DCIT, Central Circle-11, V. M/s Sunaero Ltd.,

ITSSA 6/DEL/2004

• Counselvise Citation: [2016] 122 COUNSELVISE.COM (IT) 2354 (ITAT-DELHI)
• Duration Of Justice: 12 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 20-09-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 02-06-2016
• Assessment Year: misc
• Appeal Filed On: 09-01-2004
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SULEKHA VERMA
• Assessee Lawyers: SANJEEV BINDAL; SSH V K BINDAL
• Keywords: Unexplained investment; Capital asset; Share purchase agreement; Question of law; Wholly owned subsidiary; Wrong claim; Block assessment; Documents seized
• Section: 69; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D NEW DELHI BEFORE SH. H.S. SIDHU , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER IT (SS) A NO. 06 /DEL/ 2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 11, NEW DELHI VS. M/S. SUN AERO LTD., 302, AKASH DEEP BUILDING, BARAKHAMBA ROAD, NEW DELHI PAN : AAACS4814K (APPELLANT) (RESPONDENT) APPELLANT BY MS. SULEKHA VERMA, CIT(DR) RESPONDENT BY S/SH. V.K. BINDAL & SANJEEV BINDAL, CA DATE OF HEARING 29.06.2016 DATE OF PRONOUNCEMENT 20.09.2016 ORDER PER O.P. KANT , A. M. : THIS APPEAL HAS ARISEN CONSEQUENT TO THE JUDGMENT DATED 01/06/2012 OF THE HON BLE HIGH COURT OF DELHI IN ITA NO. 562 OF 2008, WHEREIN THE SECOND QUESTION OF LAW FRAMED HAS BEEN ANSWERED IN FAVOUR OF THE R EVENUE AND AGAINST THE ASSESSEE , HOWEVER, THE FIRST QUESTION OF LAW FRAMED IN APPEAL HAS BEEN REMITTED TO THE TRIBUNAL FOR RECORDING FINDING OF FACTS AND THEN APPLY THE LAW ACCORDINGLY. 2. THE QUESTION S OF LAW FRAMED IN THE APPEAL BEFORE THE HON BLE HIGH C OURT ARE AS UNDER: 2 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 (I) WHETHER THE INCOME TAX APPELLATE TRIBUNAL WAS RIGHT IN DELETING THE ADDITION OF RS. 21 CRORES MADE BY THE A SSESSING OFFICER UNDER SECTION 45 READ WITH SECTION 47(V) OF THE INCOME TAX ACT, 1061? (II) WHETHER THE IMPUGNED ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL IS PERVERSE? 3. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE TRANSFERRED THE RIGHTS FOR D EVELOPMENT OF A HOTEL AT BANGLA SAHIB ROA D TO M/S SUNAIR H OTELS LTD , FOR A CONSIDERATION OF RS. 21 CRORES , WHICH WAS CLAIMED AS NOT LIABLE FOR CAPITAL GAIN ON THE GROUND THAT THE ASSESSEE COMPANY WAS A WHOLLY - OWNED SUBSIDIARY OF M/S SUNAIR H OTELS LTD . AND TRANSACTION OF TRANSFER OF CAPITAL ASSET BY A WHOLLY - OWNED SUBSIDIARY TO ITS INDIAN HOLDING COMPANY IS NOT REGARDED AS TRANSFER IN TERMS OF SECTION 47 (V) OF THE INCOME - TAX ACT ,1961( IN SHORT THE ACT) . ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE COMPANY IS NOT A WHOLLY - OWNED SUBSIDIARY OF M/S . SUNAIR HOTELS LTD , WHEREAS THE LD. COMMISSIONER OF INCOME - TAX ( APPEALS) AS WELL AS THE TRIBUNAL HELD THE ASSESSEE AS THE WHOLLY - OWNED SUBSIDIARY OF M/S SUNAIR HOTELS LTD AND ACCORDINGLY DELETED THE ADDITION OF RS. 21 CRORE MADE BY THE ASSESSING OFFICER. THE HON BLE HIGH COURT HAS FOUND THE ORDER OF THE TRIBUNAL PERVERSE ON FACTS AND REMITTED THE ISSUE TO THE TRIBUNAL FOR THE DETERMINATION OF FACTS AND THEN D ECIDE THE ISSUE OF CAPITAL GAIN . 4. T HE FACTS OF THE CASE HAVE BEEN SUMMARIZED IN PARA 3 TO 10 OF THE JUDGMENT OF THE HON BLE HIGH COURT, WHICH FOR THE PURPOSE OF HAVING CLARITY OF THE ISSUE IN DISPUTE , A RE REPRODUCED AS UNDER : 3 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 3. SUNAIR HOTELS LTD. WAS GRANTED THE RIGHTS TO DEVELOP A HOTEL AT BANGLA SAHIB ROAD BY THE NEW DELHI MUNICIPAL CORPORATION (NDMC) IN 1970. HOWEVER, DUE TO SOME DIFFERENCES THAT DEVELOPED BETWEEN THE TWO, THE DEVELOPMENT RIGHTS WERE CANCELLED. SUNAIR HOTELS LTD. IN CORPORATED ANOTHER GROUP COMPANY, THE RESPONDENT ASSESSEE HEREIN, AND VIDE LETTER DATED 16TH SEPTEMBER 1993, WROTE TO THE NDMC TO SUBSTITUTE ITS NAME WITH THAT OF THE RESPONDENT ASSESSEE. DURING THE PENDENCY OF THIS REQUEST, IN THE YEAR 1993 - 94, SUNAIR HO TELS LTD. TRANSFERRED ITS DEVELOPMENT RIGHTS TO THE RESPONDENT ASSESSEE FOR NIL CONSIDERATION. HOWEVER, THE NDMC REFUSED TO TRANSFER THE LICENSEE RIGHTS IN THE NAME OF THE RESPONDENT ASSESSEE. DURING THE YEAR 1994 - 95, THE RESPONDENT ASSESSEE TRANSFERRED T HE HOTEL DEVELOPMENT RIGHTS BACK TO SUNAIR HOTELS LTD. FOR A CONSIDERATION OF 21 CRORES. 4. THE RESPONDENT ASSESSEE IN THE RETURN FILED FOR THE ASSESSMENT YEAR 1995 - 96, HAD SHOWN CAPITAL GAIN OF RS.21 CRORES ON TRANSFER OF HOTEL DEVELOPMENT RIGHTS TO SUNAI R HOTELS LTD., BUT THE SAME WAS CLAIMED TO BE EXEMPT FROM CAPITAL GAINS TAX UNDER SECTION 47(V) OF THE ACT. 4A . SECTION 47(V) OF THE ACT READS AS UNDER: - '47. TRANSACTIONS NOT REGARDED AS TRANSFER . -- NOTHING CONTAINED IN SECTION 45 SHALL APPLY TO THE FOLLOWING TRANSFERS: -- XXXX (V) ANY TRANSFER OF A CAPITAL ASSET BY A SUBSIDIARY COMPANY TO THE HOLDING COMPA NY, IF -- (A) THE WHOLE OF THE SHARE CAPITAL OF THE SUBSIDIARY COMPANY IS HELD BY THE HOLDING COMPANY, AND (B) THE HOLDING COMPANY IS AN INDIAN COMPANY: PROVIDED THAT NOTHING CONTAINED IN CLAUSE (IV) OR CLAUSE (V) SHALL APPLY TO THE TRANSFER OF A CAPITAL ASSET 4 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 MADE AFTER THE 29TH DAY OF FEBRUARY, 1988, AS STOCK - IN - TRADE;' 5. A READING OF THE SAID PROVISION SHOWS THAT IT APPLIES WHEN A WHOLLY OWNED SUBSIDIARY TRAN SFERS ITS CAPITAL ASSETS FOR CONSIDERATION TO THE HOLDING COMPANY. CONSIDERATION RECEIVED BY THE WHOLLY OWNED SUBSIDIARY COMPANY IN SUCH CASES IS NOT LIABLE TO CAPITAL GAINS TAX. A SUBSIDIARY COMPANY HAS BEEN DEFINED IN SECTION 4 OF THE COMPANIES ACT, 1956 (COMPANIES ACT , FOR SHORT) AS: - '4. MEANING OF 'HOLDING COMPANY' AND 'SUBSIDIARY'. -- (1) FOR THE PURPOSES OF THIS ACT, A COMPANY SHALL' SUBJECT TO THE PROVISIONS OF SUB - SECTION (3), BE DEEMED TO BE A SUBSIDIARY OF ANOTHER IF, BUT ONLY IF, -- (A) THAT OTHER CONTROLS THE COMPOSITION OF ITS BOARD OF DIRECTORS; OR (B) THAT OTHER -- (I) WHERE THE FIRST - MENTIONED COMPANY IS AN EXISTING COMPANY IN RESPECT OF WHICH THE HOLDERS OF PREFERENCE SHARES ISSUED BEFORE THE COMMENCEMENT OF THIS ACT HAVE THE SAME VOTING RIGHTS IN ALL RESPECTS AS THE HOLDERS OF EQUITY SHARES, EXERCISES OR CONTROLS MORE THAN HALF OF TH E TOTAL VOTING POWER OF SUCH COMPANY; (II) WHERE THE FIRST - MENTIONED COMPANY, IS ANY OTHER COMPANY, HOLDS MORE THAN HALF IN NOMINAL VALUE OF ITS EQUITY SHARE CAPITAL; OR] (C) THE FIRST MENTIONED COMPANY IS A SUBSIDIARY OF ANY COMPANY WHICH IS THAT OTHER'S SUBSIDIARY. ILUSTRATION 5 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 COMPANY B IS A SUBSIDIARY OF COMPANY A, AND COMPANY C IS A SUBSIDIARY OF COMPANY B. COMPANY C IS A SUBSIDIARY OF COMPANY A, BY VIRTUE OF CLAUSE (C) ABOVE. IF COMPANY D IS A SUBSIDIARY OF COMPANY C, COMPANY D WILL BE A SUBSIDIARY OF COMPANY B AND CONSEQUENTLY ALSO OF COMPANY A, BY VIRTUE OF CLAUSE (C) ABOVE; AND SO ON. (2) FOR THE PURPOSES OF SUB - SECTION (1), THE COMPOSITION OF A COMPANY'S BOARD OF DIRECTORS SHALL BE DEEMED TO BE CONTROLLED BY ANOTHER COMPANY IF, BUT ONLY IF, THAT OTH ER COMPANY BY THE EXERCISE OF SOME POWER EXERCISABLE BY IT AT ITS DISCRETION WITHOUT THE CONSENT OR CONCURRENCE OF ANY OTHER PERSON, CAN APPOINT OR REMOVE THE HOLDERS OF ALL OR A MAJORITY OF THE DIRECTORSHIPS; BUT FOR THE PURPOSES OF THIS PROVISION THAT OT HER COMPANY SHALL BE DEEMED TO HAVE POWER TO APPOINT TO A DIRECTORSHIP WITH RESPECT TO WHICH ANY OF THE FOLLOWING CONDITIONS IS SATISFIED, THAT IS TO SAY -- (A) THAT A PERSON CANNOT BE APPOINTED THERETO WITHOUT THE EXERCISE IN HIS FAVOUR BY THAT OTHER COMPA NY OF SUCH A POWER AS AFORESAID; (B) THAT A PERSON'S APPOINTMENT THERETO FOLLOWS NECESSARILY FROM HIS APPOINTMENT AS DIRECTOR2 [* * *] OR MANAGER OF, OR TO ANY OTHER OFFICE OR EMPLOYMENT IN, THAT OTHER COMPANY; OR (C) THAT THE DIRECTORSHIP IS HELD BY AN INDIVIDUAL NOMINATED BY THAT OTHER COMPANY OR A SUBSIDIARY THEREOF. (3) IN DETERMINING WHETHER ONE COMPANY, IS A SUBSIDIARY OF ANOTHER -- (A) ANY SHARES HELD OR POWER EXERCISABLE BY THAT OTHER COMPANY IN A FIDUCIARY CAPACITY SHALL BE TREATED AS NOT HELD OR