IN INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI, [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER] . I.T (SS) No. 64 Mds 2005 Block Assessment from :1.4.1985 to 13.2.1996 (A.Y. 1986-87 to 1996-97) M s. Talent Steels Industries Ltd, Assistant Commissioner of No.43, Vivekananda Nagar, Vs. Income Tax, Ram Nagar, Comp Circle I(2) Coimbatore 641 009. Coimbatore. [PAN AABCT 0944J] . I.T (SS) No. 144 Mds 2006 Block Assessment from :1.4.1986 to to 13.2.1996 (A.Y. 1987-88 to 1996-97) M s. Talent Alloys Private Assistant Commissioner Limited, Vs. of Income Tax, 36 99, Rajaji Road, Ram Nagar, Comp Circle I(2) Coimbatore 641 009. Coimbatore [PAN AABCT 0943R] ( Appellant) ( Respondent) Appellant by : Dr. Anitha Sumanth, Advocate Respondent by : Shri. T.R. Senthil Kumar, Sr. Standing Counsel. Date of Hearing : 15-09-2016 Date of Pronouncement : 21-09-2016 :- 2 -: IT(SS) No.64 05 &144 06 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER These appeals filed by assessee are directed against orders dated 24.03.2005 & 22.03.2006 of Assistant Commissioner of Income Tax, Company Circle I(2), Coimbatore for Block period 01.04.1985 to 13.02.1996 and 1.04.1986 to 13.02.1996; Since facts underlying both these assessment fall within same compass and since both companies were having one of Shri. Damodharaswamy, as Director and also since assessment were result of search conducted in group of concerns relating to Shri. Damodharaswamy, both these appeals are disposed off by common order. 2. In both these cases additions made by ld. Assessing Officer for Block assessment period were on share application money and share capital money which were considered as income from unexplained sources. matter had earlier come before this Tribunal in assessee s appeals in IT(SS) No.71 Mds 1997, dated 15.9.2003 and IT(SS)A No.72 Mds1997, dated 29.12.2004. In latter appeal Tribunal had considered various legal issues raised by assessee including scope of search warrant issued in common names and jurisdiction to assess assessee u sec. 158BC of Income Tax Act, 1961 (herein after referred to as Act ). Tribunal had :- 3 -: IT(SS) No.64 05 &144 06 upheld validity of Block assessment but setaside it on merits since it found that reasonable opportunity were not given to assessee s for presenting their explanations with regard to sources of share advance. 3. Pursuant to order dated 15.09.2003 and 29.12.2004 of this Tribunal, matter was once again considered by ld. Assessing Officer. 4. In case of M s. Talent Alloys Private Limited, ld. Assessing Officer required assessee to explain sources of share capital and share capital advance amounting to 83,00,000 - and 26,00,000 - respectively. In case of M s. Talent Steel Industries (P) Ltd, ld. Assessing Officer required assessee to explain sources for share capital 1,26,55,000 -, share capital advance of 18,60,000 - and loans of 23,85,800 -. During course of hearing before ld. Assessing Officer Shri. Damodharaswamy, its Director appeared before ld. Assessing Officer alongwith ld. Authorised Representative. assessees were required to produce investors in share capital and also to explain credit worthiness of investors. Thereafter, assessment in case of M s. Talent Alloys Private Limited was completed considering 79,09,000 - out of total share capital and share advance as unexplained investments in :- 4 -: IT(SS) No.64 05 &144 06 hands of said company. In other words, out of total capital and share advance amount of 1,09,00,000 -, sum of 29,91,000 - was excluded since such amount was considered in assessment of Shri. Damodharaswamy. Viz-a-viz assessee M s.Talent Steels Industries Pvt. Ltd, share capital and share advance aggregating to 1,48,21,000 - was considered as unexplained income and added in its hands. M s. Talent Alloys Private Limited had produced before ld. Assessing Officer Shri. K. Devaraj, Smt. R. Tharageshwari, Shri. A. Duraiswamy, Smt. Tamil Selvi, Shri. A. Dhanalakshmi, Shri. M. Nanjukutty Gounder and Shri. N. Kumraswamy Gounder. All these persons had confirmed having invested in shares of assessee company. For investors named Shri. N.Krishnaswami, Shri. N. Subramaniam, Shri. S. Mahendran, Shri. S. Ponnusami, Shri. K. Arukutty, Shri. A. Murugasami, Shri. N. Nanjukutty