2002 PLP 1721 (PTD)

A block assessment was made on the assessee‑Company for the years 1986‑87 to 1995‑96 and also for the period April 1, 1995, to September 27, 1995, as a result of the search and seizure operations conducted by the Department on September 27, 1995. Tax of Rs.9.27 lakhs was demanded treating the undisclosed income as Rs.1,14,88,

410. On appeal to the Income‑tax Appellate Tribunal, the Tribunal partly allowed the appeal. An addition of Rs.16,82,100 made towards the alleged unaccounted commission to K, a non‑resident Indian, and the addition of Rs.95,93,200 made towards the alleged unexplained share capital investments in the names of friends and relatives of the Directors and the additions made to two other minor, items were deleted. The Assessing Officer was directed to re‑frame the assessment in the light of the appellate order. On an appeal to the High Court: Held, dismissing the appeal that no substantial question of law arose in the case. As regards the first item, viz .,the commission paid to K, non‑resident, for the purpose of raising share capital from NRIs, although the agreement to pay the commission came to light from the material gathered in the course of search and the commission worth Rs. 10 lakhs was in fact sent to K, the Tribunal found that the cheque for Rs.10 lakhs acknowledged by K was returned alongwith his letter, dated April 3, 1994 i.e., long prior to the search operations, as his company in whose name the cheque was issued had no bank account in India. Later on, K addressed a letter, dated May 23, 1994 requesting for payment of the amount covered by the cheque as well as the balance amount of Rs,.6.82 lakhs. It was the case of the appellant that the company did not accept the request of K and no payment was made to him at all by the date of search or later. K denied having received any commission. On these facts, the conclusion reached by the Tribunal could not be said to be without evidence. The question of placing the burden ‑of proof to prove a negative fact did not arise. In fact the Revenue wanted the assessee to prove a negative fact that no payment was made after the cheque was returned. The second item was the unexplained share capital investments. If the ostensible shareholders failed to explain the means of investment, that should have been treated as unexplained income in their hands. In order to add it to the income of the assessee there must be a further finding that in fact the shareholders were mere name lenders and the money allegedly invested by them really belonged to the Directors of the assessee‑Company. In the absence of a finding that the persons to whom the share certificates were issued on receipt of consideration, as per the book entries were in fact dummies or stooges of the Directors of the assessee‑company, the same could not be treated as uncounted income of the assessee. There was `no such finding by the assessing authority. In this view of the matter, the ultimate. conclusion of the Tribunal could not be faulted in any case. S.R. Ashok for the Commissioner. Nemo appeared for the Assessee. P. VENKATARAMA REDDI, J.‑‑‑This appeal under section 260A of the Income Tax Act, 1961, arises out of a block assessment made for the years 1986‑87 to 1995‑96 and also for the period April 1, 1995, to September 27, 1995. As a result of the search and seizure operations conducted by the Department on September 27, 1995, the tax of Rs.9.27 lakhs was demanded treating the undisclosed income as Rs.1,14,88,

410. On appeal to the Income‑tax Appellate Tribunal, the Tribunal partly allowed the appeal. An addition of Rs.16,82, 100, made towards the alleged unaccounted commission to V.R. Koneru, a non‑resident India, and the addition of Rs.95,93,200 made towards the alleged unexplained share capital investments in the names of friends and relatives of the Directors and the additions made to two other minor items were deleted: The Assessing Officer was directed to reframe the, assessment in the light of the appellate order. Learned senior standing counsel for the Income‑tax Department has urged that the findings of the Tribunal are vitiated by perversity in approach and on account of placing the burden of proof on the Revenue to prove a negative factor regarding the non‑payment of commission to Mr. V.R. Koneru. As regards the first item, viz., the commission paid to Mr. Koneru, a non‑resident, for the purpose of raising share capital from NRIs, although the agreement to pay the commission came to light from the material gathered in the course of search and the commission worth Rs.10 lakhs was in fact sent to Mr. Koneru, the Tribunal found that the cheque for Rs.10 lakhs acknowledged, by Mr. Koneru was returned alongwith his letter, dated April 3, 1994, i.e., long prior to the search operations, as his company in whose name the cheque was issued had no bank account in India. Later on, Mr. Koneru addressed a letter, dated May 23, 1994, requesting for payment of the amount covered by the cheque as well as the balance amount of Rs.6.82 lakhs. It was the case of the appellant that the company did not accept the request of Mr. Koneru and no payment was made to him at all by the date of search or later. Mr. Koneru denied having received any commission. On these facts, the conclusion reached by the Tribunal cannot be said to be without evidence or that no reasonable person could have reached that conclusion. The question of placing the burden of proof to prove a negative fact does not arise. In fact the Revenue wants the assessee to prove a negative factor that no payment was made after the cheque was returned. The Tribunal was, therefore, not inclined to take into account the unfructified transaction though clandestine it was. Coming to the second item of dispute, at the time of search, the Directors of the company admitted that a sum of Rs.74.2 lakhs was undisclosed income representing investments made by them in the names of their friends and relatives. The Assessing Officer called for details of the investments made by friends and relatives in respect of the balance amount of Rs.95.93 lakhs. A statement giving the details alongwith the confirmation letters of the shareholders was filed. The Assessing Officer did not accept the confirmation letters for the reason that they were in stereotyped forms and moreover they did not contain the necessary particulars regarding the extent of agricultural land and their income from various sources. The Assessing Officer also questioned the genuineness of the signatures in certain letters. The Tribunal observed that in view of the short time left to the Assessing Officer, the assessment was completed without making necessary enquiries and without calling upon the assessee to furnish more details. The mere fact that the letters were in stereotyped form, was held to be not a factor which goes against the assessee. The Tribunal commented that none of the shareholders who filed the confirmation letters were examined and, therefore, the genuineness of the confirmation letters should not have been doubted by him. The Tribunal further observed that the information regarding the contributions to shareholders by friends and relatives of the directors cannot be construed as an "information" based on an entry in the documents or material unearthed at the time of search, which but for the search would not have been disclosed by the assessee. As far as this particular observation is concerned, we have reservations in accepting such view. However, it is not necessary to express a final opinion on this aspect having regard to the other circumstances taken into account by the Tribunal. As regards other circumstances, at best, we can say that the tribunal adopted an over‑liberal approach in favour of the appellant ?assessee. The Tribunal no doubt should have considered the question of reliability of the confirmation letters on the intrinsic worth and tenor of such letters. If crucial facts throwing light on the source of investment are not discernible from the letters, the Tribunal could have very well?-eschewed those letters from consideration. But, this is a matter of appreciation of evidence and we do not think that a substantial question of law arises on that account. Moreover, we fail to sere how merely by reason of unsatisfactory explanation relating to the source of investment by the shareholders, the money invested on shares should be treated as income of the assessee. If the ostensible shareholders failed to explain the means of investment, that should have been treated as unexplained income in their hands. In order to and it to the income of the assessee there must be a further finding that in fact the shareholders were mere name lenders and the money allegedly invested by the, really belonged to, the Directors of the assessee‑Company. In the absence of a finding that the persons to whom the share certificates were issued on receipt of consideration as per the book entries were in fact dummies or stooges of the Directors of the assessee‑Company, the same cannot be treated as unaccounted income of the assessee. There was no such finding by the assessing authority. In this view of the matter, the ultimate conclusion of the Tribunal cannot be faulted in any case. We, therefore, see no ground to admit this appeal no substantial question of law arises for consideration. The Income‑tax Tribunal appeal is dismissed. M.B.A./700/FC ????????????????????????????????????????????????????????????????????? Appeal dismissed.