EXERCISABLE BY IT; 6 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 (B) SUBJECT TO THE PROVISIONS OF CLAUSES (C) AND (D), ANY SHARES HELD OR POWER EXERCISABLE -- (I) BY ANY PERSON AS A NOMINEE FOR THAT OTHER COMPANY (EXCEPT WHERE THAT OTHER IS CONCERNED ONLY IN A FIDUCIARY CAPACITY); OR (II) BY, OR BY A NOMINEE FOR, A SUBSIDIARY OF THAT OTHER COMPANY, NOT BEING A SUBSIDIARY WHICH IS CONCERNED ONLY IN A FIDUCIARY CAPACITY; SHALL BE TREATED AS HELD OR EXERCISABLE BY THAT OTHER COMPANY; (C) ANY SHARES HELD OR POWER EXERCISABLE BY ANY PERSON BY VIRTUE OF THE PROVISIONS OF ANY DEBENTURES OF THE FIRST - MENTIONED COMPANY OR OF A TRUST DEED FOR SECURING ANY ISSUE OF SUCH DEBENTURES SHALL BE DISREGARDED; (D) ANY SHARES HELD OR POWER EXERCISABLE BY, OR BY A NOMINEE FOR, THAT OTHER OR IT S SUBSIDIARY [NOT BEING HELD OR EXERCISABLE AS MENTIONED IN CLAUSE (C)] SHALL BE TREATED AS NOT HELD OR EXERCISABLE BY THAT OTHER, IF THE ORDINARY BUSINESS OF THAT OTHER OR ITS SUBSIDIARY, AS THE CASE MAY BE, INCLUDES THE LENDING OF MONEY AND THE SHARES AR E HELD OR THE POWER IS EXERCISABLE AS AFORESAID BY WAY OF SECURITY ONLY FOR THE PURPOSES OF A TRANSACTION ENTERED INTO IN THE ORDINARY COURSE OF THAT BUSINESS. (4) FOR THE PURPOSES OF THIS ACT, A COMPANY SHALL BE DEEMED TO BE THE HOLDING COMPANY OF ANOTHER IF, BUT ONLY IF, THAT OTHER IS ITS SUBSIDIARY. (5) IN THIS SECTION, THE EXPRESSION 'COMPANY' INCLUDES ANY BODY - CORPORATE, AND THE EXPRESSION 'EQUITY SHARE CAPITAL' HAS THE SAME MEANING AS IN SUB - SECTION (2) OF SECTION 85 . (6) IN THE CASE OF A BODY CORPORATE WHICH IS INCORPORATED IN A COUNTRY OUTSIDE INDIA, A SUBSIDIARY 7 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 OR HOLDING COMPANY OF THE BODY CORPORATE UNDER THE LAW OF SUCH COUNTRY SHALL BE DEEMED TO BE A SUBSIDIARY OR HOLDING COMPANY OF THE BODY C ORPORATE WITHIN THE MEANING AND FOR THE PURPOSES OF THIS ACT ALSO, WHETHER THE REQUIREMENTS OF THIS SECTION ARE FULFILLED OR NOT. (7) A PRIVATE COMPANY, BEING A SUBSIDIARY OF A BODY CORPORATE INCORPORATED OUTSIDE INDIA, WHICH, IF INCORPORATED IN INDIA, WOU LD BE A PUBLIC COMPANY WITHIN THE MEANING OF THIS ACT, SHALL BE DEEMED FOR THE PURPOSES OF THIS ACT TO BE A SUBSIDIARY OF A PUBLIC COMPANY IF THE ENTIRE SHARE CAPITAL IN THAT PRIVATE COMPANY IS NOT HELD BY THAT BODY CORPORATE WHETHER ALONE OR TOGETHER WITH ONE OR MORE OTHER BODIES CORPORATE INCORPORATED OUTSIDE INDIA.' 6. THE ASSESSING OFFICER IN THE BLOCK ASSESSMENT ORDER DATED 29 TH NOVEMBER, 2002, HELD THAT THE ASSESSEE WAS NOT A WHOLLY OWNED SUBSIDIARY OF SUNAIR HOTELS LTD. HE OBSERVED THAT DURING THE COURSE OF SEARCH OPERATIONS, MATERIAL/DOCUMENTS SEIZED CONTRADICTED THE CLAIM OF THE RESPONDENT ASSESSEE, THAT IT WAS A WHOLLY OWNED SUBSIDIARY OF SUNAIR HOTELS LTD. IT WAS IN FACT A WRONG CLAIM. THE RESPONDENT ASSE SSEE HAD SEVEN REGISTERED INDIVIDUALS AS SHAREHOLDERS AND SUNAIR HOTELS LTD. WAS NOT A HOLDER OF EVEN A SINGLE SHARE. 7. DURING THE COURSE OF BLOCK ASSESSMENT PROCEEDINGS, THE RESPONDENT ASSESSEE CLAIMED THAT IT WAS WHOLLY OWNED SUBSIDIARY OF SUNAIR HOTELS LIMITED AND THAT THE SEVEN SHAREHOLDERS WERE NOMINEES OF SUNAIR HOTELS LIMITED AND NOT SHAREHOLDERS IN THEIR INDIVIDUAL RIGHT. THE ENTIRE EXPENDITURE FOR INCORPORATION OF THE COMPANY, AS WELL AS INVESTMENT IN THE SUBSCRIBED SHARE CAPITAL OF RS.7,000/ - , WA S MADE BY THE HOLDING COMPANY IN THE NAMES OF THE SEVEN SHAREHOLDERS. THE ASSESSING OFFICER REJECTED THE SAID CONTENTION OBSERVING THAT MATERIAL UNEARTHED DURING THE SEARCH OPERATION UNDER SECTION 132 OF T HE ACT, AND DURING THE POST SEARCH INVESTIGATION, ELUCIDATED THAT THE RESPONDENT ASSSESSEE WAS NOT A WHOLLY OWNED 8 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 SUBSIDIARY OF SUNAIR HOTELS LIMITED AS CLAIMED. HE SPECIFICALLY EXAMINED AND REJECTED THE TWO CONTENTIONS OF THE RESPONDENT BEING (I) THAT THE SHAREHOLDERS WERE NOMINEES OF SUNAIR HOTELS LIMITED AND WERE NOT SHAREHOLDERS IN THEIR INDIVIDUAL CAPACITY AND (II) THAT THE ENTIRE INVESTMENT IN THE SHARE CAPITAL OF RS. 7,000/ - WAS MADE BY SUNAIR HOTELS LIMITED, I.E. THE HOLDING COMPANY, RECORDING THE F OLLOWING REASONS: - (I) SHARE CERTIFICATE OF 100 SHARES OF RS.10/ - EACH, ALLOTTED ON 23RD OCTOBER, 1993, WERE IN THE NAMES OF THE INDIVIDUAL SHAREHOLDERS. THE SHARE CERTIFICATES DO NOT SHOW THAT THE SHAREHOLDERS WERE NOMINEES OF SUNAIR HOTELS LIMITED. (II) THE MEMORANDUM AND ARTICLES OF ASSOCIATION SUBMITTED BY THE RESPONDENT ASSESSEE, ALONG WITH THE REPLY DATED 29TH AUGUST, 2002 DID NOT STATE THAT THE RESPONDENT ASSESSEE WAS A WHOLLY OWNED SUBSIDIARY OF SUNAIR HOTELS LTD. AND THAT THE SHARES WERE SUBSCRIBED BY SUNAIR HOTELS LIMITED. (III) NO DECLARATION WAS MADE UNDER SECTION 187C OF THE COMPANIES ACT, THAT THE SEVEN SHAREHOLDERS WERE NOMINEES OF SUNAIR HOTELS LIMITED. IT IS OBLIGATORY TO FILE A DECLARATION IN THE PRESCRIBED FORM UNDER SECTION 187C OF THE COMPANIES ACT. (IV) PRESCRIBED FORMS UNDER SECTION 187C OF THE COMPANIES ACT WERE FILED WITH THE REGISTRAR OF COMPANIES IN JANUARY 2000 I.E. SIX AND HALF YEARS AFTER INCORPORATION OF THE RESPONDENT ASSESSEE. THESE FORMS PURPORTEDLY SIGNED AND DATED ON 25TH OCTOBER, 1993, WERE FORGED AND FABRICATED AS PER THE AS SESSING OFFICER. THE SAID FORMS WERE PURCHASED FROM JAIN BOOK AGENCY (SALES), CONNAUGHT PLACE, NEW DELHI AND AS PER THE STATEMENT OF NABHI KUMAR JAIN AND MEENAKSHI MATHUR OF JAIN BOOK AGENCY, DATED 28TH FEBRUARY, 2001 THESE FORMS WERE PRINTED AND SOLD AFTE R MAY - JUNE, 1998. THE STATEMENT MADE BY NABHI KUMAR JAIN AND MEENAKSHI MATHUR HAVE BEEN QUOTED IN THE ASSESSMENT ORDER. 9 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 (V) TWO SHAREHOLDERS, I.E ROBIN GUPTA AND RADHIKA PRASAD DUBEY, IN THEIR STATEMENTS HAD CLEARLY STATED THAT THEY HAD NOT SIGNED THE FORM S UNDER SECTION 187C OF THE COMPANIES ACT. THE STATEMENTS OF ROBIN GUPTA AND RADHIKA PRASAD DUBEY HAVE BEEN QUOTED IN THE ASSESSMENT ORDER. (VI) THE GOVERNMENT EXAMINER OF QUESTIONED DOCUMENTS HAD AFFIRMED THAT THE FORMS SUBMITTED UNDER SECTION 187C WERE NOT SIGNED BY ROBIN GUPTA AND RADHIKA PRASAD DUBEY. (VII) ROBIN GUPTA HAD DENIED THAT HE WAS A NO MINEE OF SUNAIR HOTELS LIMITED AND STATED THAT HE WAS A SHAREHOLDER IN HIS INDIVIDUAL CAPACITY. (VIII) RADHIKA PRASAD DUBEY IN HIS STATEMENT STATED THAT HE HAD WORKED WITH V.K. BINDAL & COMPANY, CHARTERED ACCOUNTANT AND HAD SIGNED THE MEMORANDUM AND ARTICL ES OF ASSOCIATION BUT HAD NO ASSOCIATION WITH SUNAIR HOTELS LIMITED. HE HAD ASCRIBED HIS SIGNATURE ON THE MEMORANDUM ETC. ON THE ASKING OF VINOD BINDAL. (IX) THE INSPECTION REPORT OF MR. J.N. TIKKU, DEPUTY DIRECTOR (INSPECTION) DATED 22ND NOVEMBER, 2000 UN DER SECTION 209A OF THE COMPANIES ACT STATES THAT THERE WERE SEVERAL IRREGULARITIES/VIOLATIONS WITH REGARD TO THE ISSUE OF SHARES ETC. (X) THE MINUTES OF BOARD OF DIRECTORS OF THE RESPONDENT ASSESSEE SEIZ ED AT THE TIME OF SEARCH SHOW EXTENSIVE USE OF FLUID TO CHANGE THE DATES OF THE MEETINGS. ROBIN GUPTA HAD CATEGORICALLY DENIED HIS ATTENDING THE BOARD MEETING ON 23RD OCTOBER, 1993 IN WHICH IT WAS RECORDED THAT THE INDIVIDUAL SHAREHOLDERS WERE NOMINEES OF SUNAIR HOTELS LIMITED. MINUTES OF THE MEETING OF BOARD OF DIRECTORS, SEIZED AS ANNEXURE A - 31 SHOW THAT THEY HAVE BEEN WRITTEN ON THE SAME DATE USING THE SAME PEN AND IN THE SAME WRITING. ANNEXURE 31 WAS A FALSE AND FORGED DOCUMENT CREATED BY THE RESPONDENT ASSESSEE TO SUPPORT 10 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 THE CLAIM THAT IT WAS A WHOLLY OWNED SUBSIDIARY OF SUNAIR HOTELS LIMITED. (XI) SUNAIR HOTELS LIMITED HAD MADE A REQUEST TO NDMC ON 16TH SEPTEMBER, 1993 TO SUBSTITUTE AND TRANSFER THE LICENSE TO THE RESPONDENT ASSESSEE BUT THE RESPONDEN T ASSESSEE WAS INCORPORATED SUBSEQUENTLY ON 22ND OCTOBER, 1993. (XII) INCURRING OF EXPENDITURE AT THE TIME OF INCORPORATION DOES NOT MAKE THE COMPANY, WHICH INCURS THE EXPENDITURE, THE HOLDING COMPANY AND THE COMPANY INCORPORATED A SUBSIDIARY. IT CERTAINLY DOES NOT MAKE THE INCORPORATED COMPANY, A WHOLLY OWNED SUBSIDIARY. 