Finquick Finance (P.) Ltd. Vs. Deputy Commissioner of - Court Judgment

Excerpt:
1. in this appeal, the assessee has objected to the order of the cit(a) dated 31-1-2001 by way of following grounds : 1. on the facts and in the circumstances of the case, the impugned orders passed by the authorities below are clearly illegal, arbitrary, perverse, mala fide, vexatious, violative of natural justice, without fair and objective application of mind to the facts of the case and the law applicable, without being guided by the correct factual and legal position and appear to have been passed to meet the pre-determined revenue targets and hence both the orders of the lower authorities are liable to be set aside and quashed and declared non est in law. 2. the respondent ought to have issued an effective and purposeful show-cause notice to the appellant as to why, how and for.....

Judgment:
1. In this appeal, the assessee has objected to the order of the CIT(A) dated 31-1-2001 by way of following grounds : 1. On the facts and in the circumstances of the case, the impugned orders passed by the authorities below are clearly illegal, arbitrary, perverse, mala fide, vexatious, violative of natural justice, without fair and objective application of mind to the facts of the case and the law applicable, without being guided by the correct factual and legal position and appear to have been passed to meet the pre-determined revenue targets and hence both the orders of the lower authorities are liable to be set aside and quashed and declared non est in law.

2. The Respondent ought to have issued an effective and purposeful show-cause notice to the Appellant as to why, how and for what reasons he propose to make any addition/s to the assessee's declared income and how it was justified both on facts and in law and in the absence of any such effective show-cause notice indicating what is the case of the Department which the assessee has to meet, the impugned order passed by the Respondent ought to have been set aside and quashed by the first appellate authority and failure to do so has vitiated his orders and hence the action and orders under Section 144 by the Respondent and upholding the same by the first appellate authority must be set aside and quashed and declared as unsustainable both on facts and in law.

3. The authorities below have erred both on facts and in law in invoking Section 68 of the Income-tax Act which has no application whatsoever in the facts of the present case.

4. The impugned order proceeds on the assumption that every money received by the assesses towards share capital or towards loans or other liabilities repayable, would constitute income and be liable to tax automatically. There is no such provision in law nor any principle to assume every receipt as income and hence the assumption with which the respondent has proceeded is totally illegal and unsustainable apart from being perverse and hence the impugned orders are liable to be set aside and quashed.

5. It is the duty of the respondent to prove that what is sought to be taxed by him is necessarily income liable to tax and in the absence of onus of proof being discharged by the revenue there could be no such illegal additions as made by the Respondent and hence the impugned order mechanically passed in the most perverse and whimsical manner must be set aside and appeal allowed.

6. The respondent has not even cared to see as to what is the amount of share capital received during the year and if the first page Para 2 of the impugned order of assessment is seen, the amount is Rs. 9,66,000 whereas it has been taken as Rs. 8,66,000 which also shows the complete non-application of mind by the respondent and the haste with which he passed the impugned order on the last day of limitation to save his skin after having slept for long and that is why perhaps he has not even chosen to make entry in the order sheet in regard to the records, accounts, statements etc., filed by the Directors on 15-2-2000 before him nor is there anything in the order issued in regard to the show-cause notice about the proposal of the respondent to make additions and the reasons and basis for doing so.

7. The Respondent has also acted illegally, arbitrarily and maliciously in treating the entire amount of unsecured loans as income falling under Section 68 without even considering the sources of receipts and the details thereof filed on 15-2-2000. There is no presumption in law that moneys received as unsecured loans automatically constitute income and the action of the respondent is, therefore, clearly illegal and unsustainable in every respect both on facts and in law.

8. The recklessness of the respondent in passing such irresponsible orders is apparent from the fact that he has made three additions aggregating to more than Rs. 50 lakhs to a taxpayer without even issue of a show-cause notice for any of the three items either individually or collectively and he has not cared to understand the basic elementary aspects of accounts and accounting of Companies where moneys towards share capital and loans never constitute income and cannot at all be regarded as revenue chargeable to tax nor is there any provision in law to disallow mechanically interest on unsecured loan which is payable under the Mercantile system and which has apparently been paid by the Appellant.

9. The Respondent had never issued a show-cause notice either to raise any demand or to charge any interest and hence neither demand of tax nor interest under Section 234B and/or 234C could have been raised and, therefore, the entire demand sought to be raised against the Appellant is totally illegal and unsustainable both on facts and in law and must be quashed.

10. The impugned action of the Respondent in initiating action for penalty without any application of mind is evident from the impugned order and hence the direction for penalty proceedings being initiated also deserves to be set aside and quashed as there is complete non-application of mind by the Respondent in every respect.

2.1 The appeal was first taken up for hearing on 21-5-2001 when Mr. R.Santhanam, C.A. and Mrs. Vandana Sharda, Advocate appeared for the appellant-assessee. Mr. Santhanam, instead of arguing thereafter ground-wise, proceed to argue the appeal op a consolidated basis and he submitted that all the documents, copies of which have been placed by the appellant in its Paper Book containing 85 pages, are the copies of certified copies procured by the assessee from the Assessing Officer and the CIT(A). To be specific, Mr. Santhanam stated that the documents placed at pages 1 to 16 and 18 to 85 of the Paper Book were copies of the certified copies of the documents filed by the assessee's directors, Mr. Ashish Sehgal and Mr. Dinesh Sehgal procured from the Assessing Officer on 15-2-2000. Similarly, Mr. Santhanam submitted that documents placed at pages 18 to 79 of the Paper Book were the copies of certified copies procured from the CIT(A). In view of this claim, Mr.

Santhanam submitted that the directors of the assessee-company having furnished the documents placed at pages 1 to 16 of the Paper Book before the Assessing Officer on 15-2-2000, there was no non-compliance of the terms and conditions of notices under Section 142(1) or under Section 143(2) of the Income-tax Act, 1961, hereinafter referred to as "the Act" and consequently the observations of the Assessing Officer while passing ex parte assessment order under Section 144 of the Act that the assessee had not complied with the notices asking the assessee to produced the bank account, books of account and the assessee also failed to file the details of expenses, nature of business and the evidence to prove the genuineness of the deposits in the shape of share capital and unsecured loans were not justified. Mr. Santhanam further submitted that the observation of the Assessing Officer that details of the interest paid on unsecured creditors were also not correct.

2.2 Since this was a case of an assessment under Section 144 of the Act and the Assessing Officer had given a specific finding for non-compliance so it was though necessary to consider and verify the veracity of the statement made by Mr. Santhanam and it was in this context that Mr. Santhanam was asked to substantiate his statement that documents copies of which are placed at pages 1 to 16 of the assessee's Paper Book, had been furnished before the Assessing Officer by the directors on 15-2-2000 and that the documents copies of which are at pages 23 to 79 were before the CIT(A). On this requirement of the Bench, Mr. Santhanam tried to stick to his statement claiming that the statement having been made by a Counsel in the open Court may be taken as a proof of the facts stated in the statement. Mr. Santhanam further submitted that the appellant's certificate given below the Index on Index page of the Paper Book and the affidavit of the Director Mr.

Ashish Sehgal placed at page 17 of the Paper Book are the ample evidence to prove his statement with regard to claim that the documents copies of which are placed at pages 1 to 16 of the Paper Book had been filed by the directors of the appellant-company before the Assessing Officer on 15-2-2000 and that the documents copies of which are placed at pages 23 to 79 of the Paper Book were filed before the CIT(A) and pleaded for the permission to proceed with his submissions on the merits of the appeal.

2.3 Mr. Santhanam was allowed to proceed with his submissions on the merits of the appeal subject, however, to the verification of veracity of his statement from the Departmental Representative and the appellant's assessment records, but on this the learned Departmental Representative sought permission to submit his arguments against the statement and claim made by Mr. Santhanam with respect to the alleged fact of certain documents having been filed before the Assessing Officer and also the alleged claim that the documents, copies of which are at pages 18 to 79 of the Paper Book were before the CIT(A). The learned Departmental Representative was allowed to argue his case.

2.4 The learned Departmental Representative first of all strongly disputed the statement of Mr. Sehgal that the comments, copies of which have been placed in the Paper Book, except pages 80 to 85 of the Paper Book, which are copies of notices under Section 142(1), postal receipt, Power of Attorney filed by one Mr. Suresh Vyas and of the order sheet maintained by the Assessing Officer, were before the lower authorities by pleading that the same is a false assessment. Elaborating the submission, the learned Departmental Representative submitted that the statement of Mr. Santhanam that documents, copies of which are placed at pages 1 to 16 of the assessee's Paper Book had been furnished before the Assessing Officer on 15-2-2000 by the directors of the company is absolutely false statement because the directors had not filed any document or detail on that date, rather had sought adjournment for 24-2-2000, which was allowed. For this purpose the learned Departmental Representative drew our attention to the order sheet entry appearing at page 84 of the Paper Book filed by the assessee. The learned Departmental Representative further submitted that the statement of Mr.

Santhanam that the documents copies of which are placed at pages 18 to 79 of the Paper Book were before the CIT(A) is again a false statement because the CIT(A) had not admitted any of the documents being additional evidence and for this purpose drew our attention to page 18 of the Paper Book which is a letter by appellant company's counsel addressed to the CIT(A) requesting for admission of additional evidence enclosed along with that letter (documents, copies of which are placed from pages 23 to 79 were additional evidence whereas, pages 18 to 22 contained the assessee's written submissions made before the Assessing Officer) and the order sheet entry dated 15-2-2000 (page 84 of the assessee's Paper Book). According to the learned Departmental Representative a document can be said to be before an authority only if it has been admitted to be a part of the record because in that case that the authority cannot avoid the consideration of the document and if a document has not been admitted being additional evidence, then its availability on record cannot entitle the assessee to plead that the document was before the authority and it is so because any document filed by the party even if not admitted for consideration, has to be kept on record and cannot be destroyed. The learned Departmental Representative further submitted that only because the CIT(A) has supplied the certified copies of documents, which were not admitted being additional evidence the assessee cannot plead that the same were before the CIT(A). In view of the above submissions, the learned Departmental Representative submitted that since the statement of Mr.

Santhanam, cast a serious allegation on the honesty, sincerity and integrity of not only the officers of the rank of Commissioner and Dy.

Commissioner of Income-tax, but of the whole of the Income-tax Department as such and if found to be correct may lead to serious consequences for the concerned officers. In view of these facts, the learned Departmental Representative pleaded that the appeal may be decided after first verifying the truthfulness of the statement and claim made by Mr. Santhanam in the open court and also for want of the truthfulness of the certificate given by the appellant's director on the Index Page of the Paper Book as well as the statement made by the director, Shri Ashish Sehgal son of Late Shri B.K. Sehgal in the affidavit placed at page 17 of the Paper-Book.

2.5 According to the learned Departmental Representative in case the statement of Mr. Santhanam is found to be false then it is possible that he may not be required make any submission on the merits of the appeal because that finding itself will be sufficient for disposal of the appellant's appeal and it was for this reason that the learned Departmental Representative requested that he may be allowed to make his submissions only after verification of the truthfulness of the statement of Mr. Santhanam.

3. After having considered the submissions made by both the parties which were likely to result in serious consequence as the sincerity and integrity of the Department on the one hand and the professional conduct of a senior professional on the other hand, were at stake, it was though fit first to verify the truthfulness of the statement and claim made by Mr. Santhanam as well as the certificate given at the Index page of the Paper Book and the statement in the affidavit made by appellant's director, Mr. Ashish Sehgal and, therefore, the Bench passed the following order giving directions to the appellant through Mr. Santhanam and to the learned Departmental Representative : (i) To furnish a copy of the acknowledgement for furnishing the return of income for the assessment year 1997-98.

