1. The assessee is a company. It was granted certificate of Registration No. 23334 of 1980, by the Registrar of Companies, Bombay, on 24-10-1980. Photocopy of the Certificate of Incorporation is provided at page 6 of the paper compilation filed on behalf of the assessee. As per the Certificate commencement of business was granted to the assessee dated 25th November, 1980, a copy of which is provided at page 7 of the paper compilation, and accordingly the assessee commenced its business. The company is a public limited company. Its business is that of investment and trading in shares by way of speculation and ready shares. M/s. H. B. Financial Consultants Pvt.
Ltd., H-72, Connaught Circus, New Delhi was the Managers to issue of equity shares of 170000 at Rs. 10 each for cash at par. The registered office of the assessee was at 1111-A, Raheja Chambers, 213, Backbay Reclamation Scheme, Nariman Point, Bombay - 400 021. The authorised share capital was Rs. 30,00,000 divided into 3,00,000 equity shares of Rs. 10 face value out of which 30000 equity shares of Rs. 10 each was paid-up for cash at par to the Promoters, Directors and their friends.
Excluding 30000 equity shares, 1,70,000 shares at the face value of Rs. 10 each were offered to the public. When off ered to the public, the conditions were that on application Rs. 5 per equity share is to be paid and on allotment the remaining Rs. 5 per equity share is to be paid. One of the Board of Directors, inter alia, comprised of Shri Ravindra Kumar Mansingka of Amaravati, State Bank of India, Backbay Reclamation Scheme, Nariman Point, Bombay were the Bankers to the company, whereas Punjab National Bank, Foreshore Road (Gen. J. Bhosle Marg), Bombay, and Canara Bank, Regent Chambers, Nariman Point, Bombay were the Bankers to the issue. Besides several other individual brokers were appointed at Calcutta, Cochin, Hyderabad, Indore, Madras, New Delhi, Ahmedabad, etc. The following was the Underwriters and the amount underwritten against each of them is as follows :(1) N. N. Mandsaurwala 5.00(2) Bharat Bhushan & Co.
4.50(3) Champaklal Bhailal Chokshi 1.50(4) B. D. Agarwal & Co.
1.00(5) Dewan Chand & Co.
1.00(6) Harbans Singh Mehta & Co.
1.00(7) Lakshmi Narain Rathi 1.00(8) R. K. Ralan & Co.
1.00(9) Singhania Lakhotia & Co.
1.00 2. As per the Auditor's report dated 18-7-1981, it is stated that the expenses for the Issue payable by the assessee inclusive of brokerage, stamp duty, printing, advertisement, Auditor's fees, fee to Managers to the Issue, Legal advisers fees, registration fees and professional charges etc. were all estimated at Rs. 1,00,000 to be met out of the proceeds of the Issue. Underwriting commission at 2 1/2 % of the issue price of the equity shares hereby offered to the public for subscription is payable to the under writers. Brokerage will be paid at the rate of 1%. Brokerage at the same rate will be paid to the bankers.
M/s. H. B. Financial Consultants (P.) Ltd. Managers to the issue will be paid 1/2 % on the normal value of the shares issued. A sum of Rs. 19,046 which was said to have been incurred so far in connection with the formation of the company had been paid by the Promoters of the company and it is payable to them out of the proceeds of the Issue. The interest of Directors/Promoters were all listed out at page No. 13 of the paper book. It is stated that the application by the prospective subscribers must be for a minimum of 50 shares or multiple thereof.
Applications must be made on the form accompanying the prospectus and in accordance with the instructions contained in the form. Application not made according to the instructions is liable to be rejected. A separate cheque or draft must accompany each application and should be drawn on any bank (including a Co-operative Bank) which is situated at and is a member or sub-member of Bankers Clearing House located at the particular place where the application is submitted. It is stated that outstation cheques or drafts will not be accepted and applications accompanying such cheques or drafts will be rejected. It is specifically stated that Money Order will not be accepted. Non-resident Indians who are persons of Indian origin residing abroad may subscribe to equity shares in accordance with the rules of the Reserve Bank of India. The assessee will obtain necessary permission in this connection from the Reserve Bank of India and the applicants need not apply direct to the Reserve Bank of India for permission for subscription to the said shares. Allotment of shares to non-resident Indians shall be subject to the assessee obtaining such permission from the RBI.Non-resident Indians or persons of Indian origin resident abroad are eligible to subscribe to the equity shares offered from their funds held in India or by inward remittance subject to interalia their giving an undertaking not to seek repatriation of capital or income arising thereon. The cheques/drafts should be made payable to the Bankers to the Issue and marked A/c Jhantla Investments Ltd. - Equity issue and crossed A/c payee only'. The Directors reserve the full and uncontrolled right to accept or reject any application in whole or in part without assigning any reason. No receipt will be issued for the application money. However, the bankers to the issue will acknowledge receipt of the application by stamping and returning to applicant the attached acknowledgment slip at the bottom of such application form.
Application for shares must be in the names of individuals, limited companies or statutory corporations. In the event of oversubscription, allotment of shares will be made in consultation with Bombay Stock Exchange and the share certificates will be ready for delivery three moths from the date of allotment in exchange of allotment letters. List of brokers to the Issue was furnished at pages 14, 15, 16 and 17 of the paper book. They belonged to Ahemdabad, Bangalore, Bombay, Calcutta, Cochin, Hyderabad, Indore, Madras, New Delhi. On 15-10-1981, the assessee's Bankers to the Issue, namely, Punjab National Bank gave details of collection from their branches as follows : 3. The Bankers certified that no applications were pending with their branch and the total amount received from the date of opening of the Issue till date had been credited to the account and all applications had been forwarded to the assessee. A photocopy of this letter dated 15-10-1981 is furnished at page 18 of the paper book.
4. The accounting year relevant for the assessment year 1982-83 ended on 30-11-1981. Therefore, 1982-83 is the first assessment year of the assessee. It had filed its Income-tax return on 30-6-1982 declaring a loss of Rs. 9,93,049. It revised its return in which loss was revised to Rs. 8,77,258. The assessment was completed under section 143(3) for the first time on 25-6-1983 by the ITO, Com. Cir. III (14), Bombay accepting the total business loss of Rs. 2,22,311 and speculation loss of Rs. 6,54,947.
5. The above assessment dated 25-6-1983 was reopened on 2-1-1985 by issue of a notice under section 148 dated 2-1-1985. In response to the said notice, the assessee filed a return of loss of Rs. 8,77,258 stating that it was filed under protest and also commenting that the assessment was already completed. At that time, the assessee was represented by Chartered Accountant Shri S. L. Jain before the Assessing Officer and the assessee's representative wanted to know the reasons for reopening the case under section 148(2). The Assessing Officer held that the reason need not be furnished, in view of the two Supreme Court decisions in S. Narayanappa v. CIT  63 ITR 219 and K. S. Rashid & Son v. ITO  52 ITR 355. In the course of the assessment proceedings, on sample selection basis, certain questionnaire was sent to 20 shareholders listed out at page 2 of the reassessment order dated 29-2-1988. They were all returned unserved by the postal authorities. The Assessing Officer stated in para 3 of his assessment order adverted to above that investigation of one of the assessee's group concerns, namely, M/s. Shree Salaskar Investment Co.