8. ACCORDINGLY, IT WAS HELD BY THE ASSESSING OFFICER THAT THE RESPONDENT ASSESSEE WAS NOT A WHOLLY OWNED SUBSIDIARY OF SUNAIR HOTELS LIMITED. CONSEQUENTLY, THE ENTIRE AMOUNT OF RS.21 CRORE S RECEIVED BY THE RESPONDENT ASSESSEE WAS TAXABLE AND THE BENEFIT UNDER SECTION 47(V) WAS NOT AVAILABLE. 9. THE AFORESAID FINDINGS MADE BY THE ASSESSING OFFICER AND THE DENIAL OF BENEFIT UNDER SECTION 47(V) OF THE ACT WAS REVERSED BY THE FIRST APPELLATE AUTHORITY. THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE STATEMENT OF ROBIN GUPTA WAS NOT RELIABLE. STATEMENT OF RADHIKA PRASAD DUBEY WAS TO THE EFFECT THAT HE WAS ACTING AS A DUMMY DIRECTOR AND WAS NOT A DE FACTO DIRECTOR. THIS WAS NOT SUFFICIENT AND THE ASSESSING OFFICER SHOULD HAVE HAD MADE FURTHER ENQUIRIES. IN THESE CIRCUMSTANCES, IT WAS NECESSARY TO FIND OUT AND ASCERTAIN WHO HAD ACTUALLY MADE INVESTMENT IN THE SHARE CAPITAL OF THE RESPONDENT ASSESSEE. THIS WOULD DETERMINE THE REAL OWNERSHIP OF THE RESPONDENT ASSESSEE. THE PAYMENT OF SHARE CAPITAL WAS MADE BY CHEQUE AND THE COPY OF THE RECEIPT ISSUED BY THE REGISTRAR OF COMPANIES H AD BEEN FILED. THIS ASPECT WAS NOT CONTROVERTED AND DENIED BY THE ASSESSING OFFICER, WHILE DENYING BENEFIT UNDER SECTION 47(V) OF THE ACT. SECTION 187C O F THE COMPANIES ACT IS A PROCEDURAL PROVISION AND THE REQUIREMENT OF THE COMPANIES ACT 11 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 CANNOT BE IMPORTED AND CONSIDERED FOR EXAMINING WHETHER CONDITIONS UNDER SECTION 47(V) OF THE ACT WERE FULFILLED OR NOT. AS FAR AS FORGERY OF SIGNATURES AND DISCREPANCY IN THE MINUTES BOOKS WAS CONCERNED, IT WAS FOR THE AUTHORITIES UNDER THE COMPANIES ACT T O TAKE NOTI CE AND ACTION. HOWEVER, HAVING REGARD TO THE PROVISIONS OF SECTION 47(V) , THIS ASPECT WAS IMMATERIAL. INVESTMENT IN THE SHARES WAS MADE BY THE HOLDING COMPANY, SUNAIR HOTELS LTD., AND THIS POSITION WAS REFLECTED IN THE BOOKS OF BOTH THE RESPONDENT ASSESSEE AND SUNAIR HOTELS LIMITED. ROBIN GUPTA HAD NOT STATED THAT HE HAD MADE PAYMENT FOR 100 SHARES OUT OF HIS OWN FUNDS AND HAD NOT SHOWN OR CLAIMED OWNERSHIP OF SHARES I N HIS BALANCE - SHEET. ADDITION OF RS.21 CRORES WAS TREATED AS UNWARRANTED AND THE SAME WAS DELETED. 10. APPEAL FILED BY THE REVENUE, HAS BEEN DISMISSED BY THE IMPUGNED ORDER DATED 26TH OCTOBER, 2007. WE DEEM IT APPROPRIATE TO REPRODUCE THE ENTIRE REASONING GIVEN BY THE TRIBUNAL, AS A QUESTION OF PERVERSITY HAS BEEN RAISED. PARAGRAPHS 8 TO 14 OF THE ORDER PASSED BY THE TRIBUNAL READ AS UNDER: - '8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF BOTH THE PARTIES, PERUSED THE RECORD AND CAREFULLY GONE THROUGH THE I MPUGNED ORDER OF THE TAX AUTHORITIES BELOW. 9. IN THE INSTANT CASE THE LD. DR FOR THE REVENUE EXCEPT PLACING RELIANCE ON THE REASONING GIVEN IN THE ORDER OF AO WAS NOT ABLE TO CONTROVERT THE FACTUAL OBSERVATIONS MADE IN THE ORDER OF CIT(A) AND THE FINDINGS RECORDED ON THE BASIS OF THE CONCLUSIONS DRAWN ON THE FACTUAL OBSERVATIONS MADE BY THE CIT(A). 10. ON THE OTHER HAND THE LD. AR FOR THE ASSESSEE FIRST REITERATED SUBMISSIONS MADE BEFORE THE CIT(A) AND THEREAFTER RELYING ON THE REASONING GIVEN IN THE ORDER OF CIT(A) SUBMITTED THAT THE CIT(A) RIGHTLY DELETED THE IMPUGNED ADDITION OF RS.21 CRORES MADE BY THE AO. 11. THE FIRST POINT REQUIRED TO BE RESOLVED BY US IS WHETHER ON THE BASIS OF STATEMENT OF SHRI ROBIN 12 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 GUPTA RECORDED ON 8 - 3 - 2001 THE AO WAS JUSTIFIED IN CONCLUDING THAT SHRI ROBIN GUPTA HELD THE SHARES IN HIS OWN NAME AND NOT AS A NOMINEE BECAUSE EXCEPT BALD ORAL STATEMENT, HE HAS NOT BEEN ABLE TO SUBSTANTIATE THE CLAIM OF INVESTMENT IN THE SHARES IN HIS PERSONAL CAPACITY BY PROVIDING ANY DOCUMENT/EVIDE NCE WHEN THE CASE OF THE ASSESSEE IS THAT THE SOURCE OF THE INVESTMENT IN THE SHARE CAPITAL OF SUNAERO LTD. IS FROM THE FUNDS GIVEN BY THE SUNAIR HOTELS LTD. THE PAYMENT TOWARDS THE SHARE CAPIAL WAS MADE THROUGH CHEQUE AND COPY OF THE RECEIPTS ISSUED BY RE GISTRAR OF COMPANIES SUPPORTS THE CLAIM OF THE ASSESSEE. THE AO HAS NOT CONTROVERTED THIS ASPECT OF THE ASSESSEE U/S 47(V) OF THE ACT IT IS NECESSARY THAT THE HOLDING COMPANY SHOULD HOLD THE WHOLE OF THE SHARE CAPITAL OF THE SUBSIDIARY COMPANY AND SHOULD A LSO BE AN INDIA COMPANY. THE ASSESSEE, IN VIEW OF THE PAYMENT TOWARDS SHARE CAPITAL HAVING BEEN MADE BY SUNAIR HOTELS LTD., HAS BEEN ABLE TO SHOW THAT THESE CONDITIONS HAVE BEEN MET IN THE CASE OF THE ASSESSEE AND THEREFORE THE ASSESSEE IS ENTITLED TO THE BENEFIT ALLOWED U/S 47(V) OF THE ACT. 12. THE UNDISPUTED FACTS IN THIS CASE ARE THAT THE ASSESSEE COMPANY M/S SUNAERO LTD. WAS INCORPORATED ON 22 - 10 - 93 WITH 7 SUBSCRIBERS TO ITS SHARE CAPITAL. DURING THE YEAR 1994 - 95 M/S SUNAERO LTD. TRANSFERRED THE HOTEL DEVELOPMENT RIGHTS BACK TO M/S SUNAIR HOTELS LTD. FOR A CONSIDERATION OF RS.21 CRORES. THIS AMOUNT WAS DECLARED TO BE THE PROFITS IN THE ANNUAL FINANCIAL STATEMENT OF M/S SUNAERO LTD. FOR THE YEAR ENDING 31.3.95. HOWEVER, THIS AMOUNT WAS CLAIMED TO BE EXEM PT FROM CAPITAL GAINS TAX U/S 47(V) OF THE I.T. ACT I N THE RETURN OF ITS INCOME FILED FOR A.Y. 1995 - 96. WHEREAS, UNDER THE SECTION ANY CAPITAL GAINS ARISING OUT OF TRANSFER OF CAPITAL ASSETS FROM A WHOLLY SUBSIDIARY COMPANY TO ITS HOLDING COMPANY IS NOT LIABLE TO GAIN TAX. AS DISCUSSED HEREINABOVE, THE ASSESSEE FROM THE ABOVE MENTIONED EVIDENCE WAS ABLE TO SHOW THAT THE HOLDING COMPANY WAS HOLDING THE WHOLE OF THE SHARE CAPITAL OF THE SUBSIDIARY 13 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 COMPANY AN D THE PAYMENTS TOWARDS THE SHARE CAPITAL OF THE ASSESSEE TOO WAS MADE BY M/S SUNAIR HOTELS LTD. THE AO WITHOUT EXAMINING OTHER SIX SUBSCRIBERS TO THE SHARE CAPITAL, SIMPLY ON THE BASIS OF THE STATEMENT OF SHRI ROBIN GUPTA HAS TRIED TO ESTABLISH THAT THE SH ARS OF THE COMPANY WERE HELD IN THE NAME OF THE 7 SUBSCRIBERS AND NOT AS NOMINEE. ON ANALYZING THE STATEMENT OF SHRI ROBIN GUPTA WE FIND FIRSTLY THAT SHRI ROBIN GUPTA STATES THAT THE SIGNATURES APPEARING ON FORM NO. 1 PRESCRIBED UNDER RULE3(1) OF SEC. 187C WERE NOT HIS. IT IS HOWEVER TO BE NOTICED THAT IN HIS STATEMENT SHRI ROBIN GUPTA HAS FURTHER STATED THAT HE WAS UNABLE TO RECALL THE MODE OF PAYMENT OF THE SHARE CAPITAL. FURTHER, THAT THE DAY TO DAY AFFAIRS OF THE COMPANY WERE BEING LOOKED BY SHRI S.P. G UPTA, AN ANOTHER SUBSCRIBER. WE HAVE ALREADY MENTIONED HEREINABOVE THAT THE AO HAS NOT MADE ANY ENQUIRIES FROM THE OTHER REMAINING SHARESHOLDERS OF THE ASSESSEE COMPANY, SO, IN THESE FACTS THE ONLY SATISFACTORY BASIS FOR ARRIVING AT A DECISION REGARDING CA PITAL GAIN U/S 47(V) COULD NOT BE THE EXAMINATION OF THE OTHER SUBSCRIBERS WHO COULD ACTUALLY DISCLOSE AS TO WHETHER THEY HAD MADE THE INVESTMENT IN THE SHARE CAPITAL OF THE ASSESSEE COMPANY. ONLY ON THIS BASIS THE REAL OWNERSHIP OF THE SHARES IN QUESTION COULD HAVE BEEN ASCERTAINED BY THE AO, BUT, IN THE INSTANT CASE THE AO HAS FAILED TO DO SO BY BRINGING ON RECORD ANY COGENT EVIDENCE. 13. NOW COMING TO THE OTHER POINT WHETHER THE ASSESSEE COMPANY HAS FULFILLED THE CONDITION LAID DOWN IN SEC. 187C OF THE C OMPANIES ACT AND THE EFFECT THEREOF. IN THIS REGARD WE FIND THAT INCOME TAX ACT , 1961 DOES NOT CONTAIN ANY REFERENCE TO SEC. 187C OF THE PURPOSE OF CONSIDERING THE TAXABILITY OF CAPITAL GAINS U/S 74(V) (SI C.) OF THE ACT OTHERWISE TOO IT IS SIMPLY A PROCEDURAL SECTION FOR THE PURPOSE OF DISCLOSURE OF BENAMI HOLDING OF SHARES. SO FAR AS THE ALLEGED VIOLATION OF COMPANIES ACT IN TERMS OF LATE SUBMISSION OF DECLARATION U/S 187, FORGERY OR MISMATCH OR SIGNATURES AND DISCREPANCIES IN RECORDING IN MINUTE BOOKS ARE CONCERNED, IT IS FOR THE 14 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 CONCERNED AUTHORITIES UNDER THE RELEVANT ENACTMENTS TO TAKE NOTE OF AND TO TAKE SUCH PUNITIVE ACTION AS MAY BE DEEMED FIT. HOWEVER, AS REGARDS THE PROVISIONS OF SEC. 47(V) OF I.T. ACT IT IS CLEAR FROM THE FACTS OF THE INSTANT CASE THAT INVESTMENT IN THE SHAR E S OF THE ASSESSEE COMPANY HAS BEEN MADE BY M/S SUNAIR HOTELS LTD. WHICH IS REFLECTED IN THE BALANCE SHEETS OF BOTH THE COMPANIES. REGARDING THE STATEMENT OF SHRI ROBIN GUPTA WE HAVE ALREADY ANALYZED HEREINABOVE THAT HIS STATEMENT IS NOT WORTH PLACING ANY RELIANCE AS HE FAILED TO ESTABLISH FROM C OGENT EVIDENCE THAT IN THE FACT HE MADE THE PAYMENT OF 100 SHARES OUT OF HIS OWN FUNDS BECAUSE HE NEITHER FURNISHED ANY DETAILED OF SUCH PAYMENT NOR THE SAME WAS SHOWN BY HIM IN HIS BALANCE SHEET INDICATING THE OWNERSHIP OF THE SAME. 14. FOR THE REASONS ST ATED ABOVE WE ARE OF THE OPINION THAT IN THE EXISTING FACTS AND CIRCUMSTANCES, THE ASSESSEE HAS BEEN ABLE TO ESTABLISH THAT THE CAPITAL GAINS OF RS.21CRORESARISING OUT OF TRANSFER OF THE CAPITAL ASSETS FROM A WHOLLY - OWNED SUBSIDIARY COMPANY TO ITS HOLDING COMPANY WAS NOT LIABLE TO CAPITAL GAINS TAX AS PER THE PROVISIONS OF SEC. 47(V) OF INCOME TAX ACT , 1961. ACCORDINGLY, THE ORDER OF CIT(A) IN THIS REGARD IS UPHELD AND GROUNDS OF APPEALS TAKEN BY THE REVENU E ARE REJECTED.' 