Gounder, ld. Assessing Officer made enquires using his Inspector. It seems these persons denied having made investments in M s. Talent Alloys Private Limited. Assessees had subsequently produced before ld. Assessing Officer Shri. P. Ponnuswamy, Shri. P. Ravindran, Smt. S. Selvanayaki, Shri. T.P. Chinnaswamy Gounder, Smt. P.D. Anuradha, Shri. P. Ponnuswamy and Smt. P. Girija. Affidavits were filed in relation to Smt. P.D. Anuradha, Shri. M. Ramaswamy, Shri. K. Devarajan, Shri. S. Mahendran and then Shri. N. Subramaniam. :- 5 -: IT(SS) No.64 05 &144 06 5. So far as assessee M s. Talent Steels Industries Limited is concerned it produced Smt. P.D. Anuradha, Shri. S.Ponnusamy, Shri. S. Rangasamy, Smt. C. Rangathal, Smt. A. Ramathal, Shri. M. Palanisamy Gounder, Smt. Velathal, Shri. A. Kuppusamy, Shri. K. Devarajan, Shri. S. Mahendran, Shri. P. Murthy, Shri. K.Krishasamy, Smt. K. Dhavamani, Shri. S.N. Murugasamy, Shri. R. Manickam and Shri. N. Balasubramaniam. In respect of other persons, assessee had either submitted explanations or confirmations. 6. Ld. Assessing Officer however refused to accept claims of assessee. According to him all persons who had invested in this company were Benami of Shri. Damodharaswamy. Further, according to him, assessees could not show credit worthiness of shareholders. However with regard to unsecured loans taken by M s. Talent Steel Industries Private Limited, ld. Assessing Officer accepted explanations of assessee that such Sundry Creditors arose from manufacturing operations and were running accounts. additions made were confined to share capital and share advance which were considered as unexplained income. 7. Now before us, ld. Authorised Representative submitted that there was no search warrant in name of company and there was no undisclosed income which could have taxed u s.158BC of :- 6 -: IT(SS) No.64 05 &144 06 Act. So for as merits of additions were concerned, ld. Authorised Representative submitted that similar additions for share application money and share capital were made in case of one another group concern called M s. Talent Paper & Board Pvt. Ltd and this had come up before this Tribunal in IT(SS) A.No.80 Mds 2006. As per ld. Authorised Representative this Tribunal in its order dated 19.12.2007 had deleted addition in hands of said company. 8. Per contra, ld. Departmental Representative placing reliance on judgment of Apex Court in case of N. Tarika Property Investment (P) Limited vs. CIT (2014) 51 Taxmann.com 387 submitted that when subscription to share application itself was bogus then addition made u s.68 of Act was justified. Ad libitum reply of ld. Authorised Representative was that Hon ble Apex Court in case of CIT vs. Lovely Exports 216 CTR 195 (SC) had held that there could not be any addition for share application money in hands of company. 9. We have considered rival contentions, orders of authorities below and judicial decisions. So far as legal issue raised by assessee is concerned, we find that Tribunal had upheld validity of Block period after specifically considering issue relating to search warrant not being in name of assessee :- 7 -: IT(SS) No.64 05 &144 06 company, in one of assessee s namely M s. Talent Alloys Private Limited appeal in IT(SS)A No.72 Mds 1997 dated 29.12.2004. While upholding validity Co-ordinate Bench had setaside issue for considering merits of additions. Similarly in case of assessee M s. Talent Steels Industries Ltd, this Tribunal had in its order dated 15.09.2003 setaside issue for considering merits. Thus legal issues in our opinion have reached finality. Accordingly, grounds 1 to 4 in case of M s. Talent Alloys Private Limited and grounds 3 to 7 in case of M s. Talent Steel Industries Pvt. Ltd are dismissed. 10. only issue that remain is whether additions could have been validly made disbelieving source of share capital introduced by various persons and share application money in assessee s hands. 11. As noted by us, assessees had produced substantial number of share applicants who had affirmed placing of investments in share capital of assessees. few of them ofcourse denied. However, their addresses were clearly known. There is no case for Revenue that assessees had not obtained share applications from respective persons. In case of group concerns case namely M s. Talent Paper & Boards Private Limited (supra) this :- 8 -: IT(SS) No.64 05 &144 06 Tribunal had on similar issue held as under at para 4 & 5 in its order dated 19.12.2007. 