(ii) To furnish the copies of the documents filed along with the return of income for the assessment year 1997-98.

(iii) To furnish a fresh affidavit of the director who has claimed to have appeared before the Assessing Officer and is claiming to have furnished the documents, copies of which are at pages 1 to 16 of the Paper Book before the Assessing Officer on 18-2-2000 specifying the detail of each and every document specifically on 22-5-2001 and that the concerned director should remain present on 22-5-2001 and be ready for his cross-examination with respect to the affidavit directed to be filed.

(iv) To certify the certificate given on the Index page of the Paper Book which read as "All the above records and documents were with Lower Authorities." As well as all the documents placed in the Paper Book to which the certificate had the reference should be signed by the Director.

To produce the complete Income-tax assessment records for the assessment year 1997-98.

4. Subject to aforesaid directions, the Bench proceeded to hear Mr.

Santhanam on the merits of the appeal.

5. Mr. Santhanam at the outset submitted that the appellant's director Mr. Ashish Sehgal along with other director Mr. Dinesh Sehgal had appeared before the Assessing Officer on 15-2-2000 and had filed the documents/details, copies of which are placed at pages 1 to 16 of the Paper Book and it was the Assessing Officer who adjourned the hearing of his own and without requiring the director to furnish any further reply or detail or document or the books of account. According to Mr.

Santhanam he was making the submission that the adjournment was by the Assessing Officer of his own, was based on his personal experience and the knowledge regarding the day to day working of the Income-tax Department -the conduct of Assessing Officers, who, according to him, are in the habit of ignoring or misplacing the important documents furnished during the course of hearing and this is being done to harass the innocent and honest tax-payers. According to Mr. Santhanam so far as the appellant's case is concerned, the Assessing Officer seems to have not recorded the fact of furnishing of the documents by the directors on 15-2-2000 knowingly and that is why the same were ignored by him so as to make an assessment under Section 144 of the Act. In support of his statement, Mr. Santhanam relied on the copy of a letter purported to have been written to the Dy. CIT, Co. Cir. 25(2), Room No.384(A), Central Revenue Building, New Delhi-copy of which is placed at page 23 of the Appellant's Paper Book, which reads as under : Please find enclosed the following in respect of our case for the assessment year 1997-98 : (3) Photostat copies of Bank statements in respect of additions to the share application money.

(5) Details & Working of Intt. Paid/Payable on Unsecured Loan, if any other detail is required, please let us know.

5.1 Mr. Santhanam further submitted that the Assessing Officer had adjourned the hearing on 15-2-2000 because he wanted to go through the documents furnished by the appellant's director and, therefore, after having furnished the said documents on 15-2-2000 the appellant was not required to furnish any detail or document or to produce the books of account. In any case, if the Assessing Officer wanted to have any other information or documents or books of account, it was the duty of the Assessing Officer to have made a specific requirement and informed the appellant of the same but since the Assessing Officer did not make any specific requirement and also did not inform the appellant, it stands established that the details furnished by the director on 15-2-2000 had been found to be satisfactory i.e. had been found to have satisfied the requirement of the Assessing Officer recorded on 31-1-2000, which were the following : (i) Lead evidence under Section 68 in respect of share capital and unsecured loans, intt. to unsecured creditors.

5.2 It was on the basis of the above submissions that Mr. Santhanam submitted that there was no default on the part of the appellant to comply with the terms of any of the notices under Section 142(1) of the Act or to appear on the date of hearing or to produce the books of account and, therefore, assumption of jurisdiction by the Assessing Officer to invoke the provisions of Section 144 for making ex parte assessment was illegal and bad in law.

5.3 Another plea of Mr. Santhanam was that under the law, the Assessing Officer before proceeding to make an assessment under Section 144 of the Act, should have given opportunity to the appellant and should have issued a show cause as envisaged in the provisions of Section 143(2) of the Act and since in the present case, the Assessing Officer has not issued any show-cause notice and also has not allowed an opportunity to the appellant before exercising the power vested under Section 144 of the Act, ex parte assessment order is illegal and bad in law, which is liable to be quashed. In support of this submission, Mr. Santhanam relied on the decision of the Tribunal in the case of 41 ITD 273.

5.4 Mr. Santhanam further submitted that under the existing provisions of Section 144 itself the assessment cannot be framed Under Section 144 of the Act unless and until a proper show-cause notice allowing the assessee an opportunity of being heard is served and in the present case no such show-cause notice having been issued and served upon the appellant, the ex parte assessment under Section 144 is illegal and bad in law.

5.5 On merits of the assessment, Mr. Santhanam submitted that in view of the decision of the Hon'ble Supreme Court in the case of CIT v.Stellar Investment Ltd. [2001] 115 Taxman 99 where by the decision of Hon'ble Delhi High Court in the case of CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 : 59 Taxman 568. The application money cannot be considered as income by applying the provisions of Section 68 of the Act and, therefore, pleaded that the addition of Rs. 8,66,000 being the share application money by invoking the provisions of Section 68 is not justified. According to the decision of Hon'ble Full Bench of Hon'ble High Court in the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 : [1993] 70 Taxman 69 (Delhi) has been rendered academic and does not survive. Mr. Santhanam further submitted that the share application money received in this year being from those very persons whose share application money received in the previous year had been accepted by the revenue and, therefore, there was no question of considering the share application money received during this year is appellant's income by applying the provision of Section 68 of the Act.

5.6 With regard to the consideration of unsecured loans of Rs. 39,80,985 by the Assessing Officer as assessee's income under the provisions of Section 68 of the Act, Mr. Santhanam submitted that: (i) there is no provision in law of income-tax for considering loans as income because according to him the nature of a receipt never changes i.e. according to him, the unsecured loans when received being in the nature of capital receipt, the same does not change their character and will remain capital in nature for ever. In view of this counsel submitted that the unsecured loans cannot be considered as revenue and consequently taxable income and for that purpose relied on the decision in the case of Travancore Rubber and Tea Co. Ltd. v. CIT [2000] 243 ITR 158 : 109 Taxman 250 (SC).

(ii) Since the appellant had filed the complete details required for the genuineness of the unsecured loans by the provisions of Section 68, the Assessing Officer was not justified in considering the same as appellant's income.

(iii) The unsecured loans taken by the assessee have been deposited in assessee's bank account, there was no question of considering the same as assessee's income. According to Mr. Santhanam the loans were from parties, namely, (1) M/s. Concord Capital Management Co. Ltd., IInd Floor, Hauz Khas, New Delhi (2) M/s. Umrao Exports (P.) Ltd., B-4/35, Paschim Vihar, New Delhi - 63, M/s. Pacquik Industries Ltd., C-120,1st Floor, New Rajinder Nagar, New Delhi - 60 and Mr. Dinesh Sehgal, New Delhi and complete details (copies of which are placed at pages 54 to 78 of the Paper Book) were filed before the CIT(A) on his requirement and consequently, the assessee had discharged its onus by Section 68 of the Act. In view of these facts, Mr. Santhanam submitted that the Assessing Officer was not justified in considering the unsecured loans as assessee's income under Section 68 of the Act.

(iv) Concluding his submissions Mr. Santhanam stood by his statement that documents, copies of which were placed at pages 1 to 76 of the Paper Book were filed under covering letter copy of which is placed at page 23 of the Paper Book by the assessee Director before the Assessing Officer on 15-2-2000 but have been ignored by the Assessing Officer with the motive to make an ex parte assessment under Section 144 of the Act, which has resulted in uncalled for and undue harassment to the honest and innocent tax-payer and that documents, copies of which have been placed at pages 23 to 79 of the Paper Book were filed before the CIT(A) on his requisition/directions, due he has also, like the Assessing Officer, proceeded with a based and pre-determined mind to harass the innocent assessee and consequently, ignored the evidence by terming it as fresh evidence and even rejected the appellant's request for admission of the same in an arbitrary and unjustified manner.

Mr. Santhanam, therefore, submitted that first of all the exercise of the power by the Assessing Officer to assume jurisdiction to proceed for making an ex parte assessment under Section 144 was illegal and bad in law and secondly the discretion used by the learned CIT(A) refusing to admit the documents placed before him, which the assessee could furnish by making a request for admission of the same under Rule 46A also smacks of the arbitrariness and based approach, which cannot be stained in law. He, therefore, submitted that the assessment order passed under Section 144 on the Act on 31-3-2000 being illegal and bad in law is liable to be quashed.

6. After conclusion of the submissions by Mr. Santhanam, the hearing was adjourned for 22-5-2001 directing the parties to comply with the directions recorded in paragraph 3 above.

7. On 22-5-2001, Mr. Santhanam and Mrs. Vandana Sharda, Advocates again appeared on behalf of the appellant. Mr. Santhanam furnished the following documents : (i) Affidavit of Mr. Ashish Sehgal, director of the appellant-company dated 21-5-2001 which reads as under : I, Ashish Sehgal S/o late Shri V.K. Sehgal the Director of Finquik Finance (P.) Ltd. having its registered office at C-120, New Rajinder Nagar, New Delhi, do hereby affirm and declare : 1. That I am the director of Finquick Finance (P.) Ltd. being assessed to Income-tax by the Deputy Commissioner of Income-tax, Co.

Cir. 25(3), New Delhi, having its GIR No. 95-F and PAN No. AAACF1893K. 2. That I along with Mr. Dinesh Sehgal, the director, have attended the case and submitted the information along with the covering letter on 15-2-2000 to the Assessing Officer.

I, Ashish Sehgal S/o Late Shri V.K. Sehgal the Director of Finquik Finance (P.) Ltd. having its Registered Office at C-120, New Rajinder Nagar, New Delhi, do hereby affirm and declare that the contents of the paras (1) to (3) above are true and correct to the best of my knowledge and belief.

(ii) Paper Book which was returned to Mr. Santhanam on 21-5-2001 for getting the same signed by the Managing Director or director of appellant's company and to submit the same on 22-5-2001 was refurnished. The certificate give on Index page and other 85 pages of the Paper Book bear the signature of director of the assessee-company, Mr. Ashish Sehgal.

(iii) Copy of acknowledgement for having furnished the return of income for assessment year 1997-98 by the appellant vide receipt No. 0621 dated 30-11-1997, statement of assessable income, notice for second annual general meeting of the shareholders of the appellant-company dated 1-2-1997, Director's Report and Auditor's report of the same, Balance Sheet and Profit and Loss Account for the period ending 31-3-1997 and Schedules 'A' to 'F.8. The learned Departmental representative, on the other hand, produced the Income-tax assessment records of the appellant-company for the assessment year 1997-98 in original for the perusal of the Bench.

9. Since the affidavit of Shri Ashish Sehgal, director of the appellant-company dated 21-5-2001 furnished by Mr. Ashish Sehgal was not meeting the directions given by the Bench, Mr. Santhanam was asked as to why the appellant-company has chosen to file the affidavit which is a verbatim copy of the affidavit dated 2-5-2001 placed at page 17 of the assessee's Paper Book instead of specifying the details of documents claimed to have been furnished before the Assessing Officer on 15-2-2000, Mr. Santhanam stated that since it is the choice of the appellant, he cannot improve upon that.

9.1 Further when Mr. Santhanam was again asked about the presence of director, Mr. Ashish Sehgal whose affidavit was furnished for cross-examination, he simply stated that here again, he is unable to improve upon the situation because it is the decision of the appellant-company and its director not to come and appear before the Bench.

