1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR J U D G M E N T (1) INCOME TAX APPEAL No. 19 of 2006 C I T AJMER V/S GOPAL SHARMA (2) INCOME TAX APPEAL No. 50 of 2006 C I T AJMER V/S SHIV PRASAD SHARMA Date of Judgment : 4.7.2008 PRESENT HON'BLE SHRI N P GUPTA,J. HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J. Mr. KK BISSA, for the appellant BY THE COURT (PER HON'BLE GUPTA,J.) These two appeals have been filed by the Revenue against the common judgment of the learned Tribunal dated 3.1.2005. 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. The appeals were admitted on different dates by framing the same substantial question of law, which reads as under:- 2 “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 A.O. as undisclosed share capital money?” 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 Section 68 of the Income Tax 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 Commissioner. In appeal, it was contended, that the so called surrender letter was obtained by the Assessing Officer under coercion and threat, and void, and that the instructions of the CIT were also not lawful, in view of the judgment reported in 64 ITR 347, 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 leaned Commissioner, that apparently the Commissioner Income Tax, 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 Assessing Officer was also of the same belief, therefore, there was no infirmity in the action of the Assessing Officer. Learned 3 Commissioner 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 installments be granted, is premature, and is not valid. Thus, the appeal was dismissed. The learned Tribunal in the impugned order found, that the company was incorporated on 17.11.1994, and it commenced its business activities during the period relevant to the assessment year 1997-98. The company had shown, issued/subscribed/ paid up shares of the company at Rs.20 lacks, and the list of the shareholders was also filed. The assessee was asked to prove the identity of the investors, and also their credit worthiness, thereupon the assessees filed copies of bank accounts of some of these shareholders, alongwith 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 Assessing Officer 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 in the appeal of the Company, by holding, that when the assessee has proved 4 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 Section 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 Section 69, for which there are different parameters, required to be proved. Learned Tribunal found, that it is correct, that additions cannot be made under Section 68, as only Section 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 inconformity 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 5 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 name, the depositors are existing assessees, and copies of their returns receipt, and capital account with balance sheet, were also filed before the Assessing Officer, and they were produced personally before the Assessing Officer. 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. Assailing the impugned judgment, it is contended by learned counsel for the appellant, that as is clear from the order of the Assessing Officer, 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 6 initiated, the fact remains that surrender was made, and the additions were rightly made by the Assessing Officer, and the learned Commissioner. 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 name, the depositors are existing assessees, and copies of their returns receipt, and capital account with balance sheet were also filed before the Assessing Officer, and they were produced personally before the Assessing Officer as well. In that view of the matter, in our view, the Assessing Officer was required to consider all this material also. It is well-nigh possible, that for good, bad or indifferent reasons, the Assessing Officer 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 Assessing Officer to make addition in the income of the assessee. 7 It does appear that the notices were issued to the assessees in the month of May 2001, and the assessment orders have been passed on 31.12.2002, and the alleged surrender is said to be dated 27.12.2002. This all does clearly 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 Assessing Officer, 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. 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. 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. (KISHAN SWAROOP CHAUDHARI),J. (N P GUPTA),J. /tarun/