Ltd. has given rise to the belief that the shareholders may not be genuine one. He found that since the questionnaires mailed came back unserved and considering other facts of the case, he was justified to reopen the case as he felt that all the material facts necessary for assessment were not disclosed fully and truly for the assessment year 1982-83. It was contended before him that the assumption that there was escapement of income was not correct. Further the Assessing Officer held that once the assessment was reopened following the Supreme Court decision in V. Jaganmohan Rao v. CIT  75 ITR 373, the whole of the assessment is open to him and the assessment can be made afresh.
The Assessing Officer during the course of re-assessment proceedings recorded that in order to ascertain the genuineness of the public issue of shares 212 shareholders holding themselves 120390 shares were served with summons along with the questionnaires asking them to confirm whether they had subscribed to shares of the assessee-company. 82 shareholders holding 32300 shares acknowledged the receipt of the summons. 40 summons from persons holding 10700 shares were received back unserved by the postal authorities. 5 shareholders replied that they have not made any investment in the company. Out of the 5 shareholders, one Shri Ram Datt Sharma Duja to whom the questionnaire was issued replied back stating that he had not made any investment in the said company. Non-service of summons denial of 5 persons as shareholders were all brought to the notice of the assessee by the Assessing Officer by a letter. The assessee sent its reply dated 7-3-1987 through its Chartered Accountants M/s. Jain & Bairagra. In the said reply, it is stated that all the details necessary for the purpose of assessment were already furnished at the time of original assessment and the assessee did not omit to declare any income or failed to supply any information necessary for the purpose of assessment and hence reopening of assessment under section 148 is not proper. It was also contended that the shares were sold at public issue more than 5 years back from the date of reply and after allotment of shares, the shareholders had transferred then shares long back and there after, the assessee had no contract whatsoever with them. It was stated that as against public issue of 1,70,000 shares, the issue was oversubscribed inasmuch as 206950 share applications were received. Necessary remittances along with the share applications received by the Punjab National Bank and Canara Bank were enclosed to the reply under reference. After the receipt of applications, the basis for allotment was intimated to Bombay Stock Exchange and the said Stock Exchange had approved the basis of allotment on 30-10-1981 and the said approval was also enclosed to the reply under reference. After the said approval, allotment letters were prepared and dispatched by M/s. H. B. Financial Consultants (P.) Ltd. the Managers to the Issue on 4-11-1981 for which the postal acknowledgements were received and they were enclosed to the reply. After receipt of the allotment money, necessary share certificates were prepared and despatched by the Managers to the Issue to various shareholders on 24-12-1981 and necessary postal receipts were enclosed to the reply. On 4-11-1981, confirmation was given by M/s. H. B. Financial Consultants (P.) Ltd. stating the allotment letters were posted by them to various shareholders and share certificates were posted by them on 24-12-1981 and none of the undelivered allotment letters or share certificates were received by them from the postal authorities. The assessee applied to the Bombay Stock Exchange as well as Delhi Stock Exchange for listing of shares.
After complying with various requirements, the Bombay Stock Exchange listed the assessee on 16-12-1981 whereas Delhi Stock Exchange listed the assessee on 22-12-1981. The letters from the two Exchanges listing the assessee were appended to the reply. An applicant applying for allotment of more than 20000 shares is required to give a Permanent Account No. along with their application as per the circulars issued by the Finance Ministry. Thus, according to the assessee, all the requirements were duly complied with by the assessee. After receipt of the letter dated 16-1-1987 stating that summons were returned unserved from 70 shareholders, it is said that the assessee has corresponded with M/s. H. B. Financial Consultants (P.) Ltd. on 29-1-1987 with a request to find out the change of addresses of shareholders and M/s. H.B. Financial Consultants (P.) Ltd. replied in their letter dated 9-2-1987 stating that some of the shareholders had changed their addresses and they also enclosed the addresses of 15 shareholders in whose case there has been a change of address. A copy of the letter of M/s. H. B. Financial Consultants (P.) Ltd. dated 9-2-1987 was enclosed to the reply. In paras 3, 4 & 6 of the reply, following is what is stated : "3. We are enclosing herewith the statement showing name of shareholders in whose case summons could not be served. Number of shares allotted to them, face value of such share, date on which such share has been transferred by them, a person in whose favour share has been transferred, through whom share has been lodged for transfer, letter reference of Broker who has lodged the share for transfer. A confirmation from such brokers stating they have received back share duly endorsed in favour of the transferred is also enclosed herewith. From the above your honour will notice that said shares were duly issued to shareholders in question and said shareholder has transferred these shares to different transferees, and for the purpose of transferring share such shareholders who delivered those shares to the different shareholders through whom such share has been loded for transfer. These facts go to show these shareholders were in existence of the material time.
6. In certain other cases also management could get changes of certain shareholders, list of such shareholder is enclosed herewith with new addresses.
7. In view of the above stated facts your honour will appreciate that in such type of cases provision of section 68 will not be applicable and after lapse of 6 years assessee should not be asked current addresses of such shareholders or to be proved the genuineness specially when assessee has lost contact of such shareholders after the transfer of share by them. Your honour will also appreciate proceedings under section 148 are not properly initiated in the present case.' Ultimately, it was prayed that proceedings under section 148 may be dropped.
8. However, in making reassessment, the Assessing Officer held that the contents of paras 3, 4 & 6 extracted above are not acceptable. Out of 70 summons returned by the postal authorities with the remark "not known" covered 18,300 shares of the value of Rs. 1,83,000 out of 1,70,000 shares issued by the assessee. He stated that M/s. H. B.Financial Consultants (P.) Ltd. in their letter dated 9-2-1987 indicated the change of address of 14 shareholders only, but for the balance of 56 shareholders, it was stated by them in the said letter that they had no knowledge about their present whereabouts due to lapse of time. According to the Assessing Officer, there were many unanswered questions existing in the facts of the case and all these peculiarities clearly indicated that this was not a genuine public issue and it was nothing but an attempt to give colour of genuineness to the whole transaction. These unanswered questions, according to the Assessing Officer, are found as part of para 11 as follows : "If the Manager to the issue did not receive back any allotment letter/share certificates, how is it possible the enquiry letters from the I.T. Dept. would be returned unserved with a remark 'not known' by the postal authorities. If the shareholders give their addresses C/O Share brokers to avoid non-delivery of their letter at their residential address, how is that brokers do not know their address. Are the shareholders not interested in their own investment and returns thereon so as not to keep in touch with the brokers. If the share brokers maintain a regular mailing list to which these alleged shareholders belonged, how could it happen that those who were so regularly served with the circulars issued by the brokers could be found 'not known' when the department issued them letter The basis on which such regular mailing lists are maintained by the brokers are stated to be telephone numbers, advertisements, earlier investments etc. If that is the case it is not understood as how so many persons with very meagre sources of income and almost not other investments could be on such mailing list So far as first shareholders who had purchased the share @ Rs. 10 it is not known as to how they became so much interested in this comparatively unknown issue as to invest their so called life savings and again became so disenchanted with these investments within a short time only so as to sell them away at heavy loss, @ Rs. 2.50 to 3.50 per share only.