9.2 With regard to his statement made on 21-5-2001 claiming that the documents, copies of which were placed at pages 1 to 16 of the Paper Book had been furnished before the Assessing Officer by the assessee's director. Mr. Ashish Sehgal on 15-2-2000 and that documents, copies of which find place at pages 18 to 79 of the Paper Book were before the CIT(A), Mr. Santhanam reiterated the same statement and stood by it.

9.3 The learned Departmental Representative, on the other hand, relying on the original assessment records of the assessment for assessment year 1997-98 once again pleaded that the statement of Mr. Santhanam that the documents copies of which have been placed by the assessee at pages 1 to 16 of the Paper Book had been filed by the assessee's director Mr. Ashish Sehgal before the Assessing Officer on 15-2-2000 is absolutely false as there is no such document on record and supported his plea with the help of Order Sheet entry dated 15-2-2000 which we have already reproduced in the earlier part of this order to bring his point, the learned Departmental Representative handed over the original assessment records to the Bench, which were perused and it was found that none of the documents, copies which are claimed to have been placed at pages 1 to 16 of the Paper Book is available on record. The Order Sheet entry also does not mention the filing of any document or detail or producing of books of account or anything else. The assessment records were also shown by the Bench to Mr. Santhanam for his perusal and to make his comments if he so likes. After perusal of the assessment records, Mr. Santhanam simply stated that since the records were in the custody of the Revenue, he cannot spell out as to under what circumstances or how and why the documents furnished on 15-2-2000 are not available on record.

10. Since Mr. Santhanam had pleaded that the documents, copies of which are claimed to have been placed at pages 23 to 79 of the Paper Book, were furnished before the CIT(A) on his requisition, he was asked to substantiate this statement. Thereupon, the assessee's counsel Mr.

Santhanam was asked to furnish the certified copies claimed by him to have been procured from the Assessing Officer of the documents, copies of which have been claimed to have been placed at pages 1 to 16 of the Paper Book in original and also the copies of applications furnished by the assessee before the Assessing Officer asking for the certified copies of the documents. In response to this requirement of the Bench, Mr. Santhanam expressed his inability to produce any evidence in support of his statement, except the certified copies of five applications as detailed below : 1. Application dated 26-2-2001, subject-matter of which reads as under: With reference to the aforesaid case kindly provide us with the documents and order sheet on record.

2. Application dated 26-2-2001 subject-matter of which reads as under : With reference to aforesaid case, the undersigned has inspected the aforesaid file and needs the p. copy of the following documents : (vi) Notice under Section 142(1) dated 6-1-2000 (viz) Power of Attorney filed by C.A. 3. Application dated 27-2-2001 subject-matter of which reads as under : With reference to the aforesaid case, kindly provide us with the certified copy of all the documents placed on records along with the order sheet.

4. Application dated 26-3-2001, subject-matter of which reads as under: With reference to the aforesaid case and our letters dated 26-2-2001 received by you on 26-2-2001 and 27-2-2001 received by your goodself on 28-2-2001, kindly provide us with the certified true copy of the order sheet of the file for the aforesaid assessment year. The same is desired for the proceedings before Hon'ble Income-tax Appellate Tribunal. The assessee has already paid fees to the same.

5. Application dated 2-5-2001 subject-matter of which reads as under : With reference to the aforesaid case, subject we requested before your goodself to provide us with the photocopy of order sheet. We have followed up the matter at your office. We are being denied to get the same even after payment of the desired fees. We humbly request you to provide us the same as the same document is desired for our appeal at ITAT.11. The learned Departmental Representative was directed to furnish the certified copies of the return of income and enclosures there with furnished by the assessee on 30-11-1997 vide receipt No. 0621, copies of notices issued by the Assessing Officer and all other documents, if any, filed by the appellant before passing of the ex parte assessment order on 31-3-2000. In response to this query, the learned Departmental Representative has furnished the copy of return of income for assessment year 1997-98 along with enclosures, Statement of assessable income, notice for calling Second Annual General Meeting of the Shareholders, Director's Report, Auditor's report, Balance Sheet and Profit and Loss Account as on 31-3-1997 and Schedules 'A' to 'F', notices under Section 143(2) dated 2-7-1998, 3-6-1999, 14-7-1999, notices under Section 142(1) of the Act dated 13-12-1999 and 6-1-2000.

As per notice under Section 142(1) of the Act, the appellant was required to furnish the following : (i) Books of account for the financial year 1996-97 relevant to the assessment year 1997-98.

11.1 Since there was no other document on record, the learned Departmental Representative pleaded that he has not to furnish any other document.

12. Since both the parties i.e. Mr. Santhanam as well as the learned Departmental Representative had stuck to their respective stands regarding truthfulness of the statement and claim made by Mr. Santhanam not only on 21-5-2001, but also on 22-5-2001 and after the Bench having shown the assessment records to him, truthfulness of the statement of the director of the assessee-company made in the affidavit dated 2-5-2001 and dated 21 -5-2001 (supra) and also verification made on the Index page of the Paper Book by the Director, the Bench had no option but to first give a finding as to the truthfulness of the respective claims because unless and until it is done, we arc of the opinion that the Tribunal will not be able to do justice to the parties and consequently, we, before hearing the parties on the merits of the appeal and considering the same, have considered to adjudicate upon this issue as our bounden duty and, therefore, we proceed to verify the truthfulness of the rival statements before proceeding in the matter, we would like to state that we are very much conscious of the fact that our findings in the matter are likely to have serious repercussions for the parties to the issue because if the statement of Shri Santhanam is found to be true, it may have a damaging effect on the career of two senior officers of the Department, but in case the statement of Mr.

Santhanam is found to be false then if may have the serious effect on professional career of a very senior Chartered Accountant, Mr.

Santhanam. Keeping all the possible effects of the decision in view, we are proceeding to decide the issue with utmost care and, therefore, have gone through each and every word of the statement made and documents placed before us.

12.1 After having gone through the original income-tax assessment records of the assessee for the assessment year 1997-98, it is noticed that the following documents are available on record : (i) Appellant's return of income for the assessment year 1997-98 in Form No. 1 consisting of then printed pages each in English and Hindi. It is the English part which has been filled by the appellant and the verification at page 10 (English version) has been signed in the date of 30-11-1997 by Mr. Dinesh Sehgal (Father's name not mentioned) in the capacity of the Director of the appellant-company, namely, M/s. Finquik Finance (P.) Ltd. which was filed on 30-11-1997 under receipt No. 0621 as mentioned on the office copy of the acknowledgement - a copy of which was issued to assessee.(iv) Directors report dated 1-9-1997 1 Page(v) Auditor's report dated 1-9-1997 without(vii) T.D.S. Certificates 4 Pages(viii) Copy of Intimation under Section 143(1) dated 13-12-1999 and 6-1-2000.

2 in Number(xi) Notice under Section 274 read with In addition to the above, the assessment records contained the assessment order under Section 144 dated 31-3-2000, demand notice, penalty notices and acknowledgement receipts etc.

(xii) The records also contained order sheet running in two pages, the contents of which are as under : 12.2 The copies of documents, originals of which have been claimed by Mr. Santhanam to have been furnished by the appellant's director before the Assessing Officer on 15-2-2000 as placed at pages 1 to 16 of the Paper Book arc as detailed below:----------------------------------------------------------Sl. No. Page No. Details of the document01 1 Copy of letter addressed to the Dy.

Commissioner of I. Tax, Company Cir.,02 1 Copy of a note captioned 'Note on nature of business'.03 1 Copy of one printed page captioned Memorandum of Association of Finquik04 1 Chart containing details of share application money.05 1 Chart containing details of unsecured loans.06 1 Chart showing the details of interest paid/payable on Unsecured loans.07 7 & 8 Copy of Bank account of Mr. Ashish Sehgal. 08 9 & 10 Copy of Bank ac-09 11 Copy of Bank account of Nisha Sehgal.10 12, 13, & 14 Copy of Bank account of Rajesh Sehgal.11 15 & 16 Copy of Bank account of Vandana Sehgal.----------------------------------------------------------- The covering letter under which the aforesaid details have been claimed to have been furnished before the Assessing Officer, copy of which is placed at Page 1 and also at Page 23 of the Paper Book reads as under: Please find enclosed the following in respect of our case for the assessment year 1997-98:- (3) Phtostat copies of Bank statements in respect of additions to the share application money.

(5) Details & Working of Intt. Paid/Payable on Unsecured Loan, if any other detail is required, please let us know.

12.3 The covering letter under which the appellant is claiming to have furnished the details/documents, copies of which are at Pages 23 to 78 of the assessee's Paper Book, before the CIT(A) reads as under: With reference to the aforesaid appeal, we wish to pray before your goodself to admit the additional evidence enclosed along with our submissions. The additional evidence are required to be submitted to explain/clarify the justifications of Receipt of Share Application Money and Unsecured Loans by the assessee-company.

12.4 From the copies of various documents placed at Pages 23 to 78 of the Paper Book, it is found that copies of documents, whose copies are placed at pages 1 to 16 of the Paper Book and claimed to have been filed before the Assessing Officer, are also included in the evidence which was claimed by the appellant before the CIT(A) (in its letter dated 31-1-2001, copy at page 18 of the Paper Book and which has already been reproduced in para 12.3 above) as "additional evidence".

The details of such documents i.e., the documents, copies of which are placed from pages 1 to 16 and were claimed to be 'additional evidence' and CIT(A) was requested to admit the same, (corresponding to pages 1 to 16 of the Paper Book) are as under :-------------------------------------------------------Sl. No. Page No. of the docu- Corresponding Page No. of ment placed at pages-------------------------------------------------------1 Page No. 1 Page No. 23 From the appellant's letter dated 31-1-2001 filed before the CIT(A), (copy at page 18 of the Paper Book and reproduced above) it is quite clear that the evidences/documents sought to be filed by the appellant under this letter and along with the written submissions - copy at pages 19 to 22 of the Paper Book; were claimed by the assessee itself as 'additional evidence' and since 'additional evidence' so enclosed contained the documents, (copies of which have been placed at pages 1 to 16 of the Paper Book) the original of which have been claimed to have been filed before the Assessing Officer by the directors of the appellant on 15-2-2000, the only and the only conclusion, which a prudent person will arrive at, will be that the appellant had not filed any of the documents - copies of which are placed at pages 1 to 16 of the Paper Book; before the Assessing Officer and once this conclusion is arrived at the consequential conclusion has to be that: (i) The appellant's director had not filed any detail or document as claimed by Mr. Santhanam, before the Assessing Officer on 15-2-2000; (ii) Neither there was any question of getting the certified copies of any of these documents from the Assessing Officer nor Mr.

Santhanam has been able to prove it by any direct or indirect evidence. He was not in a position to furnish any evidence even for having applied for copies of any of these documents; (iii) The statement of Mr. Santhanam that "the director of the appellant had filed the documents, copies of which are placed at Pages 1 to 16 of the Paper Book, for the Assessing Officer on 15-2-2000" and that "the copies placed at pages 1 to 16 of the Paper Book" were the photo copies of certified copies procured by the appellant from the Assessing Officer is not substantiated by any direct or indirect or circumstantial evidence - even the concept of preponderance of probabilities has failed to support the statement of Mr. Santhanam and, therefore, the only conclusion is that the claim as well as the statement of Mr. Santhanam made before the Bench during the course of hearing of the aforesaid appeal on 21-5-2001 as well as on 22-5-2001 were false and were made by him knowing the same to be false and with the intention to mislead the Bench and to get a favourable order. In fact, on 21st May, 2001, Mr.

