COMMISSIONER OF INCOME TAX PATIALA vs. M/S K.C.PIPES PVT. LTD.

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ITA/386/2010HC Punjab & HaryanaPHHC01093314201002 August 2016Bench: MR. JUSTICE M.M. AGGARWAL,MR. JUSTICE AVNEESH JHINGAN2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the appeal did not raise any substantial question of law. The Tribunal and the CIT(Appeals) had concurrently found that the money was indeed received by the company, and in consideration thereof, shares were issued and the amount was credited to the appropriate account. The Court reasoned that if the shareholders had acquired the money illegally, the respondent-assessee company could not be held liable, as there was nothing on record to suggest that the money belonged to the company itself. The Court stated that the revenue must then proceed against the individual shareholders. The appeal was dismissed on this basis. The Court explicitly stated it made no observations regarding the assessment proceedings concerning the 15 shareholders.

What were the facts?

The appeal concerns Assessment Year 2006-07. The respondent-assessee, M/s K.C. Pipes Pvt. Ltd., reported an increase in its paid-up share capital by ₹80 lacs, subscribed by 15 shareholders. The Assessing Officer (AO) questioned the source of funds, noting the subscribers were farmers who, it was contended, might not understand share market operations and whose money source was doubtful. The shareholders had appeared before the AO, but their subsequent non-appearance was the sole grievance. The Commissioner of Income-Tax (Appeals) and the Income-Tax Appellate Tribunal (ITAT) confirmed the assessee's position, finding that the company had indeed received the money and issued shares, crediting the amount appropriately.

What were the issues?

1. Whether the Tribunal erred in holding that the respondent-assessee is not liable for the unexplained source of share capital, when the shareholders who subscribed to the shares had not appeared again before the Assessing Officer? (Question of law) Assessee's Contention: The revenue's grievance is limited to the shareholders not appearing again before the AO. The CIT(A) and ITAT have found that the money was received by the company, shares were issued, and the amount was credited to the appropriate account. If the shareholders acquired the money illegally, the assessee company cannot be held liable, as there is nothing to show the money belonged to the assessee itself. The revenue should proceed against the shareholders. Revenue's Contention: The revenue contended that the 15 applicants were farmers, implying they might not be aware of share market functioning and that the source of their money was doubtful. The revenue's grievance was that the shareholders had not appeared again before the Assessing Officer.

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Sr. No.205 ITA No.386 of 2010 (O&M) Date of decision: 02.08.2016 The Commissioner of Income-Tax, Patiala ....Appellant versus M/s K.C. Pipes Pvt. Ltd., Samana (Pb.) ....Respondent CORAM: HON'BLE MR. JUSTICE S.J. VAZIFDAR, ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE DEEPAK SIBAL * * * * Present:- Mr. Z.S. Klar, Advocate for the appellant. Mr. Pankaj Jain, Senior Advocate with Mr. Sachin Bhardwaj, Advocate and Mr. Divya Suri, Advocate for the respondent. * * * * S.J. VAZIFDAR,

ACTING CHIEF JUSTICE (ORAL)

This appeal is against the order of the Tribunal pertaining to the Assessment Year 2006-07. The Tribunal confirmed the order of the CIT (Appeals). The respondent-assessee filed its return of income. During the course of assessment, the Assessing Officer noticed that the paid up share capital of the assessee during the year in question had increased by ` 80 lacs on account of 15 share holders having subscribed to the shares. The Assessing Officer came to the conclusion that these 15 applicants were farmers. It is contended before us that the farmers are not aware of the functioning of the share market. It was contended that the source of the money paid by the farmers is doubtful. JYOTI SHARMA 2016.08.04 15:40 I attest to the accuracy and authenticity of this document Chandigarh

ITA No.386 of 2010 (O&M) -2- 2. The share holders had appeared before the Assessing Officer. The only grievance is that they had not appeared again. The matter pertains to questions of fact and the Tribunal and the CIT (Appeals) have found that the money, in fact, was received by the Company. In consideration thereof, shares were issued and amount has been credited to the appropriate account. If the share holders have acquired the money illegally, the respondent- assessee cannot be held liable. There is nothing to show that the money belongs to the Company/assessee itself. The revenue must then proceed against the share holders. 3. The appeal is, therefore, dismissed as no substantial question of law arises. We do not make any observation regarding the assessment proceedings in respect of the 15 parties who had subscribed to the shares. (S.J. VAZIFDAR) ACTING CHIEF JUSTICE (DEEPAK SIBAL) JUDGE August 02, 2016 Jyoti 1 (i) Whether speaking/reasoned Yes/No (ii) Whether reportable Yes/No JYOTI SHARMA 2016.08.04 15:40 I attest to the accuracy and authenticity of this document Chandigarh

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