Most of these shares so sold have come back to Shri N. K. Mansingka and his family members and associate concerns at a nominal price." 9. The Assessing Officer also stated that the case of the assessee was clearly covered by the provisions of section 68 of the Income-tax Act.
The conclusions reached by him were the following : (1) The alleged share considerations credited in the books of account of the assessee-company with reference to its alleged public share issue do not in fact represent considerations received from the alleged shareholders. The alleged shareholders did not either exist or were persons of means to invest in the shares of the assessee-company in such large amounts and large numbers.
(2) From a perusal of share application money received by the assessee, it was seen that some of the shareholders had purchased drafts or cheques from Banks for remitting the share application money in consecutive numbers even though they were living in different places and stations as evident from the chart listed in the order. The chart is from pages 9 to 15 of his impugned order.
10. After examining all the details, the Assessing Officer held that people living in different places and different localities managed to purchase demand drafts or issued cheques in consecutive numbers which was highly impossible, unless there was one common cheque book from which the cheques were issued. Further the demand drafts of Bank of Maharashtra, Bank of Baroda, State Bank of India, Indian Bank, MSCB, were also issued in serial numbers in respect of persons living in different cities and different locations. According to the Assessing Officer, how could it be possible that they had purchased these demand drafts in consecutive numbers All these evidences, according to him, go to show that the public issue is not genuine. The Assessing Officer held that section 68 empowered him to charge to Income-tax income of the assessee, if the explanation offered by the assessee was not, in his opinion, satisfactory. He held that the explanation offered by the assessee was not at all satisfactory in view of various circumstantial evidences mentioned above. He relied upon the decision of the Supreme Court in CIT v. S. P. Jain  87 ITR 370 to hold that even if there was no direct evidence, only reasonable evidence that could be drawn from the circumstances had to be relied upon and the Income-tax authorities are fully justified in drawing an inference thereon. To this similar effect is the ratio of the Supreme Court in the case of Homi Jehangir Gheesta v. CIT  41 ITR 135, wherein it was held that the assessing authorities can draw an inference from the circumstances of the case and reject the explanation of the assessee if the circumstances are such that it is a proper inference therefrom. He also relied upon another decision of the Supreme Court in Roshan Di Hatti v. CIT  107 ITR 938. Therefore, he added Rs. 17,00,000 as income of the assessee from other sources u/s 68 to the net business loss of Rs. 2,22,311 and computed the business income of the assessee at a positive figure of Rs. 14,77,689.
11. Against this re-assessment, the assessee went in appeal before the CIT(A), Cen. II, Bombay. The learned CIT(A) has given his decision on pages 5 & 6 of his impugned orders, which is as follows : "It is seen that all the formalities of bringing out a prospectus, filing of an application form for purchase of shares etc. have been followed by the assessee-company. When proceedings are taken for public issue through the reputed consultant, it is but natural that all the formalities should have been gone through in the normal course. This factor by itself does not prove that all the transactions are genuine. In order to see through the substance of the transactions, the Assessing Officer is not prevented from going behind the form into the substance of the matter. However, it is seen that the addition has been made only on the basis of the return of 70 summonses issued to shareholders by postal authorities. As against this 82 shareholders have acknowledged their investment.
Regarding the others, there is no mention.
The total number of shareholding is 1,70,000. Some of these shareholders had lodged already for transfer of their shares with Bharat Bhushan, share broker. The letters written by the share broker have also been filed before the Assessing Officer. This has not been put to further proof. It is also noted that the Mansingka group have only purchased shares to the extent of 88,150 out of 1,70,000 even as on 20-5-1983 subsequently. The other shareholders are outsiders and there is no evidence to indicate that they also hold the shares only representing the Mansingka group. One of the major shareholders outside the Mansingka group is Shri Shanti Narayan, who is with the share broker. He holds 27,750 shares even as on 21-4-1982 and continues to hold the same. No enquiries have been made from these outsiders. The bank accounts of those persons who have confirmed their investment have also not been verified. In respect of a number of other shareholders no enquiries have been made. In these circumstances, I hold that the addition has been made without taking into consideration all the relevant evidence on record and without making further investigation into the facts of the case. As such it would be in the interest of justice to set aside this addition of Rs. 17,00,000 with the direction to the Assessing Officer to reconsider the same after taking into account all the available evidence and making further investigation and after providing an opportunity to the assessee. The addition of Rs. 17,00,000 is set aside." 12. The learned CIT(A) had set aside the addition of Rs. 17,00,000 with the direction to the Assessing Officer to consider the same after taking into account all available evidence and making further investigation and after providing an opportunity to the assessee. Thus he passed the impugned order dated 31-3-1989 against which the assessee came up in appeal in ITA No. 5608/Bom./89.
13. Purporting to implement the CIT(A)'s order dated. 31-3-1989, the ITO, Ward-I(1), Bombay, took up enquiry once again, according to the directions of the CIT(A) mentioned above. The Assessing Officer was able to find following three persons having denied their investments in the assessee : 14. The fact that they have denied any investment was brought to the notice of the assessee by letter addressed by the I.T.O. dated 10-3-1992. The assessee by its letter dated. 23-3-1992 replied through its Chartered Accountants M/s. Jain & Bairagra that all these persons were still share-holders of the company and the shareholders to whom the summons could not be served may have shifted their residence. Most of the shareholders have transferred their shares and the company has no connection with such shareholders.
15. In order to ascertain the new address of the shareholders, a letter was issued to M/s. H. B. Financial Consultants (P.) Ltd., New Delhi, who stated that they did not possess any list of shareholders who have been allotted shares by the company. The Assessing Officer felt strange how the Managers to the Issue did not receive back any allotment letter/share certificate when the summons of the department would be returned unserved with the remark 'Not known' or 'Not found'. According to the Assessing Officer, are the shareholders not interested in their own investment and returns thereon so as not to keep in touch with the brokers. If the share brokers maintain a regular mailing list to which the alleged shareholders belonged, how could it happen that those who are so regularly served with the circulars issued by the brokers could not be 'Found or Not known'. Most of the shares so sold have come back to Shri N. K. Mansingka and his family members and associated concerns at a nominal price. All these peculiarities, according to the Assessing Officer, clearly indicated that this was not a genuine public issue.