5. THE ASSESSEE COM PANY WAS INCORPORATED ON 22/10/ 1993 WITH SEVEN SUBSCRIBERS , NAMELY , SH. SP GUPTA , SH . VIPUL GUPTA, SH . NAVEEN GUPTA , SH. ROBIN GUPTA, SH . RAD HIKA PARSAD DUBEY, SH . GURDHARI L AL AGGARWAL AND S H. PRAVEEN GUPTA . IT IS CLAIMED BY THE ASSESSEE THAT PAYMENT FOR THE SHARE CAPITAL WAS GIVEN BY M/S . SUNAIR H OTELS LTD, AND ALL THE SEVEN SUBSCRIBERS WERE MERELY NOMINEES OF M/S SUNAIR H OTELS LTD. THE TRIBUNAL IN ITS ORDER DATED 26.10.2007 HELD THAT THE PAYMENT TOWARDS TH E SHARE CAPITAL OF THE ASSESSEE COMPANY 15 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 WAS MADE BY M/S . SUNAIR H OTELS LTD . THROUGH CHEQUE, HOWEVER, THIS FINDING OF FACT WAS NOT FOUND TO BE CORRECT BY THE HON BLE HIGH COURT. FURTHER, THE FACT RECORDED BY THE TRIBUNAL TH AT RECEIPTS WERE ISSUED BY THE R EG ISTRAR OF COMPANIES FOR ISSUE OF SHARES WAS ALSO FOUND TO BE FACTUALLY INCORRECT BY THE HON BLE HIGH COURT. THE TRIBUNAL HAD RECORDED THAT THE ASSESSING OFFICER DID NOT EXAMINE THE SIX OTHER SUBSCRIBERS TO THE SHARE CAPITAL. THIS FINDING WAS ALSO FOUND TO BE FACTUALLY INCORRECT BY THE HON BLE HIGH COURT. FURT HER, AS REGARD TO THE FINDING OF THE TRIBUNAL THAT THE QUESTION OF REAL OWNERSHIP SHOULD HAVE BEEN ASCERTAINED BY THE ASSESSING OFFICER BUT HE HAD FAILED TO DO SO, THE HON BLE HIGH COURT HAS OBSERVED TH AT IT WAS NOT FOR THE ASSESSING OFFICER TO ESTABLISH TO THE CONTRARY BUT FOR THE ASSESSEE TO SHOW AND ESTABLISH THAT IT WAS A WHOLLY - OWNED SUBSIDIARY OF THE HOLDING COMPANY AND THE SHAREHOLDERS WERE MERELY NOMINEES OF THE HOLDING COMPANY. REGARDING THE FIN DING OF THE TRIBUNAL IN RESPECT OF REQUIREMENT OF SECTION 187C OF THE COMPANIES ACT AND EFFECT THEREOF, THE HON BLE HIGH COURT HAS OBSERVED THAT SEC TION 187C OR SECTION 49 OF THE C OMPANIES ACT AND VIOLATION THEREOF AND PENALTY PRESCRIBED, IS ONE ASPECT, BU T THE EFFECT OF SAID VIOLATION IS TO BE EXAMINED AND CONSIDERED, IN REMAND PROCEEDINGS BY THE TRIBUNAL. FURTHER, THE HON BLE HIGH COURT DID NOT AGREE WITH THE OBSERVATION OF THE TRIBUNAL THAT THE QUESTION OF WHETHER THE ASSESSEE WAS A 100% SUBSIDIARY OF M/S. SUNAIR HOTELS LTD , COULD BE EXAMINED WITHOUT REFE RENCE TO THE PROVISIONS OF THE C OMPANIES ACT OR OTHER ENACTMENTS. THUS, THE HON BLE HIGH COURT REMANDED THE MATTER TO EXAMINE THE 16 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 EVIDENCES OF THE ASSESSEE. THE HON BLE HIGH COURT ALSO MADE OBSERVATIONS ON CONTENTIONS RAISED BY THE ASSESSEE THAT THE BLOCK ASSESSMENT PROCEEDINGS WERE BAD IN LAW AS THERE WAS NO MATERIAL OR EVIDENCE FOUND DURING THE SEARCH. AFTER MAKING ABOVE OBSERVATIONS, THE HON BLE HIGH COURT DECIDED THE SECOND QUESTION OF LAW IN AFFIRMA TIVE AND FIRST QUESTION OF LAW IS ANSWERED WITH THE ORDER OF REMIT TO THE TRIBUNAL. THE RELEVANT FINDING OF THE HON BLE HIGH COURT IS REPRODUCED AS UNDER: IN VIEW OF THE AFORESAID DISCUSSION, WE ANSWER THE SECOND QUESTION OF LAW IN AFFIRMATIVE, I.E., IN F AVOUR OF THE APPELLANT - REVENUE AND AGAINST THE RESPONDENT - ASSESSEE. THE FIRST QUESTION IS ANSWERED WITH THE ORDER OF REMIT AS IT WOULD BE BETTER AND APPROPRIATE IF THE ENTIRE ISSUE IS EXAMINED THREADBARE BY THE TRIBUNAL. IT WOULD NOT BE PROPER FOR US TO DE CIDE THE SAME QUESTION WITHOUT ELUCIDATION AND FINDING OF FACTS BEING FIRMLY RECORDED BY THE TRIBUNAL. WE REFRAIN FROM CARRYING OUT THE SAID EXERCISE AS THE TRIBUNAL IS THE FINAL FACT FINDING AUTHORITY. THEY SHOULD RECORD FINDINGS OF FACTS AND THEN APPLY T HE LAW. 6. THUS , THE ISSUE IN DISPUTE BEFORE US IS WHETHER THE ASSESSEE IS ENTITLED FOR EXEMPTION FROM CAPITAL GAIN ON TRANSFER OF DEVELOPMENT RIGHTS TO M/S SUNAIR H OTELS LTD . UNDER SECTION 45 READ WITH SECTION 47(V) OF THE INCOME T AX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). THE SECTION 47 (V) OF THE ACT HAS EXCLUDED TRANSFER OF A CAPITAL ASSET BY WHOLLY - OWNED SUBSIDIARY COMPANY TO THE HOLDING INDIAN COMPANY FROM CAPITAL GAIN . THE SECTION 47(V) READS AS UNDER: 47. NOTHING CONTAINED IN SECTION 45 SHALL APPLY TO THE FOLLOWING TRANSFERS: ( I ) . ( II ) .. 17 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 ( III ) .. ( IV . ( V ) ANY TRANSFER OF A CAPITAL ASSET BY A SUBSIDIARY COMPANY TO THE HOLDING COMPANY, IF ( A ) THE WHOLE OF THE SHARE CAPITAL OF THE SUBSIDIARY COMPANY IS HELD BY THE HOLDING COMPANY, AND ( B ) THE HOLDING COMPANY IS AN INDIAN COMPANY : 7. THUS , THE ULTIMATE ISSUE FOR CONSIDERATION EMERGES BEFORE US IS THAT WHETHER THE WHOLE OF THE SHARE CAPITAL OF THE ASSESSEE COMPANY WAS HELD BY M/S SUNAIR HOTELS LTD OR SAY, THE ASSESSEE COMPANY WAS A WHOLLY - OWNED SUBSIDIARY OF M/S SUNAIR H OTELS LTD. IF IT CAN BE ESTABLISHED THAT THE ASSESSEE IS WHOLLY - OWNED SUBSIDIARY OF M/S SUNAIR H OTELS LTD . , THEN THE TRANSFER OF DEVELOPMENT RIGHTS BY THE ASSESSEE TO M/S SUNAIR H OTELS LTD . FALLS UNDER EXCLUSION FROM CAPITAL GAIN AS LAID DOWN IN SECTION 47(V) OF THE ACT. 8. BEFORE US, T HE LEARNED COMMISSIONER OF INCOME T AX (DR), REITERATED T HE SUBMISSION MADE BY THE REVENUE BEFORE THE HON BLE HIGH COURT AND THEREAFTER REFERRING TO VARIOUS OBSERVATIONS OF THE HON BLE HIGH COURT SUBMITTED THAT THE ASSESSEE WAS NOT A WHOLLY - OWNED SUBSIDIARY OF M/S . SUNAIR H OTELS LTD . DUE TO FOLLOWING REASONS: (I) THE SHARE CERTIFICATE S OF THE ASSESSEE COMPANY SEIZED DURING THE COURSE OF SEARCH DID NOT MENTION THE FACT THAT SHARES WERE HELD BY THE SHAREHOLDERS AS NOMINEE OF ANY HOLDING COMPANY. (II) THE FORMS PRESCRIBED UNDER SECTION 187C OF THE C OMPANIES ACT RELATED T O THE INFORMATION OF HOLDING 18 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 SHARES BY THE SHAREHOLDERS OTHERWISE TH AN HAVING BENEFICIAL INTEREST, WERE NOT SUBMITTED BY THE ASSESSE E COMPANY IN THE OFFICE OF THE REGISTRAR OF C OMPANIES (ROC) IN RELEVANT ASSESSMENT YEAR , AND SAME WERE SUBMITTED ONLY IN JANUARY, 2000 , I.E. , AFTER A DELAY OF SIX AND HALF YEARS FROM T HE INCORPORATION OF THE COMPANY . (III) THE PURPORTED SIGNATURE OF THE SHAREHOLDERS ON THESE FORMS ARE DATED 25/10/1993, WHEREAS DURING I NQUIRY FROM THE FIRM S WHO PRINTED THOSE FORMS, IT IS FOUND THA T THOSE FORMS WERE PRINTED FOR THE FIRST TIME IN THE YEAR 1998 ONLY, THUS , THE FORMS SUBMITTED BY THE ASSESSEE COMPAN Y TO THE ROC , ON BEHALF O F THE SHAREHOLDERS , ARE NOT FOUND TO BE GENUINE AND THE ENTIRE PROCESS OF FILING THO SE FORMS WITH THE ROC WAS NOTH ING MORE THAN AN AFTERTHOUGHT. (IV) OUT OF THE SEVEN SUBSCRIBERS OF THE SHARE CAPITAL OF THE ASSESSEE COMPANY, TWO SUBSCRIBER S NAMELY SH. ROBIN GUPTA AND S H. RADHIKA PARSAD DUBEY , STATED THAT THE PRESCRIBED FORM NO. I SUBMITTED BY THE ASSESSEE COM PANY TO THE REGISTRAR OF COMPANIES (ROC) WERE NOT SIGNED BY THEM AND THE SHARES WERE SUBSCRIBED BY THEM IN INDIVIDUAL CAPAC ITY AND NOT AS NOMINEES OF M/S SUNAIR H OTELS LTD. (V) ACCOR DING TO THE OPINION REPORT OF THE G OVERNMENT EXAMINER OF Q UESTION DOCUMENTS , WHICH IS AVAILABLE ON PAGES 258 TO 2 59 OF THE ASSESSEE S PAPER BOOK , THE 19 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 SIGNATURES OF SH . ROBIN GUPTA ON THE FORM DID NOT MATCH WITH HIS SPECIMEN SIGNATURES OBTAINED BY THE ASSESSING OFFICER IN ASSESSMENT PROCEEDINGS. (VI) I N THE INSPECTION REPORT OF S H . J N TIKKU , DE PUTY DIRECTOR (INSPECTION) , DEPARTMENT OF COMPANY AFFAIRS DATED 04.08.2009 UNDER SECTION 209A OF COMPANIES ACT , A COPY OF WHICH IS AVAILABLE ON PAGES NUMBER 98 TO 102 OF THE ASSESSES PAPER BOOK , CONTRAVENTION S OF THE COMPANIES ACT ARE OBSERVED WITH REGARD TO THE ISSUE OF SHARES. 