Santhanam had succeeded in misleading the Bench to some extent resulting in the erroneous directions given by the Bench to the learned Departmental Representative for producing the assessment records of the appellant. Had we not noticed the contents of Page 18 placed on the Paper Book or not perused the Income-tax assessment records, Mr. Santhanam would have succeeded in getting his plea of having furnished the impugned documents before the Assessing Officer by the director of the assessee on 15-2-2001, which would have definitely resulted in cancellation of the ex parte assessment, admitted and acted upon by the Bench.

(iv) Similarly, the statement of Mr. Santhanam that copies placed at Pages 1 to 16 of the Paper Book were the copies of the certified copies of the documents filed by the assessee's director before the Assessing Officer on 15-2-2000 and were procured from the Assessing Officer is also found to be false, because, (a) there is no evidence either in assessment record or with Mr.

Santhanam or the assessee, either for having made any request for the copies of these documents or having got any certified copy of these documents, (b) In spite of opportunity granted by us to Mr. Santhanam to produce the so called certified copies of the documents in original, he has not done so.

(v) Considering the concept of preponderance of probabilities i.e., assuming that the director has filed the data as claimed by Mr.

Santhanam, on 15-2-2000 before Assessing Officer and had produced the books of account and that the adjournment of hearing to 24-2-2000 was the be-heist of the Assessing Officer himself - a situation which cannot be ruled out without considering the feasibility of the same; then in all fairness the entry dated 15-2-2000 must have been confirming the furnishing of the documents and must have been worded in the form- Hearing or case is adjourned to 24-2-2000" but it is not so, rather the entry reads as- This wording of the entry, which had been duly signed by the director who had signed the entry dated 31-1-2000, proves beyond any doubt that the adjournment on 15-2-2000 was allowed by the Assessing Officer on the request of the directors and not of his own and therefore, no documents, detail or information or books of account were furnished/produced before Assessing Officer. Had the directors furnished any documents or details or produced the books of account then the director would not have signed the entry without getting incorporated the fact of furnishing of the documents etc. or, at least there would have been some reference to these documents in the letters submitted for copies, but as is clear from the copies of all the applications furnished by the assessee (contents of which have already been reproduced in the earlier part of this order) that the assessee had never asked for copy of any of these documents.

(vi) Similarly and for there as one stated as above, the statement of the director made in the affidavit dated 2-5-2001 and 21-5-2001 are held to be false and having been made knowing the same to be false.

12.4A The other reasons for having arrived at the above findings by us are- (i) In spite of the specific direction of the Bench, the Director has not specified the details of the documents claimed to have been furnished before the Assessing Officer on 15-2-2000; (ii) The contents of the letter-copy of which finds place at Pages 1 and 23 of the Paper Book also cannot be taken as a conclusive evidence for having filed these documents because neither it bears any date or contains the details of the documents alleged to have been filed.

(iii) This very letter has been included by the appellant himself in the list of 'additional evidence' sought to be admitted before the CIT(A) as is evident from the letter dated 31-1-2001 (Page 18 of Paper Book) written by the appellant to the CIT(A) requesting him to admit the 'additional evidence'.

(iv) The director of the assessee-company who has filed the affidavit failed to present himself for cross-examination with respect to the truthfulness of his statement made in the affidavit, before the Tribunal.

12.5 In view of the above findings, the certificate given by the director of the appellant-company on the Index page of the Paper Book is also, therefore, found to be false because a document can be said to be before an authority if the same has been filed either on requisition of the authority or in exercise of one's first to file such document.

If the document is filed as an additional evidence and is not admitted by the authority then the same cannot be said to be a document before the authority. The availability of the document in such situation on the record of the authority and taking of certified copies thereof also cannot be interpreted to say that the relevant document was before the concerned authority and it is so because once a party files a document, the same has to be kept on record in spite of the fact that the Authority might have not admitted the same under the Rules. In the appellant's case, the CIT(A) as is evident from his order, had not admitted the additional evidence furnished by the assessee under its letter dated 31-2-2001, copy of which is available at page 18 of the Paper Book.

12.6 So far as the statement of Mr. Santhanam made on 21-5-2001 that the documents copies of which are placed at pages 23 to 79 of the Paper Book were filed before the CIT(A) on his requisition is concerned, when the Bench asked Mr. Santhanam to substantiate his statement, he instead of producing any evidence in this respect simply tried to stock to his statement that the documents were required by the CIT(A) and that it is the habit of Revenue Authorities to retract their stands later on.

12.7 We after considering the statement of Mr. Santhanam and the copy of the appellant's letter written to the CIT(A) on 31-1-2001 placed at page 18 of the Paper Book have no hesitation in holding that the statement of Mr. Santhanam is not corroborated by any evidence - direct or indirect or circumstantial and, therefore, has to be held to be false - having been made knowing the same to be false and with the intention to mislead the Bench so that the Bench may get biased against the Revenue authorities, especially the CIT(A).

12.8 In view of the above, we have found the statement of Mr. Santhanam made during the course of hearing of the appeal on 21st May and 22nd May, 2001 and the statement of the director of the Appellant-company made in the affidavits and also the certificate given by the director on the Index page of the Paper Book as false having been made knowing the same to be false and with the intention to mislead the Bench.

Consequently, the claim made by Mr. Santhanam and by the director of the assessee-company that the documents, copies of which are placed at pages 1 to 16 of the Paper Book had been filed by the director before the Assessing Officer on 15th February, 2000, that the copies placed at pages 1 to 16 of the Paper Book were the copies of the certified copies of the documents available with the Assessing Officer as a result of having been filed by the assessee's director on 15-5-2000 and that the documents, copies of which are placed at pages 23 to 79 of the Paper Book were filed before the CIT(A) on his request and that all these documents were with the Lower Authorities, stands rejected.

12.9 Since we have considered the preponderance of probabilities also we consider it desirable to consider the other aspect of the problem i.e., presuming that the assessee's director had filed the documents in question before the Assessing Officer on 15th February, 2000 but the same were not placed on record by the Assessing Officer for the reasons best known to him or for the reasons pleaded by Mr. Santhanam but this probability also gets ruled out by the action of the assessee itself, as explained below: (i) The director, Mr. Ashish Sehgal has neither specified the list of documents claimed to have filed before the Assessing Officer in either of the affidavits dated 2-5-2001 and 21-5-2001 (Affidavit dated 21-5-2001 was filed after the Bench had specifically issued such directions) nor has present himself for cross-examination with respect to the statement made in the affidavits, as well as the certificate given on the Index page of the Paper Book. The director's failure confirms beyond any doubt that he had not filed any of these documents before the Assessing Officer on 15-2-2000.

Had he done so, he at least could have specified the list of documents so filed in either of the affidavits dated 2-5-2001 and 21-5-2001 and could have presented himself for cross-examination.

His failure on both courts confirms our findings.

(ii) Further had the director filed the impugned documents before the Assessing Officer on 15-2-2000, then he would have definitely raised an objection before signing the order sheet entry and would have made the Assessing Officer to make the entry of the fact of having furnished the documents. This also belies the assessee's claim.

(iii) Without prejudice to above, the appellant's admission and request in the letter dated 3.1-1-2001 at page 18 of the Paper Book, requesting the CIT(A) to admit the additional evidence further belies the claim of both Mr. Santhanam and the director of the assessce-company.

12.10 Before parting with this aspect of the matter, we would like to consider the contents of appellant's written submissions made before the CIT(A) as contained in first and 2nd paragraph, copy at pages 19 to 22 of the Paper Book, which read as under: With reference to the aforesaid case and subject, we wish to state and submit that the Assessing Company could not respond to the notices of the Assessing Officer as all the notices received by the assessee-company has been sent to the Auditor of the company. The directors of the company were under impression that the auditor is attending the case. On receipt of notice dated 6th Jan., 2000, Mr.

Ashish Sehgal attended the hearing on 31st Jan., 2000 and noted the various requirements of the Assessing Officer for finalising the case and the case was adjourned to 8th Feb., 2000.

On 15th Feb., 2000 Mr. Ashish Sehgal and Dinesh Sehgal, Directors attended the case and submitted the information (The copy of letter enclosed as Annexure 'A') and the case was adjourned to 24th Feb., 2000. Due to unavoidable circumstances the directors could not attend the case on 24th Feb., 2000. When they approached the Assessing Officer in the first week of March, 2000, the Assessing Officer informed that your case was completed under Section 144.

12.11 From the above, it is quite clear that the assessee had specifically admitted its failure to comply with various notices issued under Sections 142(1) and 143(2) of the Act including the failure to appear on 24-2-2000 but very clearly has mentioned that "on 15-2-2000 Mr. Ashish Sehgal and Mr. Dinesh Sehgal, Directors attended the case and submitted the information" and claimed to have enclosed a copy of the letter as Annexure 'A' but after analysing the language used and the said Annexure 'A', copy at pages 1 and 23 of the Paper Book, it is very clear that none of these documents speaks of as to which documents were filed before the Assessing Officer. This claim of the appellant, in these written arguments also, for the reasons stated above, gets belied.

12.12 We have tried to consider the concept of preponderance of probabilities with the help of another evidence claimed to be available with the appellant and the copies of which were procured by us and placed on record (that evidence is in the form of appellant's applications filed before the Assessing Officer for procuring certified copies) on the strength of which the appellant had claimed to have procured the certified copies of the documents, copies of which are placed at pages 1 to 16 of the Paper Book, from the Assessing Officer.

As already stated the assessee has furnished copies of Four applications, which have been detailed in paragraph No. 10 of this order.

12.13 From the contents of these applications made by the appellant to the Assessing Officer what is clear is that the appellant had required the Assessing Officer to supply the certified copies of the order sheet, notices under Section 143(2), under Section 271(1)(c), under Section 142(1), power of attorney and copy of order sheet. There being no reference to any of these documents, in any of these four applications /letters, the same can also not be taken as supporting the claim and statement of Mr. Santhanam as well as of the director.

Further these applications having been filed during the period between 26-2-2001 to 2-5-2001 i.e., after the order of the CIT(A) which is dated 31-1-2001 go to show that the Assessee rightly /correctly/truly, claimed these documents (copies at Pages 1 to 16 of Assessee's Paper Book) in its letter dated 31-1 -2001 filed before the CIT(A) (copy at page 18 of the Paper Book), as 'additional evidence'.

12.14 In view of the above, we are of the opinion that truthfulness of the statement of Mr. Santhanam made during the course of hearing of the appeal and of the director, Sh. Ashish Sehgal made in the affidavits and by way of certificate on the Index page of the Paper Book remained unsubstantiated and the concept of preponderance of probabilities also belies their statements.

12.15 Documents placed at pages 80 - 83 which are, copy of Post Office receipt for dispatch of Registered letter to the appellant, Notice under Section 143(2), Power of Attorney and Notice under Section 143(2), are, however, definitely the copies of certified copies procured by assessee from Assessing Officer, but this do not proves the truthfulness of their statements. Similarly the documents placed at pages 18-79 are the copies of certified copies procured from CIT(A), but, since CIT(A) had not admitted this additional evidence' under Rule 46A of the Income-tax Rules, the same cannot be claimed, as we have already stated in earlier part of this order to be before him and consequently, this fact also fails to prove the truthfulness of the statements under reference.

13. So far as the merits of the case are concerned, before considering the rival submissions made by the parties, we like to state the brief facts relevant for the disposal of this appeal on merits and as have been revealed from the record before us.