Further, the Assessing Officer held that provisions of sec. 68 of the Income-tax Act were clearly attracted. He further held that the share consideration credited in the books of account of the assessee-company with reference to its alleged public issue in fact does not represent share consideration received by the alleged shareholders because either they did not exist at all or they were persons of no means to invest in the share of the assessee in such large numbers and amounts. Therefore, he concluded that the explanation of the assessee was not at all satisfactory. He also found out certain stage features to note from the perusal of share application money received by the assessee. He found that some of the shareholders had purchased drafts or cheques from Bank for remitting the share application money in consecutive numbers, even though they were living in different places and stations as evident from the chart in which 13 instances were quoted containing names, shares purchased, value as well as D.D. No. obtained from different banks bearing consecutive numbers.
16. All of them are mentioned in para 9 of the A.O.'s order. After collecting the said data, he held that it was highly impossible that people living in different places and different localities managed to purchase demand drafts or issued cheques in consecutive numbers.
Further the demand drafts of the bank were issued in serial numbers in respect of persons living in different cities and different locations.
From the above evidences, he deduced that the pubic issue was not genuine. He followed the decisions of the Supreme Court in S. P. Jain's case (supra), Roshan Di Hatti's case (supra), gist of which has already been extracted above and held, rejecting the contention of the assessee that provisions of sec. 68 were not attracted, that the public issue concerned was not genuine. He held that the amount received by the company and credited on its books of account, whether as loans or share capital, is cash credit and the assessee is required to explain the identity of the persons as well as creditworthiness of such persons from whom such money is said to have been received and if the assessee fails to prove the identity, creditworthiness, genuineness of the credit, provisions of sec. 68 are attracted - Therefore, in view of what is stated above, the Assessing Officer has confirmed the addition already made by his predecessor, of Rs. 17,00,000 as income of the assessee u/s 68 of the Income-tax Act and thus, once again by means of his assessment order dated 27-3-1992 passed u/s 143(3), the Assessing Officer determined the total income of the assessee at Rs. 14,77,889.
17. Aggrieved against this assessment order dated 27-3-1992, the assessee went in first appeal before the CIT(A)-XXV, Bombay, who has partly allowed the appeal by his impugned order dated 2-9-1992. In para 5 of his impugned order, the learned CIT(A) categorically recorded the following : 'There is no denying the fact that while making the fresh assessment order the Assessing Officer has not taken pains to make enquiries with regard to the issue mentioned by CIT(A) in his order. It is on record that information was furnished with regard to all the person with names and addresses to whom the allotment of shares was made and share certificates were claimed to have been despatched or issued. A letter to this effect has been obtained from the Manager to the issue showing that allotment letters and share certificates were sent under certificate of posting and the lists bear the postal stamp of the concerned postal office. When subsequently the shares were lodged with the company for transfer, the details have also been furnished about the persons who lodged the transfer forms with the appellant-company and the names of the transferees. The Assessing Officer has not made any enquiries from those brokers or other persons through whom the share transfer forms were lodged or the new transferees to the shares..The Assessing Officer did not provide opportunity to the appellant to cross-examine those persons who denied having made investment in this company, though such cross-examination was asked for. Similarly, the Assessing Officer has not given any cogent reason for adding the share subscription amount of those persons who admitted having purchased the shares in this company.' 18. Accordingly, the CIT(A) held that justification for addition has not been made out in the case at least with regard to those persons who admitted having invested. He held that the addition made by the Assessing Officer to this extent was therefore not justified. For the reasoning given by him in para 6 of his order, the learned CIT(A), however, found justification to sustain an addition of Rs. 2,19,500 under section 68 of the Income-tax Act. The reasons given for sustaining of so much addition is as follows : "However, the fact remains that during the first assessment proceeding as well as during the proceedings for fresh assessment the same summons were issued by the Assessing Officer which were received back unserved. With regard to these allottees for shares it can be said that appellant-company did not discharge the initial onus of identifying the party, proving the genuineness of the transactions and proving the creditworthiness. It is observed that during the first assessment proceedings summons were issued to 70 shareholders, out of which 69 were received back unserved, while one person to whom the summons were issued was not in the list of shareholders. The number of shares held by these 69 persons was 19,900. In the subsequent proceedings summons were issued to 27 persons, out of which one was a subsequent transferee, while 7 names were of the persons to whom summons had been issued in the original proceedings. Two persons denied having made any investment, while 2 persons were issued shares from the promoters' quota. In 15 cases summons were received back unserved. Thus in all summons were received back in 84 cases. Out of these, in 18 cases there was change of address which had been furnished to the assessing, while 2 persons were reported to have died. This leaves 64 cases, whereas shareholding with them was of 21,950 shares. The paid-up value of these shares works out to Rs. 2,19,500 for which it can be held that the appellant-company has not discharged the primary onus with regard to the credit entries to the extent of Rs. 2,19,500 only. The addition made under section 68 by the Assessing Officer is therefore sustained only to the extent of Rs. 2,19,500 out of the total addition of Rs. 17 lakhs made by the Assessing Officer." 19. Therefore, ITA No. 8452/Bom./92 is an appeal filed by the assessee against addition of Rs. 2,19,500 sustained by the CIT(A). I.T.A. No.8931/Bom./92 is an appeal filed by the Revenue against restriction of the addition made under section 68 to Rs. 2,19,500 as against Rs. 17,00,000 made by the Assessing Officer.
