The partnership firm was formed on 5.7.1990 and on 7.7.1990 Master Shishir Garg deposited Rs. 1,90,000/- and Rs. 72,000/- as capital money with the Firm through bank clearance of two bank drafts. The accounting period being financial year i.e. ending on 31st of March, 1991, the Firm could not have any income at the time of its formation. The identity of the depositor i.e. Master Shishir Garg was not in issue at any point of time before the Income Tax Authorities. They treated the said deposit by Master Shishir Garg. This being so, if for one reason or the other, they were not satisfied with the financial capability of Master Shishir Garg, the amounts could have been added at the hands of Master Shishir Garg and not at the hands of Firm.
The argument of the learned counsel for the respondent-assessee that merely participation of the assessee will not validate the reassessment proceeding if the notice is invalid, is of no help, in view of the fact that the question of validity of notice under Section 147 of the Act is not in issue. The only defect which could be pointed out is that the assessment year was not mentioned in the reasons recorded by the Assessing Officer.
The Tribunal recorded findings that the assessee had produced the return of income filed by the relevant shareholders who had paid share application money. The assessee had also produced the confirmation of share holders indicating the details of addresses, PAN and particulars of cheques through which the amount was paid towards the share application money.
It appears that nothing is available from the record that advances/loan without interest were ever given for business purposes. It was for the personal use of Director or family members and after obtaining the loan/advances, the borrower never made any effort to repay the loan amount nor did the assessee company made any effort to recover the said loan from the borrower. In fact assessee company allowed its Director and family members to use its funds for their personal benefits. This cannot be intention of the statute which allowing the payment interest on borrowed funds for business purpose under section 36 (1)(iii) of the Act. Therefore, the interest on borrowed funds can not allowed for a longer period even the funds are not being used for the business purpose.
Assessee had produced relevant evidence before the CIT (Appeals) establishing that all the persons, who had deposited the share application, were not fictitious persons. Most of them were identifiable; they made the payment by cheques and most of them were assessed to Income-tax. The Tribunal has given further relief to the assessee and has not accepted the argument of the department that the explanation furnished by the assessee for the addition under Section 69 on account of unexplained investment was not to the satisfaction of the Assessing Officer.
It is not in dispute that under the Companies Act, 1956, both straight line method and written down value method are recognised. Therefore, once the amount of depreciation actually debited to the profit and loss account is certified by the auditors, then, as per the decision of the apex court in the case of Apollo Tyres Ltd. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115-J.
It had held that the assess was in possession of the shares in question and had sold the said shares in course of ordinary transaction of sale of shares at stock exchange and if the broker did not file any evidence since the same were seized by the Revenue Department, there is no fault with the assessee. From the aforesaid facts it is clear that the shares in question were allotted to the assessee in the public issue which were held in demat a/c of Stock Holding Corporation of India Ltd. The shares were transferred to Abhipra Capital Ltd. The sale consideration was received by demand draft. Therefore, the transaction in question cannot be said to be fake and is a genuine transaction.
If the books of account cannot be rejected, there is no question of not accepting the loss declared by the assessee. In a business, sometimes the business runs in profit and sometimes runs in loss. Merely because in a particular year, the loss was higher, that would not empower the Assessing Officer to reject the books of accounts, unless some specific defect is pointed out in its maintenance.
Here, the only question, which false for our determination, is as to whether the Additional Director had the authority under section 132 (1) of the Act to issue warrant of search and seizure. In view of the amendment brought by Finance (No. 2) Act, 2009, this point need not detain us much. Finance (No. 2) Act, 2009 has specifically inserted the words “Additional Director” in section 132 (1) of the Act with effect from 01.06.1994, besides other authorities.
The Income Tax Act was amended by Finance (No.2) Act, 2004 w.e.f. 15.12.1972 inserting Section 142A authorising the Assessing Officer for the purposes of making an assessment or reassessment under the Act, where an estimate of the value of any investment referred to in Section 69 or Section 69B or the value of any bullion, jewellery or other valuable articles referred to in Section 69A or Section 69B is required to be made, to refer the matter to Valuation Officer to make an estimate of such value and report the same to him.