9 . THE LD. CIT(DR) ALSO REFERRED TO THE VARIOUS PARAGRAPHS OF THE JUDGMENT OF THE HON BLE HIGH COURT AND SUBMITTED THAT THE HON BLE HIGH COURT HAS ALREADY OBSERVED THAT SH . ROBIN GUPTA , ONE OF THE SHAREHOLDER OF THE ASSESSEE COM PANY WAS HOLDING SHARE IN HIS PERSONAL CAPA CITY AND NOT AS NOMINEE OF M/S SUNAIR H OTELS LTD . , THUS , THE ASSESSEE COMPANY WAS NOT A WHOLLY - OWNED SUBSIDIARY OF M/S SUNAIR H OTELS LTD . AND THEREFORE IT WAS NOT ELIGIBLE FOR BENEFIT OF SECTION 47(V) OF THE ACT. 10 . THE LEARNED COUNSEL OF THE ASSESSEE , ON THE OTHER HAND , SUBMITTED THAT HON BLE HIGH COURT HAS NOT GIVEN ANY FINAL VERDICT IN RESPECT OF FACTUAL FINDING OF THE FACT THAT SH. ROBIN GUPTA HELD 100 SHARES OF THE ASSESSEE COMPANY IN THE PERSONAL CAPACITY A ND THE ASSESSEE WAS NOT A WHOLLY - OWNED SUBSIDIARY OF M/S SUNAIR H OTELS LTD AND THE HON BLE HIGH COURT HAS REMITTED THE ISSUE TO THE TRIBUNAL FOR GIVING FINDING OF FACTS ON THE ISSUE. THE LEARNED COUNSEL REPEATED ARGUMENTS IN RESPECT OF PAYMENT 20 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 FOR OF SUBSC RIPTION OF SHARES, WHICH WERE ADVANCED BEFORE THE HON BLE HIGH COURT. 11 . IT WAS REITERATED BEFORE US THAT ENTIRE PAYMENT FOR SUBSCRIP TION OF SHARES WAS MADE BY M/S SUNAIR H OTELS LTD . AND THE CLAIM OF PAYMENT BY ONE OF THE SUBSCRIBER S, S H . ROBIN GUPTA WA S NOT ESTABLISHED WITH DOCUMENTARY EVIDE NCE. IT WAS EXPLAINED THAT M/S. SUNAIR H OTELS LTD . HAS MADE A PAYMENT OF RS. 38,020/ - ON 15/10/ 1993 THROUGH A DEMAND DRAFT TO REGISTRAR OF C OMPAN IES (ROC) FOR INCORPORATION OF THE ASSESSEE CO MPANY , WHICH IS RECORDED IN THE L EDGER ACCOUNT OF THE ASSESSEE COMPANY AND IT WAS AGAINS T THE SAID PAYMENT MADE BY M/S SUNAIR H OTELS LTD . , THE ASSESSEE COMPANY ALLOTTED 70 0 SHARES OF RS. 10 EACH TO M/S SUNAIR H OTELS LTD. IT WAS SUBMITTED BY THE LEARNE D COUNSEL T HAT THE LAST ENTRY DATED 31/03/1994, WAS PASSED BY M/S SUNAIR HOTELS LTD. AS J OURNAL ENTRY TO ACCOUNT FOR THE SAID INVESTMENT MADE DURING THE YEAR IN ITS BOOKS. THE LEARNED COUNSEL ARGUED THAT IT WAS A MATTER OF BASIC ACCOUNTING THAT AFTER HAVING PAID RS. 75,000 / - BY THE CHEQUE, ONLY AN ADJUSTMENT ENTRY COULD HAVE BEEN PASSED BY M/S SUNAIR H OTELS LTD . FOR RECORDING ITS INVESTMENT OF RS. 7000 / - MADE IN THE SHARE CAPITAL OF THE ASSESSEE COMPANY. IT WAS STATED THAT THIS WAS DEFINITELY CASE OF SHARES ALLO TTED A GAINST PAYMENT BY CHEQUE/ CASH AND CANNOT BE MISUNDERSTOOD AS MAKING ALLOTMENT OF SHARES AGAINST KIND. IT WAS FURTHER SUBMITTED BY THE LEARNED COUNSEL THAT THERE WAS NO PROVI SION AND REQUIREMENT UNDER THE C OMPANIES ACT FOR THE SUBSCRIBERS TO PAY FOR SHARE C APITAL BEFORE INCORPORATION OF THE COMPANY 21 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 AND THEY ONLY AGREE TO SUBSCRIBE TO THE SHARES AFTER IT IS INCORPORATED, HOWEVER , THEY BECOME MEMBERS AUTOMATICALLY ON INCORPORATION OF THE COMPANY WHETHER THEY HAVE PAID FOR THE SHARES AGREED TO BE TAKE N OR NOT A ND IF THEY DO NOT PAY , THEN BECOME DEBTORS OF THE COMPANY TO THAT EXTENT. THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT NOT ONLY L EDGER ACCOUNT FRO M THE BOOKS OF ACCOUNTS OF M/S SUNAIR H OTELS LTD . WAS PRODUCED BUT ALSO FOLLOWING DOCUMENTS WERE FURNISHED: A) BANK STATEMENT OF SUNAIR SHOWING PAYMENT OF RS. 38,020/ - TO ROC FOR INCORPORATION OF SUN AERO AS ADVANCE AGAINST ALLOTMENT OF SHARES TO NOMINEE SUBSCRIBERS. [REFER: PB FOLIO 22]. B) BALANCE SHEETS AS AT 31/03/1994 OF BOTH SUNAIR & SUN AERO CLEARLY SHOWING THE STATUS OF WOS OF SUN AERO FILED BEFORE THE ROC AS WELL AS WITH THEIR RESPECTIVE RETURNS OF INCOME FOR THE AY 1994 - 95. [REFER: PB FOLIO 26 - 27], C) SEIZED BOOKS OF ACCOUNT OF SUN AERO SHOWING ADJUSTMEN T OF RS. 7,000/ - TOWARDS ALLOTMENT OF SHARES TO THE NOMINEE SUBSCRIBERS ON BEHALF OF SUNAIR. D) MINUTES OF THE FIRST MEETING OF THE BOARD OF DIRECTORS HELD ON 23/10/1993 SEIZED VIDE PAGE NOS. 1 - 4 OF ANNEXURE A - 31 FOUND DURING THE SEARCH. 12 . T HE LEARNED COU NSEL SUBMITTED T HAT IN VIEW OF THE RATIO D ECIDENDI IN THE CASE OF J . B . BODA AND C OMPANY VS. CBDT (1997) 223 ITR 271 (SC), THE COMMISSIONER OF INCOME TAX ( APPEALS ) AND ITAT HAD CORRECTLY HELD THAT THE PAYMENT AGAINST THE ALLOTMENT OF SHARES HAD IND EED BEEN MADE BY CHEQUE BY M/S . SUNAIR H OTELS LTD. 1 3 . AS REGARD TO THE SUBSCRIPTION OF SH. ROBIN GUPTA, T HE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT SHARES WERE ISSUED IN THE NAME OF SH. ROBIN GUPTA AS NOMINEE OF M/S 22 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 SUNAIR H OTELS L TD. ACCORDING T O HIM UNDER THE C OMPANIES ACT, THE ONLY REQUIREMENT IS TO MENTION THE NAME OF THE PERSON AS SHAREHOLDER ON THE SHARE CERTIFICATE WITHOUT SPECIFYING THE NATURE OF OWNERSHIP OF THAT PERSON, WHICH COULD BE ABSOLUTE OWNERSHIP, BENEFICIARY OWNERSHIP OR AS NOMIN EE OF THE HOLDING COMPANY. 14 . THE LEARNED COUNSEL OF THE ASSESSEE FURTHER SUBMITTED THAT THE SHARE CERTIFICATES ISSUED IN THE NAME OF ALL THE SHAREHOLDERS WERE FOUND AND SEIZED FROM THE PREMISES OF THE HOLDING COMPANY, INDICATED THAT THE SHAREHOLDERS A RE MERELY NOMINEES OF THE HOLDING COMPANY. 15 . HE FURTHER SUBMITTED THAT THE FACT REGARDING SHARES HELD AS NOMINEE OF THE HOLDING COMPANY ARE REQUIRED TO BE STATED IN THE SHAREHOLDERS/MEMBERS REGISTER WHICH IS PREPARED IN TERMS OF SECTION 150 OF THE C OMPA NIES ACT, 1956 AND IN THE INSTANT CASE THE SAME WAS FURNISHED BEFORE THE LOWER AUTHORITIES (REFER PAGES 19 TO 20 OF THE PAPER BOOK) , WHICH CLEARLY LISTED THE S EVEN PERSONS AS NOMINEE OF M/S SUNAIR H OTELS LTD . AND ALSO THE MINUTES OF FIRST BOARD MEETING HEL D ON 23/10/ 1993. 1 6 . HE FURTHER SUBMITTED THAT ALLEGED INVESTMENT OF RS. 1000 BY SH. ROBIN GUPTA IN THE SHARES OF THE ASSESSEE COMPANY WAS NOT REFLECTED IN HIS BALANCE SHEETS FOR THE PERIOD FROM 31/03/1993 TO 31/03/2001 THOUGH AN INVESTMENT OF RS. 1,000/ - M ADE FOR THE PUR CHASE OF HUNDRED SHARES OF M/S S TEELCO GUJARAT LTD . DURING FINANCIAL YEAR 1993 - 94 WAS APPEARING IN HIS BALANCE SHEET AS ON 31 ST OF MARCH 1994, WHICH REVEALED THAT NO SUCH PAYMENT WAS MADE BY HIM FROM HIS OWN FUNDS FOR 23 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 PURCHASE OF SH ARES OF THE ASSESSEE COMPANY. THE LEARNED COUNSEL SUBMITTED THAT IT WAS FOR SH. ROBIN GUPTA TO PROVE THROUGH COGENT EVIDENCE S THAT HE HAD INVESTED A SUM OF RS. 1000/ - FOR ACQUIRING SHARES OF THE ASSESSEE COMPANY AND BEST EVIDENCE FOR THIS PURPOSE COULD HAV E BEEN HI S PERSONAL BOOKS OF ACCOUNTS, HI S PERSONAL BALANCE SHEETS, RECEIPT ISSUED BY THE ASSESSEE COMPANY ACKNOWLEDGING PAYMENT OF RS. 1000 BY HIM FOR THE SHARES, BUT NO SUCH PAYMENT HAD BEEN MADE BY HIM AND HE ONLY MADE ORAL CLAIMS IN THIS REGARD WITHOUT COMING FORWARD WITH ANY DOCUMENTARY EVIDENCE. THE LEARNED COUNSEL FURTHER REFERRING TO QUESTION NUMBER 53 OF ROBIN GUPTA S STATEMENT RECORDED ON 26/09/2003, A COPY OF WHICH IS MADE AVAILABL E ON PAGE 338 OF THE PAPER BOOK , SUBMITTED THAT SH. ROBIN GUPTA AD MITTED THAT SAID INVESTMENT MIGHT HAVE BEEN MADE BY HIS UNCLE MR . S . P . GUPTA OR FROM ANY OF THE GROUP COMPANIES/FIRMS. 