20. We have heard Shri Y. P. Trivedi, the learned advocate for the assessee and Shri V. S. Jadhav, the learned departmental representative. All the three appeals are heard together. Paper books were filed on behalf of the assessee. Reference to the paper book and its contents would be made in this order as and when it is felt necessary. The first question which is argued by Shri Y. P. Trivedi, the learned advocate for the assessee was that the re-assessment is bad in law and there are no grounds for reopening, since full and true particulars of share investments by several shareholders were furnished to the ITO even at the time of original assessment which culminated in the assessment order dated 25-6-1983. About two years after the original assessment was completed, notice under section 148 was issued on 2-1-1985 and the assessment was reopened on 2-1-1985. In para 2 of the Assessing Officer's order in re-assessment proceedings, the Assessing Officer recorded that the assessee wanted to know the reasons for reopening his case under section 148(2). The Assessing Officer relied upon two Supreme Court decisions in S. Narayanappa's case (supra) and K. S. Rashid & Son's case (supra) for rejecting the request made by the assessee and holding that there was no obligation on the part of the Assessing Officer to furnish reasons for reopening to the assessee. In S. Narayanappa's case (supra), the following is what is held by the Hon'ble Supreme Court : "Proceedings for assessment or reassessment under section 34(1)(a) start with the issue of a notice and it is only after the service of the notice that the assessee, whose income is sought to be assessed or reassessed, becomes a party to those proceedings. The earlier state of the proceedings for recording the reasons of the ITO and for obtaining the sanction of the Commissioner are administrative in character and are not quasi-judicial. There is no requirement in any of provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under section 34 must also be communicated to the assessee. The ITO need not communicate to the assessee the reasons which led him to initiate the proceedings under section 34." 21. K. S. Rashid & Son's case (supra) which is also of the Hon'ble Supreme Court is to the same effect. In K. S. Rashid & Son's case (supra), their Lordships were comparing cases falling under section 34(1A) on the one hand and cases falling under section 34(1)(a) on the other. In the first class of cases falling under section 34(1A), reasons are to be recorded and also a copy of it must be furnished to the assessee. In the second category of cases falling under section 34(1)(a), they took the view that the assessee is not entitled to be given a copy of the reasons recorded by the ITO for the issue of a notice. Now, the above two decisions only show that the reasons recorded, if any, need not be sent to the assessee or to put it in other words, the assessee as of right cannot demand supply of reasons recorded for reopening.
22. It is argued that reasons must be recorded and it must be shown to the court which should be satisfied on going through them that the assessee failed to furnish material particulars while framing the assessment etc. Now, in this case, the learned counsel for the assessee Shri Y. P. Trivedi brought to our notice the docket order dated 5-9-1995 which is as follows : "Certain clarifications sought for. They have not been submitted.
Adjourned at the request of the D.R. to 14-11-1995. Parties informed." 23. It implies, according to the learned counsel for the assessee from the above order, that the Bench wanted to see the reasons recorded for reopening and the learned departmental representative in fact agreed to furnish the reasons and ultimately failed to file the same and failed to show it to the Tribunal. The only place where a semblence of reasons for reopening were found was at para 3 in the reassessment proceedings by the Assessing Officer. After giving out the list of 20 persons to whom questionnaire was said to have been sent on sample selection basis, he held the following : "The investigation in the assessee's group concerned M/s. Shree Salaskar Investment Co. Ltd. has given rise to the belief that the shareholders may not be genuine one. Since questionnaires mailed have come back unserved considering other facts of this case, it was found necessary to reopen the case as the assessee has not disclosed fully and truly all material facts necessary for the assessment for assessment year 1982-83." 24. Further, when we have asked a specific question to the learned departmental representative as to whether the reasons recorded were available in the file and, if so, whether he can make us available the file where under the reasons were recorded, the learned departmental representative stated that files were shifted four or five times and copy of the reasons was not available in the file. Therefore, it can be seen that the reasons recorded were not even shown to the Tribunal. The question would be, whether the non-recording of reasons and the reasons not being made available to the Tribunal would in any way vitiate the reassessment order. On this question, several case laws were relied upon by the learned counsel for the assessee. They are the following : (1) Morarjee Goculdas Spg. & Wvg. Co. Ltd. v. P. N. Bansal, IAC  71 Taxman 445 (Bom.), (2) Sharad L. Patel v. K. J. Chacko, 3rd Addl. ITO  159 ITR 791/29 Taxman 7 (Bom.), (3) ITO v. Madnani Engg. Works Ltd.  118 ITR 1/1 Taxman 345 (SC), (4) Siesta Steel Construction (P.) Ltd. v. K. K. Shikare  154 ITR 547/ 17 Taxman 122 (Bom.), (8) Unreported judgment of the Bombay High Court in CIT v. Belenje Investment & Trading Co. Ltd. 25. Firstly, it is contended by Shri Trivedi that the reasons for reopening which should have been recorded prior to the issue of notice under section 147 and taking up proceedings under section 148 should have at least been shown to the Court. However, in the facts of this case, admittedly they were not shown to the Tribunal. As already stated, we have specifically asked the learned departmental representative to furnish reasons for reopening and he had admitted before us that the file containing the reasons for reopening was found missing from the records and therefore, he is unable to produce the reasons for reopening. Thus, we are not definite as to what are the reasons which motivated the Revenue to reopen the proceedings. We have to hold that such reasons were not even extracted by the Assessing Officer who completed the reopened assessment proceedings. The only place where the semblence of reasons for reopening found in the Assessing Officer's order completed under section 143(3) read with 147(a) dated 27-2-1988 is recorded in para 3 of his order as follows : "The investigation in the assessee's group concerned M/s. Shree Salaskar Investment Co. Ltd. has given rise to the belief that the shareholders may not be genuine one. Since questionnaries mailed have come back unserved considering other facts of this case, it was found necessary to reopen the case as the assessee has not disclosed fully and truly all material facts necessary for the assessment for the assessment year 1982-83." 26. In this respect, the relevant facts obtaining in this case are the following : After the issue of notice under section 148, the learned Chartered Accountants who represented the assessee before the Assessing Officer issued a letter dated 7-3-1987 a copy of which is furnished at pages 1 to 5 of the paper book. (Reference to paper book should always be taken to means as paper book filed by the assessee, since department did not file any paper book whatsoever). It was stated in the said letter that the original assessment was completed accepting the business loss of Rs. 2,22,311 by the 14th ITO, Com. Cir. III, Bombay by his order dated 25-6-1983. The notice of reopening was issued under section 148 on 2-1-1985. In pursuance of the said notice, the return was filed on 8-2-1985 under protest. In para No. 1 itself, the assessee requested to let them know the reasons recorded by the ITO for reopening the assessment. It is stated that the Registrar of Companies registered the assessee-company on 24-10-1980 and the company was issued certificate of commencement of its business on 25-11-1980. The prospectus offering 1,70,000 equity shares of Rs. 10 each to the public was issued on 27-7-1981. As per said prospectus subscription list was to open on 14-9-1981 and was to close on 24-9-1981. The prospectus disclosed that the assessee had appointed various brokers for the issue. The shares of the company were fully underwritten by various underwriters, details of whom were given in the prospectus. The auditors and solicitors were appointed for the assessee. M/s. H. B.Financial Consultant Pvt. Ltd. (hereinafter called M/s. HBF) was appointed Manager to the issue. Punjab National Bank and Canara Bank were appointed as Bankers to the issue. As per the details given in the prospectus, as on 18-7-1981 the capital of the company was only Rs. 3 lakhs for which 30,000 equity shares of Rs. 10 each were held by the Directors and Promoters and the said amount was invested as loan.