14. Return of income for the assessment year 1997-98 showing taxable income of Rs. 1,00,020 was furnished by the appellant on 30th November, 1997, which was accompanied with the documents listed in paragraph 12.1 of this order. The return was processed under Section 143(1)(a) of the Act on 7-2-1998.

15. Since the Assessing Officer wanted to frame the assessment under Section 143(3) of the Act, he issued various notices under Section 143(2) as well as under Section 142(1) of the Act and also a notice under Section 271(1)(c) before the completion of the assessment, as detailed below, but not only the terms and conditions of these notices remained uncomplied with, the appellant did not dare even to appear on any of the appointed date even to seek adjournment except as detailed hereinafter :---------------------------------------------------------------Sl. No. Section under Date when the Date of hearing which the no- tice was issued notice was issued fixed as per notice---------------------------------------------------------------1. under Section 143(2) of 2nd July, 1998 28-8-1998 the Act4. under Section 271(1)(c) 13th December, 22-12-1999 of the Act 19995. under Section 142(1) * 13th December, 22-12-1999 19996. - do - * 6th January, 2000 18-1-2000---------------------------------------------------------------- * As per notice under Section 142(1) dated 13-12-1999 and 6th January, 2000, the assessee was specifically required to produce the evidence in support of genuineness of the share application money and unsecured loans and also to produce the books of account.

15.1 As admitted by the assessee in its reply dated 31-1-2001 filed before the CIT(A) (copy of which appears at page 18 of the Paper Book), the appellant did not comply with any of these notices i.e., neither the appellant appeared nor furnished any detail or produced books of account or sought adjournments in response to any of these notices, however, it was only on 31-1-2000 that one of appellant's director, Mr.

Ashish Sehgal appeared before the Assessing Officer but still without any detail, document and books of account. Though the Assessing Officer could have framed the assessment ex parte under Section 144 for asses-see's default for non-complying with the terms and conditions of any of the notices issued under Sections 143(2) and 142(1) of the Act, but the Assessing Officer still probably keeping in view of the principles of natural justice adopted an approach which we appreciate, acknowledged the presence of the director on 1st January, 2000 and allowed another opportunity requiring the direction of Sh. Ashish Sehgal to produce the details and also the books of account as has been mentioned in the order sheet entry against the date 31-1-2000 which reads as under: 31-1-2000 present Sh. Ashish Sehgal, director. Asked to file the following: (i) Lead evidence under Section 68 in respect of share capital and unsecured loans unsecured creditors.

This entry has been duly signed by the Director Mr. Ashish Sehgal [(Sd/-) his initials/signatures are on the left side of the entry]. The appellant again failed to attend the hearing on 8-2-2000. No application for adjournment was made.

The assessee has also not claimed to have made any request for adjournment of hearing or having attended the hearing on 8-2-2000, however, on 15th February, 2000, Mr. Ashish Sehgal and Mr. Dinesh Sehgal, both directors of the appellant company, appeared before the Assessing Officer, but again without any detail, document and books of account and requested for adjournment of the hearing, which was allowed and the hearing was adjourned to 24-2-2000 on their request. This is clear for the entry which reads as under:- 15.2 Since nobody attended the hearing on 24-2-2000 and no details or documents or books of account were produced or filed on or before 24-2-2000, the Assessing Officer by exercising his powers vested by virtue of provisions of Section 144 of the Act, proceeded to frame the ex parte assessment and in that process assessed the appellant's income at Rs. 52,65,457 after considering the credits amounting to Rs. 8,60,000 appearing in the balance sheet under the head "Share Capital Money" and amounting to Rs. 39,80,985 appearing in the balance sheet under the head "unsecured loans" by invoking the provisions of Section 68 of the Act and observing as under : Return has been filed on 30-11-1997 declaring total income at Rs. 1,00,020. Notice under Section 143(2) dated 2-7-1998 was issued by my predecessor under registered cover. Postal receipt evidencing the issue of notice is placed on record. Thereafter notice under Section 143(2) dated 3-6-1999 was issued by registered post fixing the case for 30-6-1999. None attended on 30-6-1999. Again another notice under Sections 143(2) dated 14-7-1999 was sent by registered post fixing the case for 3-8-1999. None attended on 3-8-1999. Thereafter, notices under Section 143(2) and 142(1) dated 13-12-1999 were issued by registered post fixing the case for 22-12-1999 asking the assessee to produce books of account, bank statements. No compliance was made in response to these notices. Thereafter on 6-1-2000, notice under Section 142(1) was issued by registered post fixing the case for 18-1-2000. None attended on 18-1-2000. On 31-1-2000, Sh.

Ashish Sehgal, director appeared and he was asked to file details of expenses, nature of business and to lead evidence under Section 68 in respect of share capital and unsecured loans, interest to unsecured creditors. Proceedings were adjourned to 8-2-2000.

However, on 15-2-2000, Sh. Ashish Sehgal and Sh. Dinesh Sehgal, directors appeared and the case was adjourned to 24-2-2000 on their request. None attended on 24-2-2000. In view of this, I proceed under Section 144.

From the balance sheet, it is noticed that share application money has increased from Rs. 10,24,000 to Rs. 19,90,000 i.e., by Rs. 8,66,000 and unsecured loans have increased from Rs. 7,555 to Rs. 39,88,540. On account of unsecured loans there has been an increase of Rs. 39,80,985 over the last year.

15.3 The Assessing Officer also disallowed the appellant's claim of interest claimed to have been paid or payable on the aforesaid unsecured loans.

15.4 On appeal before the CIT(A), the appellant in addition to challenging the validity of ex parte assessment as well as the merits of various additions, filed a petition under Rule 46A of the Income-tax Rules requesting for the admission of 'additional evidence', copies of which are placed at pages 23 to 79 of the Paper Book filed before us.

The CIT(A), however, refused to admit the said 'additional evidence' and confirmed the order of the Assessing Officer by observing as under:- 3.1 In appellate proceedings, it was contended that the appellant could not respond to the Assessing Officer's notices as these were sent to the auditors and they were under the impression that the auditors were attending the hearings. It was further contended that after the initial attendance of the director they could not attend the hearings due to unavoidable records.

Before me, the appellant filed the confirmations and other details with regard to the share application money as well as unsecured loans and it was prayed that the evidence may be admitted under Rule 46(A) of the Income-tax Rules, 1962.

3.2 On a consideration of the facts of the case, I find that no plausible explanation whatsoever has been given as to why the appellant refused to comply with notices sent by the Assessing Officer right from 1998 to January, 2000, even, thereafter, the mere attendance by the Directors and their continuous seeking adjournments without giving any plausible reasons before the Assessing Officer or filing any details whatsoever, tantamount to non-attendance and in fact deliberate non-compliance of statutory requirements. Given the appellant's conduct throughout the assessment proceedings before the Assessing Officer, I am not inclined to admit the evidence now being sought to be taken on record as none of the exceptional circumstances mentioned at Sub-clauses (a)-(d) to Sub-rule (1) of Rules 46(A) of the Income-tax Rules, 1962 apply in this case. Accordingly, the evidence now being produced is not taken on record.

On the merits of the addition made, I find that since the appellant has not discharged the primary onus cast upon it to explain the entries in its books of account by way of introduction of share capital money and unsecured loans, these additions together with the interest on the unsecured loans is confirmed.

15.5 It was in the light of the aforesaid facts and circumstances that Mr. Santhanam had made his submissions on merits when the appeal was heard on 21-5-2001.

16. On 22nd May, 2001, Mr. Santhanam was again given an opportunity to argue on merits and in response to that he reiterated the submissions made on 22-5-2001, but since the learned Departmental Representative was not heard on 21-5-2001, he was allowed an opportunity to argue his case on merits.

17. The first objection raised by the learned Departmental Representative was that the grounds listed by the appellant were argumentative and explanatory and, therefore, required no consideration by the Hon'ble Bench. The learned Departmental Representative then submitted that the decision of the Hon'ble Supreme Court in the case of Stellar Investment Ltd. (supra) is of no help to the appellant because after the decision of the Hon'ble Delhi High Court in the case of Stellar Investment Ltd. (supra). Full Bench of Hon'ble Delhi High Court itself had, in case of Sophia Finance Ltd. (supra), dismantled the observations made by the Division Bench in the case of Stellar Investment Ltd. (supra) and therefore, the proposition that the 'Share Capital' cannot be considered as company's capital under Section 68 of the Act no more holds good. To support this, the learned Departmental Representative submitted that in the case of Stellar Investment Ltd. (supra), provisions of Section 68 were not referred. With regard to Mr.

Santhanam's plea that 'share application money' received during the period relevant to the Assessment year 1997-98 was from the same persons from whom the 'share application money' was received during the period relevant to the assessment year 1996-97 and stood accepted, the learned Departmental Representative submitted that there was no evidence in the documents filed along with the return and since the assessee had not filed any information or documents and had not produced the books of account, this information was not before the Assessing Officer, while completing the assessment under Section 144.

According to him this information, therefore, amounted to an 'additional evidence', which cannot be taken note at this stage. Even otherwise, according to the learned Departmental Representative, to prove the genuineness of any credit entry in its Books, the assessee has to establish the three ingredients, namely (i) identity of the creditor (it) capacity of the creditor and (in) the genuineness of the transaction and for discharging the onus put by Section 68 of the Act and the assessee having not discharged its onus, the Assessing Officer was quite justified in considering the credits appearing under the head 'Share application money' and 'unsecured loans' as appellant's income under Section 68 of the Act. Commenting on Mr. Santhanam's plea that all the credited amounts having been deposited in bank, the same could not be considered as assessee's income and the decisions relied upon, the learned Departmental Representative submitted that there is no provision under the Income-tax Act which may support the assessee's plea and moreover there was no evidence to this effect before the Assessing Officer or the CIT(A). With regard to the decision of the Tribunal relied upon by the learned Counsel for the assessee, Mr.

Santhanam, the learned Departmental Representative submitted that the same was distinguishable and was not applicable to the appellant's case because in that case the credits were in the Bank account of the daughters, whereas, the addition had been made in the hands of father.

It was in view of these facts that it was held that since the amounts received by daughters were deposited in their Bank account, the same could not be treated as father's income. He, therefore, submitted that the amounts having been found credited in the appellant's books of account, Section 68 of the Act was rightly applied. The learned Departmental Representative further submitted that even if it is presumed that documents, copies of which are placed at pages 1 to 16 of the Paper Book, were filed before the Assessing Officer, then also the details therein were not sufficient to discharge the onus put on the assessee by Section 68 of the Act, especially because there were no confirmations from the creditors. With regard to the CIT(A)'s order for not admitting the 'additional evidence', the learned Departmental Representative submitted that keeping in view the appellant's failure to comply with the terms of notices issued under Sections 142(1) and 143(2) of the Act, the assessee had lost its right for getting the 'additional evidence' admitted by the CIT(A). The learned Departmental Representative further submitted that even otherwise, the appellant had not stated any satisfactory or justifiable reason for having not complied with the notices issued by the Assessing Officer. In view of these facts, the learned Departmental Representative has supported the order of the CIT(A) as well as of the Assessing Officer.

Concluding his arguments, the learned Departmental Representative submitted that the various decisions relied upon by Mr. Santhanam are distinguishable on facts and are not applicable to the assessee's case.

He, therefore, pleaded that the order of the CIT(A) may be confirmed.