4. We have heard both counsels and perused relevant records. learned counsel of assessee placed reliance upon Hon'ble Jurisdictional High Court decision in Case of CIT Vs. Electro Polychem Ltd. (2007) 294 ITR 661 and CIT Vs. Vs. Gobi Textiles Limited (2007) 294 ITR 663 for proposition that share capital monies cannot be unexplained investment of company. We find that Hon'ble Jurisdictional High Court in cases cited above had referred to decision of Hon'ble Delhi High Court and Hon'ble Apex Court in case of CIT Vs. Stellar Investment Ltd. as under:- In CIT vs. Stellar Investment Ltd (1991) 192 ITR 287 (Delhi), where increase in subscribed capital of respondent- company accepted by Income Tax Officer and rejected by Commissioner on ground that detailed investigation was required regarding genuineness of subscribers to share capital, as there was device of converting black money by issuing shares, with help of formation of investment, which was reversed by Tribunal, Delhi High Court held that even if it be assumed that subscribers to increased share capital were not genuine, under no circumstances amount of share capital could be regarded as undisclosed income of company. view was taken by Delhi High Court in CIT v. Stellar Investment Ltd. (1991) 192 ITR 287 was confirmed by apex Court and same was reported in CIT v. Stellar Investment Ltd. (2001) 251 ITR 263." :- 9 -: IT(SS) No.64 05 &144 06 5. learned counsel of assessee further brought to our notice decision of Income Tax Appellate Tribunal, Chandigarh Bench decision in case of Super Threading India (P) Ltd. Vs. ACIT (2005) 001 SOT 0195 wherein invoking provisions of Section 68 on account of share application money of depositors was issue. Tribunal had concluded as under:- We find that issue involved is same and identical as decided by Supreme Court in case of Stellar Investment Ltd (Supra). We also not find any force in plea advanced by learned Departmental Representative that ratio of aforesaid decision is not applicable in case of private limited company, in light of decision in case of CIT Vs. Down Town Hospital (P) Ltd. (2004) 267 ITR 439 (Gau), wherein issue was decided in favour of private limited company i.e. assessee, following decision in case of Stellar Investment Ltd. (supra). We, therefore, following aforesaid decisions of Supreme Court and Gauhati High Court decide issue in favour of assessee and against revenue." On basis of aforesaid discussion and precedents, we agree with contention of learned counsel of assessee that sum involved cannot be regarded as undisclosed income of assessee company. Further, we find that judgment of Apex Court in case of Lovely exports (supra) also go in favour of assessee. As for judgment of Apex Court in case of N. Tarika Property Investment P. Ltd (supra) relied on by ld. Departmental Representative, said company had produced false evidence with regard to subscription of share capital. It was also dismissal of Special Leave Petition simpliciter by Hon ble Apex Court without considering merits. :- 10 -: IT(SS) No.64 05 &144 06 In such circumstances, we are inclined to follow judgment of Hon ble Apex Court in case of Lovely Exports (supra). We are of opinion that additions made in hands of assessee for share capital and share advance were not warranted in facts and circumstances of case. Especially so since one of arguments taken by ld. Departmental Representative was that investments represented money belonging to Shri. Damodharaswamy. Obviously money therefore did not belong to assessee companies. We therefore delete additions made by ld. Assessing Officer. 12. In result, appeals filed by assessees are partly allowed. Order pronounced on Wednesday, 21st day of September, 2016, at Chennai. Sd - Sd - (N.R.S. GANESAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER Chennai Dated: 21st September, 2016 KV Copy to: 1. Appellant 3. CIT(A) 5. DR 2. Respondent 4. CIT 6. GF M/s. Talent Steels Industries Ltd v. Assistant Commissioner of Income-tax, Comp Circle I(2) Coimbatore