Administrative expenses of Rs. 6,671 were incurred and the company had not earned any income by that date and it did not start business activity. Various advertisements issued in the press declaring the public issue of equity shares, list of brokers, list of underwriters were all enclosed with this letter. Total application money received was Rs. 2,06,950 towards share subscription as against 1,70,000 shares to be issued. Remittances were accepted by Punjab National Bank and Canara Bank and the necessary certificates issued by Punjab National Bank and Canara Bank were enclosed to the reply under reference. The basis on which share allotment was done was intimated to the Bombay Stock Exchange and the basis was approved by it on 30-10-1981 and a copy of the said approval was enclosed to the reply under reference.
Allotment letters were prepared and despatched by M/s. HBF on 4-11-1981 and postal acknowledgements were all enclosed to the reply under reference. The share certificates were despatched by the Manager to the issue to various shareholders on 24-12-1981 and postal receipts were also enclosed to the reply under reference. The confirmation from the HBF that allotment letters were posted by them to the various shareholders on 4-11-1981 and share certificates were posted by them on 24-12-1981 and none of the undelivered allotment letter or share certificates were received back by them from the postal authorities, was also enclosed to the reply under reference. The company was registered in the Bombay Stock Exchange as well as Delhi Stock Exchange on 16-12-1981 and 22-12-1981 and the said listing letters were enclosed to the reply under reference. Answering to the allegation made in the letter dated 16-1-1987 issued to the assessee that summons issued to 70 shareholders were returned unserved, it was stated in reply that they have written a letter to HBF on 29-1-1987 requiring them to find out the change of addresses of the shareholders for which they received a reply dated 9-2-1987 from HBF stating that some of the shareholders have changed their addresses and they have also enclosed list of 15 shareholders in whose case there was a change of address. Copy of letter dated 9-2-1987 addressed to the assessee-company by HBF was also sent along with the reply under reference. In para 4 of the reply, the assessee intimated that in certain other cases also management could get changes of some shareholders and list of such shareholders was also enclosed to the reply under reference. In the letter addressed to the assessee, it was intimated that 5 persons had denied to have made any investment in the company. However, in the reply under reference, it is categorically averred that particulars of such shareholders have not been furnished to the assessee and therefore they were not in a position to make any comment on the same. However, it was stated that investment made by such shareholders are evidenced by their share application remittances made by them and later on share transferred by them (if applicable). In reply, it is stated that even though 5 persons should have made investment in the company, they are denying the fact for saving their own skin. If so required by the department, such shareholders may be confronted with necessary evidences and the assessee requested the ITO to let them know how many total summons were issued to the shareholders and how many cases reply has been received by the department. It is also impressed to the ITO that section 68 of the Income-tax Act will not be applicable, since there was considerable lapse of time of 6 years and after such a considerable lapse, it is not just to ask the assessee about the current addresses of such shareholders or to prove the genuineness, especially when the assessee had lost contract of such shareholders after transfer of shares by them.
27. Therefore, from the above reply it is very clear that the reasons for reopening were specifically requested for. It was never the case of the department that such reasons were furnished to the assessee even during the course of reopened proceedings. In Morarjee Goculdas Spg. & Wvg. Co. Ltd's case (supra) - it is held as per the Head Note that in the absence of recorded reasons and in the absence of any reply from ITO who might have recorded the reasons, the conclusion was escapable that exercise of powers was without any jurisdiction. Further, it could not be said that reasons as set out in the letter were sufficient compliance of requirement u/s 148. Therefore, exercise of jurisdiction by the respondents (Revenue) u/s 148 was unsustainable. In Sharad L.
Patel's case (supra), notice u/s 148 read with sec. 148 was issued.
However, the ITO refused to give reasons for issue of notices and also refused to disclose whether the assessment would be reopened u/s 147(a) or (b). The only reason for reopening was that interest on amount advanced by minor son to the assessee and which was invested was not disclosed. The son also was an assessee and his assessment was duly completed. In the facts of this case, it was held that the ITO could have easily found out why interest was not disclosed at the time of assessment. The Bombay High Court held that failure to do so would not entitle him to reopen the proceedings and notices for reopening u/s 147 read with 148 was held to be invalid. In Madnani Engg. Works Ltd case (supra) the facts and decision of the Hon'ble Supreme Court are set out in the Head Note of the decision at pages 1 & 2 and they are extracted as under : "In the original assessment of the respondent for the assessment year 1959-60 completed on August 23, 1960, certain interest paid by it to creditors from whom it claimed to have borrowed monies on hundis was allowed as deductible expenditure. Subsequently on January 25, 1968, i.e. after a lapse of four years from the end of the assessment year, a notice was issued by the ITO to reopen the assessment of the respondent on the ground that the transactions of loan represented by the hundis were bogus and no interest was paid by the respondent to any of the creditors and interest was wrongly allowed. The respondent challenged the validity of the notice by filing a writ petition in the High Court. On December 5, 1968, the ITO in his counter-affidavit declined to disclose the facts on the ground that if such facts were disclosed it would cause great prejudice to the interests of the revenue and would frustrate the object of reopening the assessment. Thereafter, he filed a further affidavit on January 27, 1970 stating that in the course of the assessment of the respondent for the assessment year 1963-64 it was discovered that various items shown as loans against the security of hundis in the respondent's books of account for the assessment year 1959-60 were in fact fictitious and credits against the names of certain persons, viz, A.G.R. M and D, were found not to be genuine, and that in that premise it appeared to the ITO that the respondent had failed to disclose fully and truly all material facts necessary for its assessment and by reason of such failure a portion of its income had escaped assessment. A single judge of the High Court dismissed the writ petition but on appeal a Division Bench of the High Court allowed the petition and quashed the notice. On appeal to the Supreme Court : Held, affirming the division Bench of the High Court, (i) the stand taken by the ITO in his first affidavit dated December 5, 1968, was obviously untenable because the existence of reason to believe on the part of the ITO was a justifiable issue and it was for the court to be satisfied whether in tact the ITO had reason to believe that income had escaped assessment by reason of failure of the respondent to make a full and true disclosure.
(ii) That the respondent had produced in the original assessment proceedings all the hundis on this strength of which it had obtained loans from creditors as also entries in the books of account showing payment of interest and it was for the ITO to investigate and determine whether these documents were genuine or not : the respondent could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the ITO that the hundis and the entries in the books of account produced by it were bogus. CIT v. Burlop Dealers Ltd.  79 ITR 609 (SC) applied.
(iii) That, as the ITO had in the second affidavit merely stated his belief but did not set out any material on the basis of which he had arrived at such belief, there was nothing on the basis of which the court could be satisfied on the affidavit that he had reason to believe that a part of the income of the respondent had escaped assessment by reason of its failure to make a true and full disclosure of the material facts.