18. We have considered the rival submissions facts and circumstances and the various decisions relied upon by the parties carefully and proceed to decide various issues raised by both the parties as under:- (i) (a) The first issue raised by Mr. Santhanam was with respect to the legality of the exercise of powers by the Assessing Officer vested under Section 144 of the Act on the basis of defence that directors - Mr. Ashish Sehgal and Mr. Dinesh Sehgal had appeared before the Assessing Officer on 15-2-2000 and had furnished the documents, copies of which are placed at pages 1 to 16 of the Paper Book and that the appellant had complied with all the terms and conditions of all the notices and, therefore, the Assessing Officer had no justification in invoking his powers vested by virtue of provisions of Section 144 of the Act.

(b) Since we have already concluded in the earlier part of this order that the statement and claim of Mr. Santhanam made during the case of hearing of this appeal on 21st May and 22nd May, 2001 and Mr. Ashish Sehgal, director of the appellant-company in his affidavits dated 2nd May, 2001 and 21st May, 2001, as well as by way certificate on Index page of the Paper Book, were false and were made knowing the same to be false, the natural outcome is that none of these documents were ever filed before the Assessing Officer.

This plea, therefore, fails.

(ii) (a) The next plea of Mr. Santhanam with respect to this point was that the Assessing Officer having not allowed the opportunity or issued a show-cause notice as required under Section 143 of the Act, the exercise of power under Section 144 of the Act by him was bad in law and illegal and had relied on the order of the Tribunal reported in 41 ITD 273.

(b) We, after having considered the provisions of Section 143, decision of the Tribunal (supra) and also the facts and circumstances of the present case, are of the opinion that first of all there is no such requirement of law and if at all it was then the Assessing Officer had met with this requirement by exempting the assessee's failure to comply with various notices under Sections 143(2) and 142(1) except the absence on 24-2-2000. So far as the decision of the Tribunal is concerned, the same being distinguishable on facts, is not applicable. This plea of the appellant, therefore, also fails.

(iii) (a) Another plea taken by Mr. Santhanam was that in view of the 1st & 2nd proviso to Section 144, the Assessing Officer should have allowed an opportunity to the appellant by issue and service of a show-cause notice which has not been done and, therefore, exercise of power under Section 144 was bad in law and illegal.

(b) We are unable to accept this argument of Mr. Santhanam because third proviso to Section 144 states that there is no necessity of providing any opportunity or serving a show-cause notice as required by 1st and second proviso to Section 144 in cases where a notice under Section 142(1) of the Act has been issued/served upon the appellant.

So far as the present case is concerned, it is quite clear that the appellant had been issued and served with two notices under Section 142(1), requiring the assessee to furnish specific details which have been duly acknowledged by the assessee and, therefore, the Assessing Officer's action in not allowing any further specific opportunity or issuing specific show-cause notice before proceeding to make an ex parte assessment is saved and gets validated and therefore, there was no illegality in the assumption of jurisdiction, by the Assessing Officer under Section 144 of the Act. The assessee's this plea also fails.

In view of the above discussion, we sustain the action for invoking the provisions of Section 144 of the Act.

19. On merits of various additions, the first plea of Mr. Santhanam was that the increase in 'share application money' credited in the balance sheet under the head 'share application money' amounting to Rs. 8,66,000 (Rs. 19,90,000 - Rs. 10,24,000 old) could not be held as appellant's income by invoking the provisions of Section 68 of the Act because the same was received from those very persons from whom the 'share application money' had been received in the past and had been accepted to be genuine.

20. After considering the submissions advanced by Mr. Santhanam and the facts and circumstances of the case, we are of the opinion that when the Assessing Officer completed the ex parte assessment there was no information in this respect and, therefore, this plea cannot be sustained and hence rejected.

21. The next important plea advanced by Mr. Santhanam was that the 'share application money' cannot be treated as appellant's income under Section 68 of the Act because of the decision of the Hon'ble Supreme Court in the case of Stellar Investment Ltd. (supra), whereby the decision of Hon'ble Delhi High Court in the case of Stellar Investment Ltd. (supra) has been affirmed.

21.1 The learned Departmental Representative, on the other hand, as already mentioned, has submitted that the decision of Division Bench of Hon'ble High Court of Delhi in the case of Stellar Investment Ltd. (supra) had been discussed by the Full Bench of the same High Court in a subsequent decision in the case of Sophia Finance Ltd. (supra) and the observations of the Single Bench to the effect that "even if it be assumed that the subscribers to the increased 'share capital' were not genuine, never the less, under no circumstances, can the amount of 'share capital' be regarded as undisclosed income of the assessee" are not correct and the Supreme Court having not said anything on this point, the Decision of Full Bench in case of Sophia Finance Ltd. (supra) still holds good. Consequently, the Assessing Officer had valid power to verify the genuineness of the credits found recorded in the assessee's books of account -which had been acknowledged by the assessee itself by showing the credits in the Balance Sheet. According to the learned Departmental Representative, the head under which the credits appear is not relevant and, therefore, the decision of Full Bench of Hon'ble Delhi High Court in the case of Sophia Finance Ltd. (supra) still holds good and that being the position, the Assessing Officer in the present case was quite justified in considering the credited amount, in absence of any evidence with regard to the genuineness of the same, as appellant's income for the assessment year 1997-98 by exercising power under Section 68 of the Act read with Section 144 of the Act.

22. We have considered the rival submissions as well as law and after consideration of the same are of the opinion that to resolve the controversy as to which of the two decisions, namely, decision in the case of Stellar Investment Ltd. (supra) and Sophia Finance Ltd. (supra) survives or can it be said that as a results under the head 'share application money' if found to be bogus cannot be considered as assessee's income under Section 68 of the Act and for that a purpose we consider it necessary to analyse all these decisions to the best of our capability.

22.1 The facts of this case, as have been noticed from the decision of the Hon'ble High Court in Stellar Investment Ltd.'s case (supra) and also the decision of Hon'ble Supreme Court in this case were that the Commissioner had filed a Reference Petition under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") before the Hon'ble High Court of Delhi requesting the Hon'ble High Court to direct the Tribunal to make a Statement of the Case and refer the following question for the opinion of the Hon'ble High Court: Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct both on facts and in law in holding that the provisions of Section 263 have not been validly invoked in this case by ignoring the material fact that the Assessing Officer had failed to discharge his duties regarding the investigation with regard to the genuineness and creditworthiness of the shareholders, many of them being students and housewives? 22.2 The Hon'ble High Court rejected the Commissioner's petition holding that "no question of law arises" after observing as under: In the present case, the subscribed capital of the assessee had been increased. The Income-tax Officer assessed the company and accepted the increase in the subscribed capital. The Commissioner of Income-tax came to the conclusion that the Assessing Officer did not carry out a detailed investigation inasmuch as there had been a device of converting black money into white by issuing shares with the help of formation of an investment company. The Commissioner of Income-tax further held that the Assessing Officer did not make enquiries with regard to the genuineness of the subscribers of the share capital. He thereupon set aside the order of assessment.

The Tribunal reversed this decision for reasons which we need not go into.

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.

22.3 From the decision of the Hon'ble High Court what is evident is that the findings of the Tribunal for setting aside the order under Section 263 of the Act were found to be the "findings of facts" and that is why the petition under Section 256(2) of the Act was rejected.

But so far as the observations that "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" are concerned, we are of the opinion that the same are in the nature of 'order on appreciation on facts' and that is why the Hon'ble Court rejected the Petition under Section 256 of the Act. It seems that the Revenue might have pleaded that some of the shareholders may be bogus, i.e., might have pleaded that though the concerned shareholders existed as a person but the share capital or share application money might have been contributed by some-one-else on their behalf. If these observations arc not considered as an 'order' then the same can be cither an 'obiter dicta' or mere 'observations'.

22.4 Let us now consider the decision in the case of Sophia Finance Ltd. (supra), Delhi High Court (Full Bench). The Commissioner of Income-tax had filed a Reference petition under Section 256(1) before the Tribunal seeking the reference of the following question for the opinion of the Hon'ble Delhi High Court : Whether, on the facts and in the circumstances of the case, the Tribunal was right in setting aside the order of the Commissioner under Section 263 of the Income-tax Act by holding that the assessment order of the company cannot be said to be erroneous and hence prejudicial to the Revenue? 22.5 The Tribunal rejected the application vide order dated 26-4-1991 by holding as under: We find that the question as projected by the Revenue is not a referable question of law because it does not require opinion on any point of law decided by the Tribunal.

22.6 Though the decision do not refer as to what was the question sought to be got referred [in the petition filed by the Commissioner under Section 256(2) of the Act before the Hon'ble High Court], but since it is well-settled that the question in petition under Section 256(2) has to be the same question which was sought to be referred by way of petition under Section 256(1) of the Act, it has to be taken that the question stated in petition under Section 256(2) was the same as was before the Tribunal [in Commissioner's petition under Section 256(1) of the Act (supra)].

22.7 On the aforesaid facts, the Hon'ble Full Bench of the High Court of Delhi, at Pages 1.09 and 110 held as under: In our opinion, a question of law does arise and we, therefore, direct the Tribunal to state the case and refer the following reframed question to the court: Was the Tribunal right in setting aside the order of the Commissioner under Section 263 of the Income-tax Act and in holding that the assessment order of the assessee could not be said to be erroneous or prejudicial to the Revenue? 22.8 The Hon'ble High Court before arriving at the findings (supra) and after considering the nature of enquiries liable to be conducted for the purpose of Section 68 of the Act, at pages 104 and 105, observed as under: If the amount credited is a capital receipt then it cannot be taxed but it is for the Income-tax Officer to be satisfied that the true nature of the receipt is that of capital. Merely because the company chooses to show the receipt of the money as capital, it does not preclude the Income-tax Officer from going into the question whether this is actually so. Section 68 would clearly empower him to do so.

Where, therefore, the assessee represents that it has issued shares on the receipt of share application money then the amount so received would be credited in the books of account of the company.

The Income-tax Officer would be entitled to enquire and it would indeed be his duty to do so, whether the alleged shareholders do in fact exist or not. If the shareholders exist then, possibly, no further enquiry need be made. But if the Income-tax Officer finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons. The use of the words "may be charged" (emphasis added) in Section 68 clearly indicates that the Income-tax Officer would then have the jurisdiction, if the facts so warrant, to treat such a credit to be the income of the assessee.

It is neither necessary nor desirable to give examples to indicate under what circumstances Section 68 of the Act can or cannot be invoked. What is clear, however, is that Section 68 clearly permits an Income-tax Officer to make enquiries with regard to the nature and source of any or all the sums credited in the books of account of the company irrespective of the nomenclature or the source indicated by the assessee. In other words, the truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of account can be gone into by the Income-tax Officer. In the case of Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), the Income-tax Officer had accepted the increased subscribed share capital. Section 68 of the Act was not referred to and the observations in the said judgment cannot mean that the Income-tax Officer cannot or should not go into the question as to whether the alleged shareholders actually existed or not. If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt and to that extent the observations in the case of Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), are correct but if, on the other hand, the assessee offers no explanation at all or the explanation offered is not satisfactory then the provisions of Section 68 may be invoked. In the latter case Section 68, being a substantive Section, empowers the Income-tax Officer to treat such a sum as income of the assessee which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessee.

22.9 The Hon'ble High Court after having observed as above, went on to consider the decision of Delhi High Court itself in the case of Stellar Investment Ltd. (supra) and at page 105 observed as under : In the case of Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), the Income-tax Officer had accepted the increased subscribed share capital. Section 68 of the Act was not referred to and the observations in the said judgment cannot mean that the Income-tax Officer cannot or should not go into the question as to whether the alleged shareholders actually existed or not. If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt and to that extent the observations in the case of Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), are correct but if, on the other hand, the assessee offers no explanation at all or the explanation offered is not satisfactory then the provisions of Section 68 may be invoked. In the latter case Section 68, being a substantive Section, empowers the Income-tax Officer to treat such a sum as income of the assessee which is liable to be taxed in the previous year in which the entry is made in the books of account of the assessee.

