N.P.GUPTA, J. - (1.)THE two respondent assessees in the matter, are the directors of the same company, being M/s Shiv Shakti Borewell (P) Ltd., and hence they are being decided by this common order.
(2.)THE appeals were admitted on different dates by framing the same substantial question of law, which reads as under : "Whether on the facts and in the circumstances of the case, the learned Tribunal is justified in law in deleting the addition in the hands of the director, the present assessee, made by the AO as undisclosed share capital money -
(3.)NOBODY has appeared on behalf of the assessee in either of the appeals, despite due service.
The necessary facts are, that the assessees submitted their returns, and assessments were made, making additions of Rs. 1,35,000, under s. 68 of the IT Act, in the income of each of the assessee, and ordering, that penalty proceedings be separately initiated. Against these assessments, separate appeals were filed by the assessees before the learned CIT (A). In appeal, it was contended, that the so called surrender letter was obtained by the AO under coercion and threat, and void, and that the instructions of the CIT(A) were also not lawful, in view of the judgment in Onkar Nath vs. CIT (1967) 64 ITR 347 (All), as the company was not a closed one, and therefore, if any addition was required to be made, should have been made in the hands of the company. It was found by the learned CIT(A), that apparently the CIT(A), in Appeal No. 226, filed by the company, being M/s Shiv Shakti (P) Ltd. has concluded, that the unexplained share capital/unsecured loans, were required to be considered in hands of the directors/promoters, in the proportion of their holdings, and the AO was also of the same belief, therefore, there was no infirmity in the action of the AO. Learned CIT (A) also proceeded on the basis, that the assessee had made the surrender, vide written request, and there is no evidence/indication of the stated coercion, nor was any retraction made by the assessee, at any stage. It was also held, that the argument, that this surrender was conditional, i.e. that the penalty be not imposed, and instalments be granted, is premature, and is not valid. Thus, the appeal was dismissed. commenced its business activities during the period relevant to the asst. yr. 1997 -98. The company had shown, issued/subscribed/paid up shares of the company at Rs. 20 lakhs, and the list of the shareholders was also filed. The assessee was asked to prove the identity of the investors, and also their creditworthiness, thereupon the assessees filed copies of bank accounts of some of these shareholders, along with copies of returns filed by investors, who were assessed to tax. The statements of some of the share investors were also recorded. The depositors had not denied the deposits, and also clarified their sources of funds. But the AO did not find all these shareholders as genuine, and to the extent of Rs. 2,70,000, it was considered to be non -genuine shareholders, and the amount was added in the hands of the company, which addition was deleted by the CIT(A) in the appeal of the company, by holding, that when the assessee has proved the identity etc. of the shareholders, these amounts cannot be added in the hands of the company, and gave further direction, that this can be added in the hands of the main directors of the company. It was found that the assessee did surrender the equal amounts of total unaccepted share capital of Rs. 2,70,000 in equal proportions, ostensibly to buy peace, and with a condition, that no penalty shall be levied. The addition has now been challenged, for the obvious reason of initiation of penalty proceedings, as has been stated in the written submissions. It was also noticed, that according to the assessee, the addition cannot be made under s. 68, because it is not the case of the Department, that any sum was found credited in the books of the assessee, and at the most, it could be added under s. 69, for which there are different parameters, required to be proved. Learned Tribunal found, that it is correct, that additions cannot be made under s. 68, as only s. 69 could be attracted, and that the quantum of proof required under the two sections is radically different. Then it was also found, that of course surrender was made, but then, it is not in consonance with the provisions of law, and since it is later on retracted, allegedly having been made under stress, pressure, coercion etc. It is only that the part of surrender, which is in conformity with the legal provisions, that can be accepted as valid. Learned Tribunal concluded, that the directors had accepted surrendered amount in their hands, in order to avoid penal proceedings, as such, legally these amounts can be considered in the hands of the shareholders, depositors/investors. Affidavits of both the directors have been filed, wherein it has been reiterated, that surrender was made under stress, and mental pressure, and that, there is no evidence on record to prove, that investment was made by these directors, rather all the investors had confirmed the fact of depositing, in their statement, recorded at the time of assessment proceedings of the company, and had categorically admitted, that they had invested the said money in the company, not only this, not even a single investor having denied the investment amount standing in their respective names, the depositors are existing assessees, and copies of their returns receipt, and capital account with balance sheet, were also filed before the AO, and they were produced personally before the AO. In that view of the matter, it was found, that the amount can be added either in the hands of the company, or the depositors only. Thus, the appeals were accepted. 6. Assailing the impugned judgment, it is contended by learned counsel for the appellant, that as is clear from the order of the AO, that the assessee has voluntarily surrendered the amounts, by way of the written surrender letter, and there was no justification for not accepting their surrender. It was also submitted, that it was not open to the assessee to dictate any conditions to the Department, that surrender is conditional, to the effect, that penalty proceedings would not be initiated, the fact remains that surrender was made, and the additions were rightly made by the AO and the learned CIT(A). 7. In our view, the submissions look to be very attractive, but then it is devoid of merit. It is significant to note, that the learned counsel for the Revenue has not disputed the factual aspect of the matter, as noticed by the learned Tribunal, that all the investors had confirmed the fact of deposit in their statements recorded at the time of assessment proceedings of the company, and had categorically admitted, that they had invested the said money in the company, rather not even a single investor having denied the investment amount standing in their respective names, the depositors are existing assessees, and copies of their returns receipt, and capital account with balance sheet were also filed before the AO, and they were produced personally before the AO as well. In that view of the matter, in our view, the AO was required to consider all this material also. It is well -nigh possible, that for good, bad or indifferent reasons, the AO might have disbelieved the evidence, but then, when positive evidence was led, duly supported by documents, about the investment, having been made by various purported investors, which having not been discarded, it was not open to the AO to make addition in the income of the assessee. show, that the assessee had actually contested the notice, tooth and nail, and had led all evidence, which has not been disbelieved, and it was only after the entire evidence was over, that in order to purchase peace, and avoid penalty proceedings, the assessee succumbed to the allurement of AO, but then, on the face of the voluminous documents available on record, there is nothing wrong with the assessee's explanation about the circumstances in which the surrender letter was submitted. 9. In our view, until and unless all that evidence led on behalf of the assessees, consisting of the investors, their supporting documents, etc., is discarded, no addition could be made in the hands of the assessees, and the addition has, therefore, rightly been set aside by the learned Tribunal. 10. Accordingly, the question as framed is answered in favour of the assessee, and against the Revenue. The appeals thus, have no force, and are dismissed.