17 . THE LEARNED COUNSEL F URTHER SUBMITTED THAT BOTH M/S SUNAIR H OTELS LTD . AND THE ASSESSEE COMPANY ACKNOWLEDGED THAT THE ASSESSEE COMPANY WAS A WHOLLY - OWNED SUBSIDIARY OF M/S . SUNAIR H OTELS LTD . AND WHICH WAS MANIFESTED FROM THEIR RESPECTIVE BALANCE SHEETS , WHICH WERE DULY FILED WITH THE R EGISTRAR OF COMPANIES (ROC) AND ALSO FI LED ALONGWITH THEIR INCOME TAX R ETURNS FROM ASSESSMENT YEAR 1994 - 95 ONWARDS (PAGE 12 TO 13 OF THE PAPER BOOK). REFERRI NG TO THE BALANCE SHEET OF M/S . SUNAIR H OTELS LTD . , THE LEARNED COUNSEL SUBMITTED TH AT M/S . SUNAIR HOTELS LTD . DECLARED THE INVESTMENT OF RS. 7000 / - IN THE ASSESSEE COMPANY WITH THE NARRATION CLEARLY 24 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 SHOWING THAT LATER WAS WHOLLY - OWNED SUBSIDIARY OF THE FORMER. HE FURTHER SUBMITTED THAT IT WAS VERIFIABLE FROM THE BALANCE SHEET OF THE ASSESSEE COMPANY THAT THE TOTAL P AID - UP SHARE CAPITAL WAS O F RS. 7000 / - ONLY AND , THEREFORE , 100% SHARES OF THE ASSESSEE COMPANY WERE HELD BY M/S . SUNAIR H OTELS LTD . IN THE NAME OF SEVEN PERSONS AS ITS NOMINEES. HE FURTHER SUBMITTED THAT THE BALANCE OF RS. 68,000 / - [ RS. 75,000 / - PAID BY M/S SUNAIR HOTELS. LTD. FOR INCORPORATION OF THE ASSESSEE COMPANY ( - ) MINUS RS.7000 / - FOR 700 SHARES ALLOTTED BY THE ASSESSEE COMPANY TO M/S SUNAIR HOTELS LTD . THROUGH SEVEN NOMINEE S SUBSCRIBERS ] WAS DULY DECLARED AS SHARE APPLICATION MONEY PENDING ALLOTMENT IN THE BALANCE SHEET AS ON 31/03/1994 OF THE ASSESSEE COMPANY, WHICH SQUARELY ESTABLISHES THAT THE ENTIRE SUM OF RS. 75,000/ - HAD BEEN RECEIVED FROM M/S SUNAIR H OTELS LTD FOR THE SHARES OF THE ASSESSEE COMPANY. 18 . THE LEARNED COUNSEL FURTHER SUBMITTED THAT SH. ROBIN GUPTA H AD MADE ORAL CLAIMS WITHOUT PRODUCING ANY COGENT EVIDENCE AND UNDER THE INCOME TAX L AW , ADDITIONS SHOULD HAVE BEEN MADE UNDER SECTION 69 OF THE ACT FOR UNEXPLAINED INVESTMENT, BUT NO SUCH ADDITION WAS MADE IN THE BLOCK ASSESSMENT OF SH. ROBIN GUPTA, THUS I T WAS NOT A CASE OF SIMPLE LAPSE OR ERROR ON THE PART OF SH. ROBIN GUPTA BUT IT WAS AN AFTERTHOUGHT ON HIS PART TO USURP 1/7 TH SHARE OF THE ASSESSEE COMPANY, WITHOUT HAVING MADE ANY INVESTMENT. THE LEARNED COUNSEL FURTHER SUBMITTED THAT FAILURE ON THE PART OF THE SH. ROBIN GUPTA TO DISCLOSE THE SAID INVESTMENT CANNOT BE BR USHED 25 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 ASIDE AS A LAPSE OR ERROR ON HIS PART ESPECIALLY WHEN THE BALANCE SHEET OF M/S SUNAIR H OTELS LTD . CLEARLY REVEALED FROM THE BEGINNING THAT IT WAS 100% HOLDING COMPANY OF THE ASSESSEE COMPANY. 19 . REGARDING THE OBSERVATION OF THE HON BLE HIGH COURT IN PARA 21 OF THE JUDGMENT THAT NORMAL PRESUMPTION IN LAW THAT THE REGISTERED SHAREHOLDER HOLDS THE SHARE IN HIS OWN RIGHT AND IN HIS INDIVIDUAL/ PERSONAL CAPACITY AND NOT AS A NOMINEE OF THIRD PERSON AND OTHER PARTY HAS TO PROVE THAT THE RECORDED SHAREHOLDER WAS A NOMINEE AND LEAD EVIDENCE SUFFICIENT IN LAW TO ENABLE THE AUTHORITIES/ITAT THAT IT HAS DISCHARGED THE ONUS, THE LEARNED COUNSEL SUBMITTE D THAT ALL RECORDS/DOCUMENTS OF M/S . SUNAIR H OTELS LTD . AND THE ASSESSEE COMPANY CLEARLY SHOWED THAT ASSESSEE WAS A WHOLLY - OWNED SUBSIDIARY OF M/S SUNAIR H OTELS LTD . AND MR . ROBIN GUPTA HAD STAKED HIS CLAIM OF 100 SHARES OF THE ASSESSEE COMPANY WITHOUT PRODUCING ANY RECORD OR DOCUMENTARY EVIDENCE IN SUPPORT AND , THEREFORE , THE SCALE OF J USTICE MUST NECESSARILY WEIGH IN FAVOUR OF THE ASSESSEE. 20 . REGARDING THE OBSERVATION OF THE HON BLE HIGH COURT IN PARA 22 OF THE JUDGMENT (SUPRA) THAT RECORDING BY THE ITAT THAT THE RECEIPT WERE ISSUED BY THE ROC FOR ISSUE OF SHARE CAPITAL WAS FACTUALLY INCORRECT, IT WAS SUBMITTED BY LEARNED COUNSEL THAT THE ASSESSEE HAD FURNISHED COPIES OF TWO RECEIPTS DATED 02/01/1995 ISSUED BY THE ROC ACKNOWLEDGI NG THE FILING OF BALANCE SHEET DATED 31/03/1994 BY THE ASSESSEE COMPANY AND M/S SUNAIR HOTELS LTD . AND ON THE BASIS OF THIS 26 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 COMMISSIONER OF INCOME TAX (APPEALS) AND THE ITAT RECORDED THAT COPY OF RECEIPT ISSUED BY THE ROC SUPPORTED THE CLAIM OF THE ASSESSE E , THUS , THERE WAS NO FACTUAL INCORRECTNESS ON THE PART OF THE ITAT. 21 . REGARDING THE OBSERVATION OF THE HON BLE HIGH COURT IN PARA 22 OF THE JUDGMENT (SUPRA) THAT THE FINDING OF THE ITAT THAT THE PAYMEN T TOWARDS SHARE CAPITAL BY M/S SUNAIR H OTELS LTD . HAS BEEN ESTABLISHED BEYOND DOUBT, WAS A PRESUMPTUOUS STATEMENT WITHOUT REFERENCE TO ANY MATERIAL/EVIDENCE WHICH FORMS ITS BASIS OR FOUNDATION, THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE COMPANY HAD PRODUCED AMPLE DOCUMENTARY EVIDENCES TO PROVE IT AS WHOLLY - OWNED SUBSIDIARY OF M/S . SUNAIR HOTELS LTD, WHEREAS NOT A SINGLE DOCUMENTARY EVIDENCE WAS PRODUCED BY SH. ROBIN GUPTA AND THE SHARE CERTIFICATES WERE ALSO NOT IN THE CUSTODY OF SH. ROBIN GUPTA AND HE WAS JUST A NOMINEE AND THE SHARE CERTIFICATES WERE KEPT WITH ACTUAL OWNER , I.E. , M/S SUNAIR H OTELS LTD . AND THUS THE TRIBUNAL GAVE FINDING THAT THE OWNERSHIP OF ALL 700 SHARES OF THE AS SESSEE COMPANY WAS HELD BY M/S SUNAIR H OTELS LTD. 22 . REGARDING THE OBSERVATION OF THE HON BLE HIGH COURT IN PARA 27 OF THE JUDGMENT (SUPRA) THAT THE TRIBUNAL HAS NOT EXAMINE D THE ASPECT WHETHER VIOLATION OF THE PROVISION S OF SECTION 187C OF C OMPANIES ACT WOULD PREVENT AND BAR THE ASSESSEE FROM CLAIMING THAT IT WAS A WHOLLY - OWNED SUBSIDIARIES AND THE RECORDED SHAREHOLDE RS WERE MADE NOMINEES, THE LEARNED COUNSEL OF THE SUBMITTED THAT DELAY IN FILING OF DECLARATION UND ER SECTION 187C OF THE C OMPANIES ACT WAS NOT A 27 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 VIOLATION OF THE PROVISIONS AND IT WAS NOT THE CASE THAT THE IMPUGNED DECLARATION WERE FILED AFTER THE SEARCH TOOK PLACE AS THE SAID DECLARATIONS ARE FILED MUCH PRIOR TO THE DATE OF SEARCH AND LASTLY UNDER THE COMPOUNDING PROVISIONS OF THE C OMPANIES ACT, THE DELAY STOOD CONDONE D BY PAYMENT OF THE LATE FEE. 23 . REGARDING THE OBSERVATIONS OF THE HON BLE HIGH COURT IN PARA 27 OF THE JUDGMENT (SUPRA) THAT IN THE REMAND PROC EEDING BEFORE THE TRIBUNAL THE R EVENUE HAS BEEN ALLOWED TO RAISE THE LEGAL ASPECT OF THE BENAMI ACT, THE LEARNED CO UNSEL SUBMITTED THAT IF BENAMI P ROHIBITION ACT IS APPLIED ON THE NOMINA TIONS UNDER THE COMPANIES ACT THA N THE PROVISIONS OF SECTION 18 7C ETC . W OULD ALL BE RENDERED MEANINGLESS. 24 . REGARDING THE OBSERVATION OF THE HON BLE HIGH COURT IN PARA - 28 OF THE JUDGMENT THAT THE EFFECT OF VIOLATION OF SECTION 49 OR 18 7C OF THE C OMPANIE S ACT IS TO BE EXAMINED ON THE ISSUE OF EVIDENTIARY VALUE AND THE EFFECT WHEN NO SUCH DECLARATION WAS INITIALLY MADE AND THE SUBSEQUENT FILING OF THE DECLARATION BEING DISPUTED AND CONTESTED, THE LEARNED COUNSEL SUBMITTED THAT DECLARATION OF ALL THE SEVEN PERSONS FOR BEING NOMINEES OF THE M/S SUNAIR H OTELS LTD . HAD BEEN OBTAINED ON PLAIN PAPER ORIGINALLY SINCE THE SAID COMPANY WAS NOT AWARE OF THE PARTICULAR FORMALITY OF INTIMATING TO THE ROC BY FILING FORMS PRESCRIBED FOR THE PURPOSE OF SECTION 187C OF THE COMPANIES ACT AND THIS DECLARATION HAD NOT BEEN CHALLENGED BY SH. ROBIN GUPTA. WHEN M/S SUNAIR HOTELS LTD . CAME TO KNOW OF THE SAID REQUIREMENT LATER IN JANUARY 2000, IT FILED THE RE QUISITE FORM S BY OBTAINING THE SIGNATURE OF THE SAID NOMINEES THEREON AND 28 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 SINCE THESE FORMS HAD BEEN SENT TO THEM THROUGH PEON, IT IS NOT KNOWN WHETHER THE NOMINEES SIGN ED THE FORM THEMSELVES OR GOT THEM SIGNED FROM SOMEONE ELSE AND AS FAR AS M/ S SUNAIR H O TELS LTD . WAS CONCERNED, IT BELIEVED THEM AND FILED THE SAME WITH ROC. FURTHER , LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAS CHALLENGED THE VERY AUTHENTICITY OF THOSE FORMS AS NO CERTIFIED COPIES OF THE SAME PURPORTEDLY OBTAINED BY THE DDIT FROM THE ROC HAD EVER BEEN SUPPLIED TO THE ASSESSEE DESPITE ITS SPECIFIC REQUEST MADE, WHICH ARE AVAILABLE ON PAGE 7 AND 208 TO 213 OF ASSESSEE S PAPER BOOK. 25 . THE LEARNED COUNSEL FURTHER SUBMITTED THAT FROM VERY BEGINNING OF INCORPORATION OF THE COMPANY, IT WAS T HE INTENTION OF THE HOLDING COMPANY TO CREATE A 100% SUBSIDIARY FOR THE PURPOSE OF TRANSFER OF DEVELOPMENT RIGHTS AND NOMINATION WAS THE MUST TO HOLD THE 100% OWNERSHIP OVER THE SHARES, WHEREAS MR . ROBIN GUPTA HAS NOWHERE SHOWN INTEREST IN THE FORM ATION OF THE ASSESSEE COMPANY . THE LEARNED COUNSEL REFERRED TO PAGE 151 OF THE ASSESSEE S PAPER BOOK AND SUBMITTED THAT THE INTENTION BEHIND INCORPORATION OF THE ASSESSEE COMPANY WAS DULY MENTIONED IN THE DIRECTOR S REPORT DATED 02/09/1995 FOR FINANCIAL YEAR 1994 - 95. 