22.10 (a) From the aforesaid observations of the Hon'ble High Court and the context in which the observations seems to have been made what we are, once again, able to understand is that these observations also could be taken as either an 'order' or 'obiter dicta' or 'simply the observations' and if that is the case then in all eventualities the order in the case of Stellar Investment Ltd. (supra) could be taken as having been overruled by the Full Bench but the Hon'ble Court has not said so. Consequently, what transpires from both these decisions is that the relevant part of order in case of Stellar Investment Ltd. (supra) seems to be "an order on appreciation of facts" whereas, the relevant part of order in case of Sophia Finance Ltd. (supra) seems to be an order "on appreciation of Law", but since the Hon'ble Supreme Court has affirmed the decision of High Court in case of Stellar Investment Ltd. (supra), it has to be accepted that the relevant part of that order was an order on appreciation of facts. In case this fact is not accepted then the relevant part of these orders was neither 'order' nor 'obiter dicta' and if that is the case then it can easily be said that these were merely 'observations' which have no effect on the issue relating to law and it is so because in both the cases the issue before the Hon'ble High Court was 'as to whether the order of the Tribunal gave rise to a question of law or not'. In other words, the question for the consideration of the Hon'ble High Court in both the cases was that 'where the Tribunal has set aside the order of the CIT passed under Section 263 of the Act setting aside the assessment order on the ground that the Assessing Officer has not conducted proper enquiries with regard to the genuineness of the share capital/share application money credited in the books of concerned Public Ltd. Company, does a question of law arises out of the order of the Tribunal?' and therefore, the observations made by the Hon'ble Court for finding out the answer to this question, in our opinion can be taken either 'an order' or 'obiter dicta' or 'simply observations with regard to the facts'.

(b) However, we are of the opinion that the 'DR' efforts to distinguish the Decision of Hon'ble Supreme Court in case of Stellar Investment Ltd. (supra) on the plea that in that decision he had not referred to Section 68 of the Act and therefore, the Decision of Hon'ble Supreme Court was only on the facts of the case and therefore decision of Full Bench of Delhi High Court in case of Sophia Finance Ltd. (supra) shall survives, we are unable to accept this interpretation of the three decisions because, in case of Stellar Investment Ltd. (supra), the conclusion of the Commissioner that "the Assessing Officer did not carry out a detailed investigation inasmuch as there had been a device of converting black money into white by issuing shares with the help of formation of an investment company. The Commissioner of Income-tax further held that the Assessing Officer did not make enquiries with regard to the genuineness of the subscribers of the share capital", shows that the reason for setting aside the Assessment Order was the failure of the Assessing Officer to carry out detailed investigations with regard to the genuineness of the 'share capital' and the 'subscribers' of the 'share capital', which in other words, was to investigate or make inquiries with respect to the genuineness of the credits found recorded in the books of M/s. Stellar Investment Ltd. under the head 'share capital' - an inquiry or investigation which could be made/ conducted by the Assessing Officer only in exercise of the powers vested in him by virtue of Section 68 of the Act and not otherwise. Simply, because, the Commissioner has not mentioned the Section 68 while concluding that the inquiry or the investigation for the purpose of genuineness of the 'share capital' and the 'subscribers' cannot be interpreted as to say that Section 68 was not involved in that case.

(c) In view of above facts and circumstances, conclusion of the Commissioner and the provisions of the Income-tax Act, 1961 we are clear in our mind that what the Commissioner was referring to was the failure of the Assessing Officer, to carry on his functions for exercising his powers under Section 68 of the Act and nothing else.

Consequently, it is the decision in case of Stellar Investment Ltd. (supra), since affirmed by the Hon'ble Supreme Court and not the decision in case of Sophia Finance Ltd. (supra).

22.11 Without prejudice to the above, we are of the opinion that whatever the nature of the observations made in both these decisions may be the Law of jurisprudence requires that the decision in the case of Stellar Investment Ltd. (supra) was, even if not stated by the High Court in case of Sophia Finance Ltd. (supra) in specific terms, overruled on law point but since the same has since been affirmed by the Hon'ble Supreme Court, it has to be taken that the concerned observations made in the case of Stellar Investment Ltd. (supra) - irrespects of the fact as to whether those were relating to the facts or to law and also irrespective of the fact that the same were overruled by the decision of Full Bench in the case of Sophia Finance Ltd. (supra) and also irrespective of the fact as to whether those observations can be taken as 'an order' or 'an obiter dicta' or 'simply observations, may it be with regard to facts or to law', have been revived/ confirmed which otherwise means that the observations made in that order to the effect that "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 have been revived and consequently we are of the opinion that the decision in the case of Stellar Investment Ltd. (supra) still survives, through, in our opinion subject to the fact that it cannot be applied Blindly or without making inquiries, though, of course, to the limited extent (as discussed here under) under Section 68 of the Act: (i) In view of the above we are of the opinion that the decision in case of Stellar Investment Ltd. (supra) still survives but to the extent that it applies to a case of a Public Limited Company only and still not Blindly because, in our opinion, in that case also the Company has to comply with the requirements of Section 68 to the following extent: (a) That the credits found recorded in its books of account, in fact, were on account of 'share capital' or 'share application money'; and (b) That the same had been received through proper Channels i.e., along with a proper 'share allotment application' or 'call notice', as the case may be.

22.12 (i) It is so because in case of Public Limited Company, the Share Capital is always sought to be raised by way of a Public issue for which proper advertisement including the details of the risk factors etc. - as prescribed under the Companies Act have to be issued through various advertising channels and any individual or HUF or co-operative society or a company from anywhere in India or abroad subject to conditions thereof can subscribe to the issue by remitting the share application money along with the properly filled in and signed application for allotment of a particular number of shares. Since the application can be made by any person and from anywhere in India or abroad, the public limited company raising the share capital cannot be presumed to know the genuineness of the person or even the existence of the applicant - a fact which neither limited company is required to verify nor has power to verify. The obligation of the public company raising the share capital, in our opinion, is simply to allot the shares as per allotment scheme and issue the share certificate in the name of concerned applicant and remit the same at the address listed in the application for allotment of shares.

(ii) It was probably in the context of this factual handicap of Public Limited Company and circumstances of that case (the case of Stellar Investment Ltd. (supra) happened to be a case of Public Limited company) that the Hon'ble Delhi High Court had in the case of Stellar Investment Ltd. (supra) observed that "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." (iii) But in the case of a Private Limited Company, the facts are quite different because a Private Limited Company is a closely held Company.

The founders or the functionaries or persons in control of the affairs of such company are bound to be in the knowledge of the existence/ genuineness of the persons whom they want to be shareholders of such company and, therefore, they cannot claim exemption as may be available to a Public Limited Company. Consequently, we are of the opinion that in the case of Private Limited Company the decision in the case of Stellar Investment Ltd. (supra) can be applied only if it succeeds in establishing : (a) The existence/identity of the applicant paying share application money; In other words, in case of a Private Limited Company, the Company has to discharge the onus put under Section 68 of the Act i.e., a Private Limited Company has to prove all the three aforesaid ingredients before pleading that the said share application money cannot be considered as income under Section 68 of the Act.

(iv) So far as the present case is concerned, we are, therefore, of the opinion that the same being of a Public Ltd. Company is fully covered by the decision of Hon'ble Supreme Court in the case of Stellar Investment Ltd. (supra) and consequently the amounts found credited under the head 'share capital' or 'share application money' in the appellant's regular books of account cannot be added to appellant's income for the purpose of Income-tax Act. Consequently, there is no question of considering these credits as appellant's undisclosed income under Chapter XIV-B of the Act.

22.13 (i) Without prejudice to the above, even if it is assumed that the decision in the case of Stellar Investment Ltd. (supra) has been affirmed by the Hon'ble Supreme Court only in the facts and circumstances of that case and reference to Section 68 was not made, then also, we are of the opinion that the ratio of that decision still holds good.

(ii) The nature of onus put on an assessee, in whose books of account the credits to have been recorded defers from case to case and with the facts and circumstances of every case. The proposition of law held so far that such assessee can discharge his onus by satisfying all the three ingredients, namely, (i) Identity of the creditor (ii) Capacity of the creditor and (iii) Genuineness of the transaction is not uniformly or universally applicable as will be evident from the following example : If an assessee has procured loans through the efforts of a broker who in turn has arrange the loans from his various customers then the onus on the assessee to prove the genuineness of the loans appearing in the name of such customers of the broker will be (i) to establish the identity of the broker and (ii) the genuineness of the transaction. In other words such an assessee is not obliged to establish either the identity of the customers or capacity of the customers.

Similarly, if the assessee happens to be a Public Limited Company which has raised 'share capital' by way of a Public issue then the onus to be discharged under Section 68 of the Act is only to the extent to the establishing the factum of having received the 'share allotment money' or 'call money', as the case may be as a result of proper issue of Public issue; and through proper Channels i.e., through proper Applications for allotment of shares or the call notices, as the case may be, however, it is not so if the company happens to be a Private Limited Company because in that case the founders or the persons in control of the affairs of the Company are in the complete knowledge of the persons whom they prefer to make shareholders. In other words it is the only nature of inquiry to be made by the Assessing Officer and not his powers under Section 68 of the Act, which defer from case to case.

22.14 In other words, if the Public Limited Company is able to give a satisfactory explanation to establish that the 'share capital' or the 'share application money' had been received through proper Channel i.e., through Application for allotment of Shares or through Call Notice as the case may be then irrespective of the fact that the share capital or share application money might have been contributed by some one else (on behalf of the concerned Subscriber) the amount cannot be considered as assessee's income under Section 68 of the Act.

22.15 In view of the above, we are of the opinion that whether the decision in the case of Stellar Investment Ltd. (supra) stands overruled by the Full Bench decision of the Hon'ble Delhi H.C. in the case of Sophia Finance Ltd. (supra) or survives as a result of decision of the Hon'ble Supreme Court (supra), the law, so far as "share capital' or 'share application money' in the case of a Public Limited Company is concerned, is that the such company has to establish that the 'share capital' or the 'share application money' had been received through proper procedure, such as, by way of a share allotment application or by way of a 'Call notice' as the case may be and nothing else.

23. (i) In view of the above conclusion, we are of the opinion that the appellant's case being that of a 'Private Limited Company' it was for the appellant to prove all the three ingredients such as (i) identity of the creditors (it) capacity of the creditors and (iii) genuineness of the Transaction before it could be said to have discharged its onus put by Section 68 of the Act and claim the immunity from the application of Section 68 of the Act.

(ii) If we consider the appellant's case in the light of above test, we, find that the facts of appellant's case fail to pass the test, because the only evidence furnished by in appellant was the documents furnished along with the return as have been listed in Para No. 12.1 above, which was available with the Assessing Officer at the time of completion of ex parte assessment i.e., 31-3-2000 which, cannot be said to be sufficient or satisfactory evidence to as to discharge the onus put on it by Section 68 of the Act. At the same time the assessee seems to have avoided, knowingly, the production of books of account and also the details/informations directed to be furnished through notices under Section 142(1) of the Act. The Assessing Officer, while proceeding under Section 144 of the Act, had no option but to conclude that the appellant's non-compliance was only to safeguard the un-genuineness of the credits found recorded in its books of account under the head "share application money" and "unsecured credits/loans".