28. The latest decision of the Hon'ble Supreme Court on the question of validity of reopening which contain an exhaustive exposition of law on the subject is found to have been considered in the case of Phool Chand Bajrang Lal (supra). Their Lordships held, after exhaustive analysis of the facts of CIT v. Burlop Dealers Ltd.  79 ITR 609 (SC), that ratio of that decision rendered in that case should be confined only to the fact situation in that case and cannot be construed to be of universal application irrespective of the facts and circumstances of the particular case. Before their Lordships in Phool Chand Bajrang Lal's case (supra), it was argued on behalf of the assessee that Burlop Dealers Ltd.'s case (supra) should be considered to be an authority that if the assessee had made a disclosure of all primary facts and when those facts were furnished to the I.T.O. during the original proceedings who has conducted an investigation and verified the material facts, and after the assessee had made a disclosure of primary facts about the genuineness of the loan transactions, the assessing authority could not, on account of an omission on his part to do so, be permitted to reopen a concluded assessment on the basis of material coming to its notice subsequently. This proposition was not accepted as laying down correct law in Phool Chand Bajrang Lal's case (supra) and held that Burlop Dealers Ltd's case (supra) should be taken to be a decision rendered on the particular facts of that case and should not be held to have universal application in the facts of the case before Hon'ble Supreme Court in Phool Chand Bajrang Lal's case (supra) also original assessment proceedings were completed. Afterwards, on making enquiries from the jurisdictional ITO at. Calcutta, the ITO, Azamgarh learnt that the Calcutta company from whom the assessee claimed to have borrowed the loan of Rs. 50,000 in cash had not really lent any money but only its name to cover up a bogus transaction and, after recording his satisfaction as required by the provisions of sec. 147 of the Act, proposed to reopen the assessment proceedings. Their Lordships of the Supreme Court agreed that the same facts which were present at the time of original assessment proceedings should not be permitted to be apprised again and re-appreciation of such facts cannot be permitted to be the basis for reopening. However, their Lordships stated that there may be cases where after original proceedings were completed the ITO may acquire fresh information which is specific in nature, reliable in character, but which relates to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of original assessment. In such a case, reopening u/s 147(a) is held to be perfectly justified. Drawing distinction between re-appraisal of the same facts and acquiring fresh information about the facts already on record which are specific in nature and reliable in character and which exposes the statement, if any, made in the original assessment, their Lordships laid down the law as follows at page 473 of the reported judgment : "The present is thus not a case where the ITO sought to draw any fresh inference which could have been raised at the time of the original assessment on the basis of the material placed before him by the assessee relating to the loan from Calcutta company and which he failed to draw at that time. Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of the original assessment is different from drawing' fresh inference from the same facts and material which were available with the ITO at the time of the original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings cannot be said to be a disclosure of the "true' and 'full' facts in the case and the ITO would have the jurisdiction to reopen the concluded assessment in such a case." 29. In this connection, their Lordships of the Hon'ble Supreme Court approved an earlier Supreme Court decision in CIT v. T.S.PL.P.Chidambaram Chettiar  80 ITR 467 and had also approved and followed the decision in A.L.A. Firm v. CIT  189 ITR 285/55 Taxman 497 where it was held that the jurisdiction of the ITO to reassess income arises if he has, in consequence of specific and relevant information coming into his possession subsequent to the previously concluded assessment, reason to believe that income chargeable to tax had escaped assessment. Thus, after surveying exhaustively the position obtaining in law, their Lordships of the Supreme Court summarized their conclusions at page 477 as follows : "From a combined review of the judgments of this court, it follows that an ITO acquires jurisdiction to reopen an assessment under section 147(a) read with section 148 of the Income-tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the ITO, the sufficiency of reasons for forming the belief is not for the court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by the ITO and examine whether there was any material available on the record from which the requisite belief could be formed by the ITO and further whether that material had any rational connection or a live link for the formation of the requisite belief. It would be immaterial whether the ITO, at the time of making the original assessment, could or could not have found by further enquiry or investigation, whether the transaction was genuine or not if, on the basis of the subsequent information, the ITO arrives at a conclusion after satisfying the twin conditions prescribed in section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and, therefore, income chargeable to the tax had escaped assessment. The High Courts which have interpreted Burlop Dealers' case  79 ITR 609 (SC) as laying down the law to the contrary fell into an error and did not appreciate the import of that judgment correctly." 30. From the above, two things are clear. Firstly, reasons for reopening must be recorded. The reasons may not be supplied to the assessee and simply because they are not supplied to the assessee, reopening does not become bad. But at the same time, the reasons for reopening must be recorded and must be available in the record and the reasons thus recorded should have a live link with the reopened assessment and the additions made in the reopened assessment. The second important feature which emerges from out of the Supreme Court decision is that though sufficiency of reasons for forming belief is not justifiable, but it is open to the assessee to establish that there in fact existed no belief and that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information and to that limited extent the Court may look into the conclusion arrived at by the Assessing Officer and examine whether there was any material available on record from which the requisite belief could be formed by the Assessing Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief. Now, as far as these two propositions are concerned, we have already examined the case law where reasons for reopening said to have been recorded were not furnished even to the court. In such a case, reopening is held to be bad in law by the Hon'ble Bombay High Court as per the decisions already referred to supra. In this case also, reasons said to have been recorded and said to be available before the issue of notice under section 147 ultimately were not made available to the Tribunal, despite the fact that the assessee had raised a specific ground at 8.2 as follows : "The appellant had submitted to the CIT(A) that the ITO's action of reopening the assessment without disclosing the reasons therefor was not sustainable (in the light of Bombay H.C. decision 159 ITR 791); the learned CIT(A) erred in not discussing this point while approving the ITO's action." 31. Therefore, on the first of the ground itself, we have to hold that the reopening in this case does not appear to be in accordance with law. Further, let us now examine what fresh materials were available to the Assessing Officer, which is clinching in nature and which would show that the share subscriptions made by other shareholders were bogus and unbelievable and the subscription amounts represent nothing but unexplained investment of the assessee-company which justifies the addition under section 68 of the Income-tax Act. Before dealing with this issue, even the broad probabilities if taken into consideration would not justify any addition under section 68. We have already catalogued the various dates on which the company was incorporated and was issued certificate for commencement of its business, prospectus was issued offering to the public 170000 equity shares of Rs. 10 face value etc. The share application money was received by the Bankers, i.e., Punjab National Bank and Canara Bank, but none of the shareholders were examined or their statements recorded. Further, the issue was oversubscribed and subscription for the issue of 206950 shares was received as against 170000 shares and in fact the basis of allotment was not approved by the Bombay Stock Exchange. All the primary material about the allotment letters, postal acknowledgements of having posted allotment letters to the shareholders, share