26 . FURTHER , REFERRING TO PAGE 257 OF THE ASSESSEE S PAPER BOOK, THE LEARNED COUNSEL SUBMITTED THAT THE GOVERNMENT EXAMINER OF QUESTIONED D OCUMENTS HAS NOT CONCLUDED THAT SIGNATURE OF SH. ROBIN GUPTA WAS FORGED. 27 . IN VIEW OF ABOVE ARGUMENTS, THE LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY WAS A WHOLLY - 29 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 OWNED SUBSIDIARY OF M/S . SUNAIR H OTELS LTD . AND , THEREFORE , THE ASSESSEE WAS NOT LIABLE FOR CAPITAL GAIN ON TRANSFER OF DEVELOPMENT RIGHTS TO M /S . SUNAIR H OTELS LTD. 28 . IN THE REJOINDER, THE LEARNED COMMISSIONER OF INCOME TAX(DEPARTMENTAL REPRESENTATIVE) SUBMITTED THAT MINUTES OF MEETING OF BOARD OF DIRECTOR S OF THE COMPANIES ARE SELF SERVING DOCUMENTS CONTAINING A LOT OF OVER WRITING AND , THUS , CANNOT BE ADMITTED AS RELIABLE EVIDENCE. REGARDING CONTENTION OF LEARNED COUNSEL THAT THE CERTIFIED COPY OF PRESCRIBED FORMS WERE NOT PROVIDED TO THE ASSESSEE IN SPITE OF REPEATED REQUES T TO THE ASSESSING OFFICER, THE LEARNED COMMISSIONER OF INCOME TAX( DEPARTMENTAL REPRESENTATIVE) SUBMITTED THAT THE ASSESSEE COULD HAVE ASKED THOSE COPIES FROM THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS), HOWEVER , NO SUCH REQUEST WAS MADE TO THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS). SHE SUBMITTED THAT THE ASSE SSEE COULD HAVE OBTAINED COPY OF SUC H FORMS FROM THE OFFICE OF THE REGISTRAR OF C OMPAN IES (ROC) AS THE SAME HAVE BEEN FILED BY THE ASSESSEE COMPANY ITSELF IN THE OFFICE OF TH E REGISTRAR OF COMPANIES (ROC) . THE LEARNED COMMISSIONER OF INCOME TAX(DEPARTMENT AL REPRESENTATIVE) FURTHER REFERRED TO PAGE 259 OF THE ASSESSES PAPER BOOK AND SUBMITTED THAT G OVERNMENT EXAMINER OF QUESTIONED D OCUMENTS HAS GIVEN SPECIFIC REASONS FOR HIS OPINION THAT SIGNATURE ON THE FORM - I PRESCRIBED UNDER SECTION 187 OF THE COMPANIES ACT WAS NOT OF S H ROBIN GUPTA. 30 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 29 . WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD, INCLUDING THE JUDGMENT OF THE HON BLE HIGH COURT AND THE PAPER BOOK OF THE ASSESSEE . 30 . FOR THE PURPOSE OF SECTION 47(V) OF THE ACT, TWO CONDITIO N S ARE REQUIRED TO BE FULFILLED . THE FIRST CONDI TION IS THAT WHOLE OF THE SHARE CAPITAL OF THE SUBSIDIARY COMPANY IS HELD BY THE HOLDING COMPANY AND THE SECOND CONDITION IS THAT THE HOLDING COMP ANY IS AN INDIAN COMPANY . IN THE PRESENT CASE EXISTENCE OF FIRS T CONDITION IS TO BE DECIDED AS WHETHER THE WHOLE OF THE SHARE CAPITAL OF THE ASSESSEE COMPANY IS HELD BY M/S SUNAIR HOTELS LTD . IT IS SUBMITTED BY THE LD. COUNSEL OF THE ASSESSEE THAT ALL THE SEVEN SHAREHOLDERS OF THE ASSESSEE COMPA NY WERE NOMINEE OF M/S SUNNIER H OTELS LTD THEREFORE WHOLE OF THE SHARE CAPITAL THE ASSESSEE COMPANY WAS HELD AS BENEFICIAL OWNER BY M/S SUNAIR HOTELS LTD . OR THE ASSESSEE WAS A WHOLLY OWNED SUBSIDIARY OF M/S SUNAIR HOTELS LIMITED AND WHICH BEING AN INDIAN COMPANY, THE ASSESSEE F ULFILLED BOTH THE CONDITIONS OF SECTION 47(V) OF THE ACT. IN VIEW OF ABOVE FACTS, NOW THE ISSUE FOR DECIDING BEFORE US IS WHETHER ALL THE SEVEN SHAREHOLDERS OF THE ASSESSEE COMPANY WERE MERELY NOMINEE OF M/S SUNNIER HOTELS LTD OR SHAREHOLDERS IN THEIR INDI VIDUAL CAPACITY AND IF ANY OF ONE OF THE SHA REHOLDER IS NOT NOMINEE OF M/S SUNAIR H OTELS LTD . , THEN THE ASSESSEE, LOOSES TO BE A WHOLLY - OWNED SUBSIDIARY OF M/S SUNAIR H OTELS LTD. THE REVENUE HAS CONTESTED THAT THE SHAREHOLDERS SH. ROBIN GUPTA AND SH . RADH IKA PRA SAD DUBEY HAVE DENIED OF BEING NOMINEE OF M/S SUNAIR H OTELS LTD . AND, THEREFORE , THE ASSESSEE IS NOT A WHOLLY - OWNED SUBSIDIARY OF M/S 31 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 S UN AIR H OTELS LTD. WE FIND THAT THE LEARNED COUNSEL HAS SUBMITTED VARIOUS ARGUMENTS BEFORE US TO SUPPORT HIS POINT THAT BOTH S H . ROBIN GUPTA AND SH . RADHIKA PRASAD DUBEY WERE ALSO NOMINEE OF M/S SUNAIR HOTELS LTD. 31 . REGARDING PAYME NT FOR SUBSCRIPTION OF SHARES, THE LEARNED COUNSEL HAS REPEATED THE ARGUMENTS MADE BEFORE THE HON BLE HIGH COURT. THE HON BLE HIGH COURT IN PARA 17 OF THE JUDGMENT HAS HELD THAT THE PAYMENT OF SHARE CAPITAL WAS CERTAINLY NOT BY CHEQUE. THE RELEVANT FINDING OF THE HON BLE HIGH COURT IS REPRODUCED AS UNDER: 17. WE HAVE EXAMINED THE SAID REASONING BUT FIND THAT IT IS SUBSTANTIALLY , AND FOR A LARGE PART, FACTUALLY INCORRECT AND WRONG. THE RESPONDENT ASSESSEE HAS PLACED ON RECORD A COPY OF THE LEDGER ACCOUNT OF RESPONDENT ASSESSEE IN THE BOOKS OF SUNAIR HOTELS LIMITED. THE SAME, AS PER THE DATE MENTIONED THEREON, WAS PRINTED ON 23 RD DECEMBER, 1994 AND THE LEDGER ACCOUNT READS: - ' ----------------------------------------------------------------------------------------------------------------------------- ---------- L E D G E R AS ON .......... 23/12/94 TIME 14.54.49 PG. NO. 29 VOUCHER DATE NARRATION BILL BILL CHEQUE CHEQUE NO. NO. DT. NO. DATE DEBIT CREDIT BALANCE ----------------------------------------------------------------------------------------------------------------------------- --------- 65 15/10/93 DD FVR ROC P&H FOR SUN AERO LTD. 38020.00 38020.00 66 17/10/93 PRDF CGHS TO VKB & CO. FR REGIN OF SUNAERO LTD. 19480.00 57500.00 83 30/11/93 CHQ PD FR MOA PTG FR SUN AERO THRU TRANSASTA 832037 30/11/93 17500.00 75000.00 149 31/03/94 RECT FR ALLOT. OF 700 SH @ 10/ - SUN AERO LTD. 7000.00 68000.00' 18. THE SAID LEDGER ACCOUNT WOULD REVEAL THAT ON 15TH & 17TH OCTOBER, 1993, TWO DEBIT ENTRIES OF RS.38,020/ - AND RS.19480/ - WERE MADE AS PAYMENTS FORWARDED TO THE REGISTRAR OF COMPANY FOR REGISTRATION OF THE RESPONDENT ASSESSEE. THE NEXT ENT RY OF RS.17,500/ - IS MADE ON 30TH NOVEMBER, 1993, AS CHEQUE PAID ON BEHALF OF THE RESPONDENT ASSESSEE. THE AFORESAID PAYMENTS WOULD ONLY SHOW THAT THE RESPONDENT ASSESSEE WAS LIABLE TO PAY RS. 75,000/ - TO SUNAIR HOTELS LTD. WHO HAD MADE THE SAID PAYMENTS O R HAD PROVIDED FUNDS OR WAS A CREDITOR. THE LAST ENTRY ON 31.3.1994 RELATES TO RS.7,000/ - AND IS ON THE CREDIT SIDE. AS PER THE SAID ENTRY, THE SAME WAS MADE FOR ALLOTMENT OF 700 SHARES @ RS.10/ - EACH IN 32 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 THE RESPONDENT ASSESSEE TO SUNAIR HOTELS LTD. THE SA ID ENTRY IS AN ADJUSTMENT ENTRY AND NO PAYMENT EITHER BY CHEQUE OR CASH HAS BEEN MADE. THE RESPONDENT ASSESSEE WAS ADMITTEDLY INCORPORATED ON 22 ND OCTOBER, 1993. THE ARTICLES AND MEMORANDUM OF ASSOCIATION RECORD THE INITIAL SHAREHOLDING IN THE NAME OF 7 P ERSONS. THESE SHAREHOLDINGS WERE ISSUED ON OR BEFORE THE DATE OF INCORPORATION. FOR ISSUE OF SHARES, PAYMENT FOR THE SHARES HAS TO BE MADE. IT IS NOT THE CASE OF THE RESPONDENT ASSESSEE THAT THESE WERE PARTLY PAID UP SHARES. SEQUITOR IS THAT THE PAYMENTS F OR THE ISSUE OF SHARE CAPITAL SHOULD HAVE BEEN MADE ON OR BEFORE THE DATE OF INCORPORATION I.E. 22ND OCTOBER, 1993. OBVIOUSLY THE ENTRY DATED 31ST MARCH, 1994, THAT TOO AN ADJUSTMENT ENTRY MADE IN THE BOOKS OF SUNAIR HOTELS LTD. WOULD NOT SHOW AND ESTABLIS H THAT THE PAYMENT OF THE SHARES WAS MADE BY SUNAIR HOTELS LIMITED. IT IS ACCEPTED AND ADMITTED THAT OTHER THAN THIS DOCUMENT I.E. THE LEDGER ACCOUNT OF SUNAIR HOTELS LTD., NO OTHER PAPER OR DOCUMENT WAS PRODUCED OR FILED BEFORE THE TRIBUNAL AND IN FACT TH ERE IS NO OTHER PAPER OR DOCUMENT PRODUCED OR FILED BEFORE US TO JUSTIFY AND STATE THAT PAYMENT FOR SHARES IN QUESTION WAS MADE BY SUNAIR HOTELS LTD. THE PAYMENT WAS CERTAINLY NOT BY CHEQUE AS RECORDED AND HELD BY BOTH CIT (APPEALS) AND THE TRIBUNAL. 32 . WE FIND THAT THE LD. COUNSEL HAS MERELY REPEATED THE ARGUMENTS WHICH WERE MADE BEFORE THE HON BLE HIGH COURT AND NO OTHER NEW DOCUMENT OR EVIDENCE HAS BEEN FILED BEFORE US. FURTHER THE RELIANCE PLACED ON THE JUDGEMENT OF THE HON BLE SUPREME COURT IN THE C ASE OF M/S. J . B . BODA AND C OMPANY (SUPRA) IS ALSO OF NO ASSISTANCE TO THE ASSESSEE AS THE IN THE SAID JUDGEMENT THE A SSESSEE WAS ACTING AS AGENT OF FORE IGN REINSURER, COLLECTING PREMIUM FROM THE INSURANCE COMPANY IN INDIA AND REMITTING THE SAME TO THE FORE IGN INSURER IN FOREIGN EXCHANGE, WITH THE PERMISSION OF THE RBI, AFTER RETAINING ITS BROKERAGE IN FOREIGN EXCHANG E AND THE BROKERAGE INCOME RETAINED BY ASSESSEE WAS HELD AS RECEIPT OF INCOME IN CONVERTIBLE FOREIGN EXCHANGE QUALIFYING FOR DEDUCTION UNDER S ECTION. 