24.1 Without prejudice to the above, even if it is assumed for the sake of arguments that the decision of Supreme Court in case of Stellar Investment Ltd. (supra) was applicable to assessee's case, then also, as we have already held, before the assessee could be said to have discharged it's onus (assessee is a Pvt. Ltd. Co.) it was to establish two ingredients :- (i) That the credit appearing under the head 'share application money' were, in fact, received for allotment of shares; and (ii) That the credited amount was received through proper channel i.e., along with 'share allotment applications.

24.2 So far as assessee's case is concerned it is now established fact that the evidence available with the Assessing Officer while completing the assessment under Section 144 on 31-3-2000 was only in the form of a return of income in Form No. 1, Balance Sheet, Profit and Loss Account along with Schedules 'A' to 'F' with four T.D.S. Certificates.

Director's report and Auditor's report and if we analyse the contents of these documents, then it is established that the only information available with the Assessing Officer, that was filed by the assessee with respect to the credit appearing in the Balance Sheet, was a credit entry amounting to Rs. 19,99,000 appearing in the Balance Sheet under the head 'share application money' and another credit entry amounting to Rs. 39,88,540 was appearing in the Balance Sheet under the head 'Unsecured loans'. Against these credited amounts, the credits under these heads as on 31-3-1996 were also shown Rs. 10,24,000 and Rs. 7,555 respectively also appear in the Balance Sheet. There was not an iota of evidence to establish that (i) the credits under the head 'share application money' were in facts, received for 'allotment of shares' and (ii) were received along with the 'share allotment application'.

The appellant had not furnished even the names & addresses of the concerned subscribers, the amount subscribed by each one of them, confirmations, 'share applications', on any other evidence, which could through light on the said fresh credited amount of Rs. 8,66,000 or could support the appellant's claim that 'share application money', cannot be treated as assessee's income under Section 68 of the Act.

24.3 So far as Mr. Santhanam's plea that the credits having been deposited in Bank account and reliance of Tribunal's Order is concerned, we are of the opinion that neither there is any such provision in the Act nor the decision referred to, says so. In the decision facts were that the amount of gifts claimed to have been received by two major daughters of the assessee - in that case and found deposited in the Bank accounts of both the daughters, was added by the Assessing Officer in the hands of the father - assessee. It was on these facts that the Tribunal has held that since the amount was credited in Bank account of major daughters it could not be added in the hands of the father. Tribunal has not laid down a Universal Proposition in the terms that 'wherever a credit is found deposited in the Bank account of the assessee, the same could not be added as income under Section 68 of the Act'. For the reasons stated above, that this plea also gets rejected.

24.4 In view of the above facts and circumstances we are of the opinion that Assessing Officer was quite justified in considering the fresh credits under the head "share application money" as appellant's income under Section 68 of the Act and therefore, we confirm the Order of the CIT(A) confirming the addition of Rs. 8,66,000.

25. Coming to the question of treating the credited amount appearing under the head 'Unsecured loans' amounting to Rs. appellant's income under Section 68 of the Act, we, in view of our findings given above that the appellant had not filed any evidence except the return of income, Balance Sheet, Profit & Loss account and Schedules thereof, four T.D.S. certificates, notice of General Meeting, Director's report and Auditor's report and having failed to produce the books of account as well as the details asked for by way of notices under Section 142(1) of the Act, are of the opinion that any prudent person will conclude that the assessee was avoiding all this to avoid the investigation/verification with respect to the genuineness of the credited amounts i.e., 'share application money' and 'unsecured loans'.

Since, in the present case, the appellant has not established any of the three ingredients such as identity of the creditors, capacity of the creditors and genuineness of the transactions, required for satisfying the requirements of Section 68 of the Act, it stands established that the assessee has failed to discharge its onus put by Section 68 of the Act and, therefore, the Assessing Officer was quite justified in treating the credited amount under the head 'unsecured loans' as appellant's income for the financial year 1996-97 i.e., for assessment year 1997-98 while completing the assessment under Section 144 of the Act. Addition of Rs. 39,80,985 is therefore, confirmed.

26. With regard to disallowance of appellant's claim on account of expenditure having been incurred under the head 'interest paid or payable', since the unsecured loans have been held to be un-genuine, there is no question of allowing the expenditure on account of interest thereof. Consequently, the disallowance on this account is upheld.27.1 Before parting with them after, we would like to discuss the conduct of Mr. Santhanam; Advocate who had appeared on behalf of the appellant, in the light of conclusion arrived at in the forgoing part of this order and the facts narrated hereinbefore.

27.2 It is well-settled that the members of the legal profession - may it be an Advocate or a Chartered Accountant, are considered to be part and parcel of the Bench and are to assist the Courts in delivering justice to the parties but at the same time, it is also well-settled that in case a professional i.e., an Advocate or a Chartered Accountant; tries to mislead the Court or the Tribunal knowingly stating the facts which are not true, i.e., if the facts stated by him in this behalf are found to be false then such an act on the part of the concerned professional amounts to misleading the Court/Tribunal with sinister motive and consequently is a gross professional misconduct.

27.3 Hon'ble Patna High Court in the case of Baijnath Prasad Gupta v.Senior Regional Manager, F.C.I. AIR 2000 Pat. 139, which is discussed hereunder has, on the facts of that case, held that act of an Advocate misleading the Court resulting in erroneous order is a gross misconduct.

27.4 (i) Facts of that case were that the petitioner had filed the petition for the refund of his earnest money amounting to Rs. 25,000, which the petitioner had deposited with the respondent along with the tender for purchase of each of the rejected items (subject-matter of tender). The Respondent finding the petitioner's rates in respect to some of the items highest allowed the petitioner to lift those items, but, it seems that the petitioner insisted for purchase of all the rejected items and since the Respondent did not accept to the petitioner's claim, the petitioner did not lift the items allowed to be lifted. On petitioner's failure, the Respondent forfeited the earnest money and refused to refund the same as per the terms and conditions of the tender. The petitioner had come before the Hon'ble High Court for refund of the said earnest money of Rs. 25,000.

(ii) On 3rd December, 1999 when the petition was heard for the first time one Mr. Ramesh Kumar Agrawal, Advocate appeared on behalf of the petitioner and contended that the petitioner had submitted his tender in time, quoting the highest rates for purchase of all the rejected items of the Respondent and that the petitioner had made the highest bid which the Respondent-corporation and its functionaries for ulterior motives, accepted the bid for a few items only. It was on this statement of Mr. Ramesh Kumar Agrawal, Advocate that the Hon'ble High Court directed the Corporation and its functionaries to file a counter affidavit explaining the reasons for not giving the petitioner purchase contract for all the rejected items by passing the following order :- 3-12-1999 Learned counsel for the petitioner submits that he had submitted his tender in time quoting the highest rates for all the items sought to be disposed of by the respondent corporation, notwithstanding which he was not awarded the contract for all the items for mala fide reasons entirely attributable to the officials of the respondent-corporation.

Mr. P. Tekriwal, learned counsel for the respondent-corporation, is accordingly directed to file an exhaustive counter affidavit with all the details, facts and figures along with the supporting documents, within a period of two weeks, explaining the reason(s) as to why the contract for each item was not given to the highest tenderer. He is directed to keep all the original documents in his possession for perusal of the Court.

Let it be clearly recorded that the tender in question did not relate to purchase of goods where the question of quality control could have been in question. It is a case of disposal of rejected items where the question of quality control does not arise.

Learned counsel for the petitioner is permitted to implead the Union of India as well as the Comptroller & Auditor General, Govt. of India as party respondents, let the counsel for the petitioner serve four sets of the brief on newly added respondents through Mr. J.P. Karn, Sr. SCCG, within one week failing which the application shall stand dismissed as against the newly-added respondents without further reference to Bench. Let copy of this order be served on Mr.

J.P. Karn, Sr. SCCG.(iii) From the Counter affidavit as well as submissions made by the Counsel appearing for the Corporation, it was found that the petitioner had not made the highest bid for all the items and his tender had been accepted for the items for which his bid was the highest. In view of these facts and circumstances of the case, the Hon'ble High Court held as under: 4. The position, therefore, which clearly emerges is that Mr. Ramesh Kumar Agrawal, Advocate, appearing of the petitioner, was personally responsible for misleading this court resulting in the erroneous order dated 3-12-1999 by this court. This is ominous and if overlooked may result in gross miscarriage of justice and there shall be no protection to the Court, for more often than not orders are passed ex parte, or before the respondent file their counter affidavit. Mr. Tekriwal, learned counsel for the Corporation, submits that action against Mr. Agrawal may be taken under Sections 192, 196 and 209 IPC. He further submits that it may in addition be referred to the Bar Council for appropriate action in accordance with law. He is at a loss to make any submission with respect to the loss incurred by the Corporation and submits that it can validly with hold the sum of Rs. 25,000 in deposit as earnest money.

5. I have heard Mr. R.K. Agrawal, Advocate and Mr. Tekriwal, Advocate, Mr. Agrawal unequivocally admits his mistake, submits unconditional apology and promises responsible behaviour in future.

This court is in no doubt that Mr. R.K. Agrawal had purposely and with sinister motive misled this court resulting in the erroneous order dated 3-12-1999. This Court treat it to be a case of gross misconduct on the part of Mr. Agrawal personally, condemns his conduct and administers a severe warning on him with the hope that he shall hereinafter conduct himself with the dignity and the sense of responsibility expected of him as lawyer and office of this Court. Taking into account the overall view of the situation and in view of the remorseful confession of Mr. Agrawal. I accept the unconditional apology of Mr. Agrawal and leave the matter at that.

Therefore, there is no need to pursue the matter any further against him.

27.5 If we consider the statement of Mr. R. Santhanam, Advocate having his office at C-3 /210, Janak Puri, New Delhi, which we have already found to be false and have held the same as having been made knowing the same to be false, in the light of the proposition of law, laid down by the Hon'ble High Court of Patna in the aforesaid Judgment, obviously the result will be that Mr. Santhanam had mislead the Tribunal on 21 st May, 2000 by making a false statement which led the Tribunal to issue erroneous directions to the learned Departmental Representative to produce the assessment records. Had the Tribunal accepted the statement of Mr. Santhanam as true without considering the submissions of the learned Departmental Representative for verification of the truthfulness for the statement which he had applied to produce the Assessment records - Mr. Santhanam would have succeeded in getting a favourable order of the Tribunal. The gist of the issue is that Mr.

Santhanam made a false statement designed to mislead the Tribunal and would have succeeded in getting an order erroneous and prejudicial to the interest of the other party i.e., the revenue.

27.6 In view of the above, we hold that Mr. Santhanam had committed a gross professional misconduct. Having concluded as above, we are left with the nature of action required to be taken for such a professional misconduct and therefore, we, once again, consider it useful to go back to the decision of Hon'ble High Court of Patna where the Hon'ble High Court left the Advocate with a severe warning hoping to expect sense of responsibility and dignity on the part of the Advocate in future, because he had admitted his mistake and had tendered an unconditional apology.

So far as Mr. Santhanam is concerned, though he, instead of admitting his mistake and tendering an apology, proceeded to argue the appeal on the basis of same statement, we, at one stage were to proceed against him for contempt of Court but keeping in view his seniority in the profession and the fact that his misconduct may be for the first time, take a lenient view of the matter and leave after administering a severe warning on him with the hope that he shall hereinafter conduct himself with the dignity and the sense of responsibility expected of a professional and Officer of the Court.

28. In view of the aforesaid discussion and the totality of the circumstances, we uphold the order of the CIT(A).