D.K.Seth, J. - (1.) The reference under Section 256(1) has since been made to this Court on the question, viz., "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the appellate order of the CIT(A) by which the CIT(A) had confirmed the addition of Rs. 8,70,387 under Section 68 of the IT Act by holding that the creditworthiness of the individual shareholders and consequently the genuineness of the investment recorded in the books of the company in their names remained unestablished and the AO was, therefore, justified in coming to the conclusion that the alleged subscriptions represented the appellant-company's income of the year from some concealed sources" ?
(2.) In this case, it is alleged by the assessee that these shares were floated and subscriptions were invited from the public through advertisement in the newspapers and the whole paraphernalia of subscription for shares was undergone in accordance with law. These subscriptions were dealt with through nationalized banks and the receipts were received by cheques. However, the AO and the CIT(A) and the learned Tribunal had treated part of the receipts to the extent of Rs. 8,70,387 as receipt from undisclosed sources of income under Section 68 of the IT Act, 1961 (Act). In the proceedings, the assessee had disclosed the names and addresses of each of the subscribers. The AO had issued notice upon 37 subscribers on test basis, namely, who had subscribed between 300 and 3,400 shares each. Out of these 37 persons, 10 persons appeared and produced satisfactory evidence regarding the genuineness about the persons and the sources of the funds out of which the shares were subscribed. One Mr. Vijay Kumar Singhania appeared and prayed for time, but did not appear subsequently to prove that the 700 shares purchased by him were from his own genuine fund. About 14 persons, though served, did not respond. Whereas in respect of 12 persons, the notices could not be served on the ground that those persons were not available at the addresses given.
(3.) Mr. Pranab Pal, learned senior counsel, had pointed out that out of 1,47,000 shares, only in respect of purchase of 1,000 shares, particulars of income-tax, files were not disclosed. Whereas particulars of the income-tax files of the subscribers who had purchased 1,46,000 shares in aggregate were disclosed. From the assessment order, he pointed out that the AO had excluded 10 persons who had appeared and the rest he had treated to be an income from undisclosed sources. According to Mr. Pal, the AO had jumped into a conclusion without adverting to the materials placed before him. Once the assessee had discharged his burden prima facie by producing sufficient evidence, it was for the AO to scrutinize the evidence available. Despite having been in possession of the particulars of the income-tax file of each individual subscriber, he did not scrutinize the material. Therefore, according to him, the conclusion arrived at in haste is perverse since the material evidence, though available, were not considered.;