certificates despatched to them and necessary postal receipts were all filed by the assessee before the Assessing Officer. For the first time the assessee closed its accounts on 30-11-1981 by which time postal receipts of having despatched the share certificates were not completely received by the Managers M/s. HBF because, according to the reply dated 7-3-1987 already adverted to above, it is only on 24-12-1981 postal receipts were received in evidence of sending share certificates to the various shareholders. The company is a public limited company and a listed company. The business of the assessee was that of investment and trading in shares by way of speculation and ready shares. Therefore, in our opinion, it would be highly improbable to obtain unaccounted money of Rs. 17 lakhs even when by the close of the previous year in which the business hardly commenced. In this connection, a case of similar nature was dealt with and disposed of by the Hon'ble Bombay High Court in an unreported judgment in the case of CIT v. Belenje Investment & Trading Co. Ltd. Even the facts are very close to the present case. In that case, the question sought to be referred was as follows : "Whether on the facts and in the circumstances of the case and in law, the ITAT was right in holding that the amounts aggregating to Rs. 4,40,000 credited by the assessee in its books and not explained by the assessee were not chargeable to income-tax as income of the assessee of the previous year relevant to the assessment year 1982-83 ?" 33. The assessee was a company which was registered on 6-2-1981 and it issued a prospectus dated 29-4-1981 inviting public subscription of 3,40,000 equity shares of Rs. 10 each. The public issue closed on 12-6-1981. The bankers to the issue were Syndicate Bank. The allotment of shares was made in consultation with the stock exchange and the shares were later listed on the stock exchange all over the country for trading. A firm of stock brokers which was a member of the Bombay Stock Exchange was the managing brokers for the public issue. The Assessing Officer with a view to verify whether the shareholders who subscribed to the share capital of the assessee pursuant to the public issue were genuine or not, issued enquiry letters to some of the applicants for the shares. 38 share-holders holding 16550 shares denied having held these shares. 73 enquiry letters representing 27450 shares were returned by the postal authority unserved. Subsequently 47 out of 73 applicants on whom enquiry letters could not be initially served, file confirmation letters covering 18,900 shares. The Assessing Officer completed the assessment by making an addition of Rs. 4,40,000 to the total income of the assessee under the provisions of section 68 of the Income-tax Act, which represented the value of shareholding of 73 shareholders on whom enquiry letters could not be initially served as also the value of shareholding of 38 persons who had originally denied having any interest in the share capital of the company. The Tribunal noted the fact that there had been no change in the shareholders register on account of any transfer. The Tribunal also noted that it would be impossible for the assessee to satisfy itself by making enquiries at the stage of receiving applications whether the applicants were genuine investors. The subscription to the issue was started by the applications from the members of the public and these applications were all available with the assessee and these applications which gave the names and address of the applicants were also furnished to the Assessing Officer. The assessee-company was incorporated on 6-2-1981 and it commenced its business sometime in the month of April, 1981.
Soon thereafter it made a public issue. It was difficult to hold that the assessee-company could have in this short period earned profits to the extent of Rs. 4,40,000. In fact in this case also, the facts are similar. On sample selection basis, the Assessing Officer sent questionnaires to 20 persons. They were all returned unserved by postal authorities. 212 shareholders holding among themselves 120390 shares were served with summons along with questionnaire asking them to confirm whether they had subscribed to shares of the assessee-company.
82 shareholders acknowledged receipt of the summons and they held 32300 shares among themselves. 40 summons were received back unserved by the postal authorities and they accounted for 10700 shares valued at Rs. 1,07,000.5 shareholders replied stating that they have not made any investment in the company. Out of them, one Shri Ram Datt Sharma Duja to whom the questionnaire was issued replied back stating that he has not made any investment in the said company. The names of the other 4 persons who had similarly replied were not made known. There is no reason why Shri Ram Datt Sharma Duja was not examined under section 131 giving an opportunity for cross-examination to the assessee. The fact that 70 summons issued to the persons holding 18,300 shares valued at Rs. 1,83,000 out of 1,70,000 shares issued by the assessee-company were returned by the postal authorities was confronted to the assessee by the Assessing Officer letter dated 16-1-1987 to which the assessee-company by its letter dated 7-3-1987 already referred to supra gave a reply and in that reply it was made very clear that the managers to the issue M/s. HPB by their letter dated 9-2-1987 indicated to the company regarding the change of address of 14 shareholders. If their names and holdings also were intimated along with the reply and because of the non-service of the letters addressed by the Assessing Officer, can that fact by itself convey the falsity of the subscription in the face of particulars given by the applicants offering themselves to subscribe for a certain number of shares in each of their applications.
The deposit of moneys either in Punjab National Bank or Canara Bank, the appointment of Manager M/s. HBF to the issue, their certificates certifying that allotment letters were made and share certificates were also duly despatched and postal acknowledgments were received were all before the Assessing Officer. In the face of so much of unimpeachable documentary evidences, can it be believed that simply because the questionnaire addressed by the Assessing Officer were returned unserved by the postal authorities, the public issue was not genuine. If 5 persons only denied having subscribed to the shares of the assessee-company, why they were not examined and why they were not confronted with the share application forms, the amount of moneys deposited in the bank, their share certificates, their names entering in the books of shareholding of the assessee-company, etc. The only suspicious circumstance which weighed with the Revenue was that some of the shareholders sold them away at heavy loss at Rs. 2.50 to Rs. 3.50 per share and most of those shares were purchased by Shri R. K.Mansingka and his family members and associate concerns. From this, it is concluded that it was not a genuine public issue. After having considered the whole facts of the case and the bulky evidences on record, we are unable to hold that the Assessing Officer has obtained unimpeachable evidence which would conclusively prove that subscription to shares was only bogus and stage-managed by Mansingka group.
Therefore, in our opinion, it is rightly contended by Shri Trivedi, the learned counsel for the assessee that the Assessing Officer had in fact not believed and that the belief which he had entertained was not at all a bona fide one. Further, he also argued that the belief was based on vague, irrelevant and non-specific information and therefore, reopening and the addition made thereunder should not be upheld by the Tribunal. This argument is quite acceptable to us. Through there are a few pieces of suspicious circumstances in the evidence, the circumstances are not themselves substantiated. Before a fact in issue is said to have been proved by circumstantial evidence, firstly each of the circumstances must be clinching and must be proved and the chain of circumstances should lead to a conclusion which is inescapable.
However, the type of suspicious circumstances brought out by the Revenue in this case is in no way near to the target and cannot be said to have been substantiated. Suspicion however strong it may be cannot supplant proof. We, therefore, hold that the reopening itself is bad in law and the addition based on the reopening cannot be sustained.
34. The other decisions cited are not discussed pointedly, in view of the fact that the legal position regarding reopening was sufficiently brought out by other decisions discussed in the order. The other decisions no doubt support the case of the assessee and, therefore, in a bid to cut-short the order to a reasonable limit, we do not feel it necessary to discuss the other case law in detail and we are rest-content by observing that the case laws cited all support the case of the assessee-company.
35. In the result, the assessee's appeals are allowed, whereas Revenue's appeal is dismissed.