and assessment was concluded Under Section 143(3) on 31st March, 98. From 28th June, 1996 to 3rd July, 1996, there was a search Under Section 132 of the I.T. Act in the residential premises of Mr. G.P. Goyal, Managing Director of the assessee company. During the course of search, it was found that Mr. G.P. Goyal had made investments in the share capital of the assessee company. Such investments were not reflected in the books of account of Mr. G.P. Soyal and these were not shown in the return of income. Mr. G.P. Goyal in his statement recorded Under Section 132(4) of the Act agreed to offer the investment in share capital in the block return. However, in the block return, such investment was not disclosed. Investment so made by Shri G.P. Goyal was assessed in his hands in the block assessment order Under Section 158BC dated 31st July, 1997. The assessee filed an appeal against the block assessment order. On the date when the Assessing Officer passed the assessment order in the case of the assessee, the appeal of Mr. G.P. Goyal was pending. The Assessing Officer in his order has mentioned that basically the investment in share capital and share application money of the assessee company were made in benami names. Mr. G.P. Goyal has not accepted the said investments to be of his own. As per the Assessing Officer, the investments were made in the share capital of the assessee company and the same is taxable as unexplained cash credit Under Section 68 of the I.T. Act in the hands of the assessee company. Since the outcome of the appeal filed by Mr. G.P. Goyal before the ITAT is not known and to protect the interest of the revenue, the Assessing Officer issued a notice Under Section 148 on 27th July, 1998. Reasons were recorded that income has escaped assessment in the hands of the assessee company. The Assessing Officer in his order in para 1.3 has mentioned that one of the employees of Mr. G.P. Goyal confirmed that he was receiving cash from Mr. G.P. Goyal for investing the same in different benami names in the share capital of the assessee company. The Assessing Officer has mentioned that such statements were elaborately reproduced in the block assessment of Mr. G.P. Goyal. On the basis of such statements, Mr. Goyal agreed that investment made in the share capital of the assessee company was his own and stated in his statement Under Section 132(4) that the same will be offered in the block assessment.
2.2 The learned CIT(A) observed that the Assessing
Officer has taxed such share capital in the hands of the assessee company on protective basis. For making such protective assessment, notice Under Section 148 has been issued. Notices for reopening for making a protective addition are bad in law. Reopening is permissible only when the Assessing Officer gives a clear finding that ascertainable income has escaped in the hands of definite assessee and the learned CIT(A) held that the reopening is not valid. The learned CIT(A), following the decision of the Apex Court in the case of M/s Stellar Investments 251ITR 263 also held that amount credited as share application or allotment money cannot be assessed in the hands of the company.
2.3 During the course of proceedings before us, the learned DR has filed the written submissions. The learned DR submitted that during the course of block assessment proceedings in the case of Shri G.P. Goyal, Assessing Officer conducted enquiry and it was held that investment in the share capital was made in benami names and therefore, such investment was unexplained in the hands of Shri G.P. Goyal. The assessee company filed its return of income on 23rd February, 1996 and enclosed profit and loss account and balance sheet. In the balance sheet, the assessee company introduced share capital to the extent of Rs. 10,60,000/-. The learned OR submitted that in view of the fact that the Assessing Officer has two opinions, firstly, that investment in share capital in the name of benamies were detected during the course of search and seizure action and secondly, the assessee company disclosed in its balance sheet for year ending 31st March, 1995. At the time of initiation of block assessment proceedings in the case of Shri G.P. Goyal, there was no clarity regarding the undisclosed income/unexplained income detected during the course of search as to whether it should be assessable in block assessment or regular assessment. Hence, the Assessing Officer initiated proceedings against the assessee company Under Section 148 of the I.T. Act. The learned DR further submitted that the Assessing Officer is justified in considering the addition on a protective measure while completing the regular assessment. For this proposition, the learned DR has given a number of judgments. Thereafter, the learned DR drew our attention to the decision of the Tribunal in the case of Shri G.P. Goyal. The learned DR drew our attention to para 7 and 9 of the order dated 13th December, 2007 in IT(SS)A No. l31/Bang/1997. The learned DR submitted that the Tribunal while passing order in the case of Shri G.P. Goyal observed that the entire issue of share application money is to be considered in the hands of the respective companies and not in the hands of the assessee. It was therefore submitted that in view of the finding of the Tribunal in the case of Shri Goyal, the reopening was valid.
2.4 On the other hand, the learned AR drew our attention to the facts mentioned in the assessment order. It was submitted that the addition was substantively made in the block assessment of Shri G.P. Goyal. Assessment was reopened in the case of the assessee to protect the interest of the revenue. Assessment cannot be reopened on the basis that a protective addition is to be made.
2.5 We have heard both the parties. The fact of undisclosed investment in the share capital of the assessee company was found during the course of search and material was collected during the course of search that such investment belong to Shri G.P. Goyal. If such income was to be assessed in the hands of a person other than Shri G.P. Goyal, then revenue should have taken recourse Under Section 158BD. If the revenue was not sure as on which hands the assessment Is to be made, then the revenue could have initiated proceedings against both the assessees. In the instant case, assessment in the case of Shri G.P. Goyal was completed on 31st July, 1997. Notice Under Section 148 has been issued to the assessee company on 27th July, 1998. Once the revenue has taken its stand that such investment in the share capital belong to Shri G.P. Goyal and assessment order was passed, then it cannot be said that the Assessing Officer was having reason to believe that income has escaped in the hands of the assessee company. Re-assessment cannot be made on mere suspicion. The Assessing Officer has to form a belief that income has escaped assessment in the hands of the assessee. Once it has been held that such investment belong to Shri G.P. Goyal, then there was no further material to come to the conclusion that such escaped income belong to the assessee.
2.6 The Apex Court in the case of Lalji Haridas v. ITO, 63 ITR 387 observed at page 392 as under:
In case where it appears to the Income Tax Authorities that certain income has been received during the relevant asst. year but it is not clear who has received that income and prima facie, it appears that the income may have been received either by 'A' or 'B' or by both together. It would be open to the relevant Income Tax Authorities to determine the said question by taking appropriate proceedings both against 'A' and 'B".
But in the instant case, the revenue held that such undisclosed income belong to Shri G.P. Soyal and assessment was made in the hands of Shri G.P. Goyal on substantive basis. The case of the assessee company was not reopened during the pendency of proceedings in the case of Shri Goyal. Had the revenue made protective assessment in the case of Shri G.P. Soyal, then it could have taken action against the assessee company. Thus, the basic requirement for reopening the assessment is that the Assessing Officer should have reason to believe that income has escaped assessment is not satisfied in this case. Hence, we are satisfied that the learned CIT(A) was justified in holding that assessment cannot be reopened for making protective addition.
2.7 The Hon'ble Apex Court in the case of CIT v. Divine Leasing and Finance Ltd. 216 CTR 195 held that if Assessing Officer treats share application money as undisclosed income Under Section 68 and the revenue believe that share-holders are bogus, then the Assessing Officer is free to reopen the assessment of the shareholders. The Apex Court held that share application money cannot be added in the hands of the company.
2.8 In view of the above discussion, it is held, that the learned CIT(A) was justified in canceling the assessment in hands of the assessee.
2.9 In the result, the appeal filed by the revenue is dismissed.;