Commissioner Of Income-Tax v. K.C Fibres Ltd.

1. One M/s. Diamond Proteins Ltd. subscribed to the share capital of the assessee-company. For this purpose, share application money, on three different dates, totalling a sum of Rs. 39 lakhs was given by M/s. Diamond Proteins Ltd. to the assessee-company. The Assessing Officer after making enquiries of the assessee-company concluded that a sum of Rs. 25 lakhs subscribed by M/s. Diamond Proteins Ltd. on October 10, 2002, with the assessee remained unexplained under section 68 of the Act and added it to the income of the assessee. Against this order of assessment, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) which was allowed by the Commissioner of Income-tax (Appeals) thereby deleting the addition made by the Assessing Officer. This order has been affirmed by the Income-tax Appellate Tribunal in appeal preferred by the Income-tax Officer. It was argued before the Income-tax Appellate Tribunal that 111 deposits of Rs. 19,000 each in cash were made in the bank account of M/s. Diamond Proteins Ltd. and were converted in drafts by M/s. Diamond Proteins Ltd. and in this manner, M/s. Diamond Proteins Ltd. subscribed to the share capital of the assessee. It is strange that when the Assessing Officer is questioning the bona fides of M/s. Diamond Proteins Ltd. for collecting money to subscribe to the share to the capital of the assessee, but it is the assessee who is fastened with the liability. The Assessing Officer did not question M/s. Diamond Proteins Ltd. in this behalf. In so far as the assessee-company is concerned, it is not disputed that money was paid to it towards the aforesaid share application money, by means of cheques. It is not for the assessee-company to probe as to the source from where M/s. Diamond Proteins Ltd. collected the aforesaid money. It was for the Assessing Officer, in these circumstances to inquire into the affairs of M/s. Diamond Proteins Ltd. which is an independent company inasmuch as no finding is arrived at by the Assessing Officer that the two companies are umbrella companies or have any relationship with each other. In these circumstances, we agree with the following analysis made by Income-tax Appellate Tribunal in its impugned order.

“Before us, the learned Departmental representative relied on the order of the Assessing Officer. As mentioned earlier, there was no representation made by the assessee. Having considered these facts, it is clear that there is no dispute about the existence of M/s. Diamond Proteins Ltd.

2. There is no dispute that this company had subscribed a sum of Rs. 25 lakhs for allotment of shares. In respect thereof, a confirmation was furnished along with PAN, assessment particulars, bank statement and balance-sheet. Thus, there is no denial by M/s. Diamond Proteins Ltd. about the transaction. In these circumstances, the attention of the learned Departmental representative was drawn towards the decision of the hon'ble Supreme Court in the case of Commissioner Of Income Tax v. Lovely Exports Private Limited., [2008] 216 CTR 195 : [2009] 319 ITR (St.) 5. The question before the hon'ble court was, can the amount of share application money be regarded as undisclosed income under section 68 of the Income-tax Act, 1961? It was pointed out that the court did not find any merit in the special leave petition for the simple reason that if the share application money was received by the assessee-company from the alleged bogus shareholders, whose names were given to the Assessing Officer, then, the Department was free to proceed to reopen their individual assessments in accordance with law. Thus, the conclusion was that the amount cannot be regarded as undisclosed income of the recipient assessee-company. He was not able to distinguish the facts of that case. Respectfully following this judgment, it is held that the learned Commissioner of Income-tax (Appeals) was right in deleting this addition.”

3. No substantial question of law arises in this appeal.

4. Dismissed.