C I T AJMER vs. M/S SUBH FABRICS LTD

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ITA/3/2007HC RajasthanRJHC01018072200501 March 2012Author: DINESH MAHESHWARI,CM TOTLA3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court upheld the objection raised by the assessee that the question formulated did not arise in the case. The Court noted that it is a settled legal position, affirmed by the Supreme Court in CIT Vs. Steller Investment Limited (2000) 251 ITR 263 (SC), that even if subscribers to increased share capital are found to be not genuine, the amount of share capital cannot be regarded as undisclosed income of the company. The Court reasoned that the amount referable to share application cannot be attributed to the assessee company and assessed in its hands. Therefore, the view taken by the Tribunal was found to be justified. The addition made by the Assessing Officer and confirmed by the CIT(A) was deleted by the Tribunal, and this deletion was upheld by the High Court.

What were the facts?

This case involves an appeal by the Revenue against an order of the Income Tax Appellate Tribunal (ITAT) concerning the assessment year 1997-1998 for M/s Subh Fabrics Ltd. The ITAT had previously dismissed the Revenue's appeal and partly allowed the assessee's appeal against an order of the Commissioner of Income-Tax (Appeals). The High Court admitted the Revenue's appeal for admission in relation to an addition of Rs. 48,000/- received by the assessee as share application money. The core of the dispute revolves around whether the amount received as share application money could be considered undisclosed income of the company, even if the subscribers were not genuine.

What were the issues?

1. Whether, in the facts and circumstances, the Tribunal could reasonably conclude that the assessee proved the share application money alleged to have been received from Shri Kishan Chechani and Shri Kishan Lal Aahir was indeed received from them, in view of their statements recorded by the Assessing Officer? Assessee's Contention: The question formulated does not arise as it is settled law that even if there is doubt about the genuineness of subscribers to increased share capital, the amount cannot be regarded as undisclosed income of the company. The assessee relies on the Supreme Court's decision in CIT Vs. Steller Investment Limited (2000) 251 ITR 263 (SC) and the Rajasthan High Court's decision in Shree Barkha Synthetics Ltd Vs. Assistant Commissioner of Income Tax (2006) 283 ITR 377 (Raj.). Revenue's Contention: The learned counsel for the appellant-revenue frankly and fairly does not dispute the proposition that the amount of share capital cannot be regarded as undisclosed income of the company.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Heard together (2 matters)

ITA No.171/JU/2004
ITA No.221/JPDR/2004

Read from the judgment's own cause title. This page is filed under one of them.

Cause title — parties, addresses and appearances
1 D. B. INCOME TAX APPEAL NO. 03/2007 (C.I.T. Ajmer Vs. M/s Subh Fabrics Ltd) 17 D. B. INCOME TAX APPEAL NO. 03/2007 (C.I.T. Ajmer Vs. M/s Subh Fabrics Ltd) DATE OF ORDER: 1st March 2012 HON'BLE MR. JUSTICE DINESH MAHESHWARI HON'BLE MR. JUSTICE C. M. TOTLA Mr. K.K. Bissa, for the appellant Mr. Anjay Kothari, for the respondent In relation to the same assessee (the respondent herein) the appeal relating to assessment year 1997-1998 was decided by the Commissioner of Income-Tax (Appeals) on 11.02.2004. The assessee and revenue preferred separate appeals against the said order dated 11.02.2004 before the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur: the appeal by the assessee being ITA No.171/JU/2004; and the appeal by the revenue being ITA No.221/JPDR/2004. The aforesaid appeal of the assessee was partly allowed by the Tribunal on 24.12.2004 whereas the appeal of the revenue was dismissed by the Tribunal on 29.12.2004. The revenue has filed this appeal jointly in relation to the aforesaid orders passed by the Tribunal in two appeals. After considering this appeal for admission on 19.01.2007, this Court though dismissed the appeal in relation to ITA No. 221/JPDR/2004 but admitted the same in relation to ITA No.171/JU/2004, relating to the addition of an amount of Rs.48,000/- received by the assessee on account of share application money, on the following substantial question of law :- “Whether in the facts and circumstances the Tribunal could reach reasonably to the conclusion that the assessee has been able to prove that the amount of 2 D. B. INCOME TAX APPEAL NO. 03/2007 (C.I.T. Ajmer Vs. M/s Subh Fabrics Ltd) share application money alleged to have been received from Shri Kishan Chechani and Shri Kishan Lal Aahir was really received from these two persons in view of the statements of Shri Kishan Chechani and Shri Kishan Lal Aahir recorded by the Assessing Officer.” The Tribunal has considered the matter in paragraph-5 of the order impugned that reads as under :- “I have considered the rival submissions and the material available on record. A similar issue had been decided by the ITAT, Jodhpur Bench in the case of JCIT Vs. Hanuwant Cement Company (P) Limited (supra) wherein the relevant findings had been given at para 3.12 of the order dated 06.01.04, which reads as under :- “After considering the rival submissions and carefully going through the material available on record, we are of the view that the issue in question is fully covered in favour of the assessee by the decision Hon'ble Delhi High Court in the case of CIT Vs. Steller Investment Limited : (1991) 192 ITR 287 (Del.). The aforesaid decision has been affirmed by the Hon'ble Supreme Court in the case of CIT Vs. Steller Investment Limited (2000) : 251 ITR 263 (SC). The Hon'ble High Court in the above referred case in the Head Note, held that even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances could the amount of share capital be regarded as undisclosed income of the company. Thus from the above decision, it is clear that under no circumstances, the amount of the share capital can be regarded as undisclosed income of the company. Accordingly, we find no merit in the appeals filed by the department and feel no

hesitation in confirming the impugned order passed by the CIT(A).” So, by respectfully following the earlier order of the Tribunal (authored by me) dated 6.1.2004. I delete the addition made by the Assessing Officer and confirmed by the CIT(A).” The learned counsel for the respondent-assessee submits that the question as formulated does not even arise in this case because it remains settled with the consistent decisions of the Courts that even in case of doubt about subscribers to the increased share capital, the amount of share capital cannot be regarded as undisclosed income of the company. The learned counsel has 3 D. B. INCOME TAX APPEAL NO. 03/2007 (C.I.T. Ajmer Vs. M/s Subh Fabrics Ltd) referred to the decision in the case of Shree Barkha Synthetics Ltd Vs. Assistant Commissioner of Income Tax : [2006] 283 ITR 377 (Raj.), wherein this Court has noticed that in Steller's case [(2001) 251 ITR 263], the Hon'ble Supreme Court has affirmed the view of Delhi High Court in the case of CIT Vs. Stellar Investment Limited : (1991) 192 ITR 287 (Del.) that reads as under :- “It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself.” (emphasis supplied) The learned counsel for the appellant-revenue frankly and fairly does not dispute the proposition aforesaid. In view of the above, we have no hesitation in upholding the objection of the learned counsel for the respondent that the question as formulated does not arise because so far as the assessee company (respondent herein) is concerned, the amount referable to the share application cannot be attributed to it; and this amount cannot be assessed in the hands of the company. Thus, the view as taken by the Tribunal in this case cannot be said to be unjustified. Accordingly, this appeal stands dismissed. (C.M.TOTLA), J. (DINESH MAHESHWARI), J. bjsh/mk

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