80 OF THE ACT. 33 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 3 3 . THE ISSUE BEFORE US IS WHETHER MERELY INCURRING EXPENDITURE FOR REGISTRATION OF THE ASSESSEE COMPANY BY M/S SUNNAIR H OTELS LTD, CAN AUTOMATICALLY ACQUIRES THE SHAREHOLDING OF THE ASSESSEE COMPANY THROUGH PASSING A J OURNAL ENTRY IN ITS BOOKS OF ACCOUNTS. IN OUR CON SIDERED OPINION JUST MAKING OF J OURNAL ENTRY IN BOOKS OF ACCOUNTS AGAINST THE EXPENDITURE INCURRED FOR REGISTRATION OF THE COMPANY , CANNOT AUTHORISE M/S SUNAIR H OTELS LTD TO HOLD THE SHARES AS BENEFICIARY. UNDISPUTEDLY , THE SHARES HAVE BEEN ISSUED IN THE NAME OF SEVEN PERSONS AND NOWHERE IN THE SHARE CERTIFICATES , IT IS MENTIONED THAT THOSE SEVEN S HAREHOLDERS ARE NOMINEE OF M/S SUNAIR H OTELS LTD. THERE IS NO OTHER AGREEMENT ON RECORD BETWEEN THE SHAREHOLDERS AND M/S . S UN AIR H OTELS LTD, WHICH COULD JUSTIFY THE BENEFICIAL INT EREST OF M/S S UN AIR H OTELS LTD , THUS MAKING ONLY ACCOUNTING ENTRY IN BOOKS OF ACCOUNTS OF EITHER THE ASSESSEE COMPANY O R IN THE BOOKS OF ACCOUNTS OF M/S S UN AIR H OTELS LTD CANNOT DETERMINE THE OWNERSHIP OF THE SHARES. IN O UR VIEW , IN BO OKS OF ACCOUNTS OF THE ASSESSEE, M/S S UN AIR H OTELS LTD . SHOULD HAVE BEEN REFLECTED AS A CREDITOR FOR EXPENSES. THE HON BLE APEX COURT IN THE CASE OF KADARNATH JUTE MANUFACTURING COMPANY VERSUS CIT 82 ITR 363(SC) HAS HELD T HAT MAKING OF ENTRY IN THE BOOKS OF ACCOUNTS CANNOT BE DECISIVE OR CONCLUSIVE IN THE MATTER. THE RELEVANT FINDING OF THE HON BLE SUPREME COURT IS REPRODUCED AS UNDER: 6. THE MAIN CONTENTION OF THE LEARNED SOLICITOR - GENERAL IS THAT THE ASSESSEE FAILED TO DEBIT THE LIABILITY IN ITS BOOKS OF ACCOUNTS AND, THEREFORE, IT WAS DEBARRED FROM CLAIMING THE 34 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 SAME AS DEDUCTION EITHER UNDER S. 10(1) OR UNDER S. 10(2)(XV) OF THE ACT. W E ARE WHOLLY UNABLE TO APPRECIATE THE SUGGESTION THAT IF AN ASSESSEE UNDER SOME MISAPPREHENSION OR MISTAKE FAILS TO MAKE AN ENTRY IN THE BOOKS OF ACCOUNT AND ALTHOUGH, UNDER THE LAW, A DEDUCTION MUST BE ALLOWED BY THE ITO, THE ASSESSEE WILL LOSE THE RIGHT OF CLAIMING OR WILL BE DEBARRED FROM BEING ALLOWED THAT DEDUCTION. WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS NOR CA N THE EXISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE IN THE MATTER. THE ASSESSEE WHO WAS MAINTAINING ACCOUNTS ON THE MERCANTILE SYSTEM WAS FULLY JUSTIFIED IN CLAIMING DEDUCTION OF THE SUM OF RS. 1,49,776 BEING THE AMOUNT OF SALES - TAX WHICH IT WAS LIABLE UNDER THE LAW TO PAY DURING THE RELEVANT ACCOUNTING YEAR. IT MAY BE ADDED THAT THE LIABILITY REMAINED INTACT EVEN AFTER THE ASSESSEE HAD TAKEN APPEALS TO HIGHER AUTHORITIES OR COURTS WHICH FAILED. THE APPEAL IS CONSEQUENTLY ALLOWED AND THE JUDGMENT OF THE HIGH COURT IS SET ASIDE. THE QUESTION WHICH WAS REFERRED IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE ASSESSEE WILL BE ENTITLED TO COSTS IN T HIS COURT AND IN THE HIGH COURT. (EMP HASIS SUPPLIED EXTERNA LLY BY US ) 35 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 3 4 . IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT BY INCURRING EXPENDITURE ON B EHALF OF THE ASSESSEE COMPANY AND MAKING ADJUSTMENT ENTRY IN THE JOURNAL BOOKS OF M/S SUNAIR H OTELS LTD . , IT CANNOT BECOME BENEFICIAL OWNER OF SHARES UNLESS ANY AGR EEMENT TO CONTRARY. 35. IN PARAGRAPHS 26 TO 27 OF THE JUDGMENT, THE HON BLE HIGH COURT TAKEN NOTE OF THE VIOLATION OF SECTION 187C OR SECTION 49 OF THE COMPANIES ACT AND THEREAFTER DIRECTED TO EXAMINE WHETHER THE VIOLATION OF THE SAID PROVISIONS WOULD PREVENT AND BAR THE ASSESSEE FROM CLAIMING THAT IT WAS WHOLLY OWNED SUBSIDIARY AND RECORDED SHARE HOLDERS WERE MERE NOMINEES. THE RELEVANT PARAGRAPHS OF THE JUDGMENT OF THE HON BLE HIGH COURT I.E. PARAGRAPHS 26 & 27 ARE REPRODUCED AS UNDER: 26. IN PARAGRAPH 13, THE TRIBUNAL HAS REFERRED TO REQUIREMENT OF SECTION 187C OF THE COMPANIES ACT AND EFFECT THEREOF. IT IS STATED THAT THE VIOLATION OF COMPANIES ACT , MISMATCH OF SIGNATURE, DISCREPANCIES IN RECORDING OF THE MINUTES BOOKS WERE ASPECTS WHICH THE AUTHORITIES UNDER THE COMPANIES ACT COULD TAKE NOTE OF AND ALSO TAKE PUNITIVE ACTION. AS FAR AS PROVISIONS OF SECTION 47(V) ARE CONCERNED, THE INVESTMENT IN THE SHARES WAS MADE BY SUNAIR HOTELS LTD. AND THE SAME WAS REFLECTED IN BALANCE - SHEET OF BOTH COMPANIES I.E. SUNAIR HOTELS LTD. AND THE RESPONDENT ASSESSEE. 27. WITH REGARD TO THE AFORESAID OBSERVATIONS, WE MAY NOTE THAT SECTION 187C OR SECTION 49 OF THE COMPANIES ACT AND VIOLATION THEREOF AND PENALTY PRESCRIBED IS ONE ASPECT. BUT, THE EFFECT OF THE SAID VIOLATION HAS TO BE EXAMINED AND CONSIDERED. IT HAS TO BE ALSO EXAMINED AND CONSIDERED WHETHER VIOLATION OF THE SAID PROVISIONS WOULD PREVENT AND BAR THE RESPONDENT ASSESSEE FROM CLAIMING THAT IT WAS 36 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 WHOLLY OWNED SUBSIDIARY AND THE RECORDED SHAREHOLDERS WERE MERE NOMINEES. W E WOULD HAVE EXAMINED THE SAID ASPECT BUT REFRAIN FROM DOING SO AS WE ARE PASSING AN ORDER OF REMIT. THEREFORE, IT MAY NOT BE APPROPRIATE AND PROPER FOR US TO DECIDE THE SAID ASPECT AND IT MAY CAUSE PREJUDICE TO THE PARTIES. THIS ASPECT/QUESTION IS NOT EXA MINED AND ELUCIDATED IN THE IMPUGNED ORDER. HOWEVER, ANOTHER CONTENTION OF THE REVENUE MAY BE NOTED THAT DE HORS PROVISIONS OF SECTION 49 AND 187 OF THE COMPANIES ACT, THE BENAMI PROHIBITION ACT , 1988, MAY HAVE TO BE ALSO EXAMINED. WE ARE NOT STATING ANYTHING IN THIS REGARD AS THERE ARE EXCEPTIONS CARVED OUT IN THE BENAMI ACT ITSELF. EXAMINATION OF EXCEPTIONS MAY REQUIRE FACTUAL ELUCIDATION AND FINDINGS. THIS LEGAL ASPECT MAY BE RAISED BY THE REVENUE ON REMAND. 36 . IN PARAGRAPH 28 OF THE JUDGMENT (SUPRA) , THE HON BLE HIGH COURT HAS DIRECTED TO EXAMINE THE EVIDENTIARY VALUE OF EFFECT OF THE VIOLATION OF SECTION 49 AND 187C OF THE C OMPANIES ACT AND THE CONDUCT OF THE ASSESSEE AND ITS RELEVANCE IN NOT FILING THE DECLARATION INITIALLY AND THE SUBSEQUENT FILING HAS BEEN DI SPUTED AND CONTESTED. THE RELEVANT PARAGRAPH IS REPRODUCED AS UNDER: 28. HOWEVER, WE DO NOT AGREE WITH THE OBSERVATIONS OF THE TRIBUNAL THAT THE QUESTION WHETHER OR NOT THE RESPONDENT IS A 100% SUBSIDIARY OF SUNAIR HOTELS LTD., CAN BE EXAMINED WITHOUT REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT OR OTHER ENACTMENTS. THE ACT , I.E. INCOME TAX ACT , 1961, DEALS WITH AND RELATES TO TAXATION OF INCOME. FOR THE PURPOSE OF DETERMINING TAXABLE INCOME, PROVISIONS AND PARAMETERS/STIPULATIONS HAVE BEEN MADE/PRESCRIBED IN THE ACT. IN A GIVEN CASE, HOWEVER, THE AUTHORITIES U NDER THE ACT (I.E. INCOME TAX ACT ) MAY HAVE TO EXAMINE PROVISIONS OF OTHER ENACTMENTS, WHEN REQUIRED AND NECESSARY. THE TERM 'SUBSIDIARY' OR 'WHOLLY OWNED SUBSIDIARY' HAVE NOT BEEN BE DEFINED IN THE ACT I.E. THE INCOME TAX ACT . THEREFORE, REFERENCE IS TO BE MADE TO THE OTHER ACTS AND IN THIS CASE, THE COMPANIES ACT . EFFECT OF THE VIOLATION OF SECTION 49 AND 187C OF THE COMPANIES ACT IS ONE ASPECT BUT THE 37 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 OTHER ISSUE, WHICH HAS TO BE EXAMINED, IS THE EVIDENTIARY VALUE AND THE EFFECT WHEN NO SUCH DECLARATION WAS INITIALLY MADE AND THE SUBSEQUENT FILING OF THE DECLARATION IS DISPUTED AND CONTESTED. IT IS CLAIMED THAT THE SIGNATURES ON THE FORMS/DECLARATIONS MADE WERE FORGED AND FABRICATED. THE TRIBUNAL IS REQUIRED TO EXAMINE AND CONSIDER WHETHER THE SAID CONDU CT, REFLECTS AND IS OF RELEVANCE. 37 . IN THE BACK GROUND OF THE ABOVE DIRECTIONS, WE HAVE CONSIDERED THE ARGUMENTS OF BOTH THE PARTIES. BEFORE, WE EMBARK UPON DISCUSSING THE FACTS IN RESPECT OF THE ISSUE IN DISPUTE, WE WOULD LIKE TO REPRODUCE SECTION 4 9 AND SECTION 187C OF THE COMPANIES ACT AND THE COMPANIES RULES, WITH REFERENCE TO SECTION 187C OF THE COMPANIES ACT. SECTION 49 OF T HE COMPANIES ACT, 1956 49. INVESTMENTS OF COMPANY TO BE HELD IN ITS OWN NAME. (1) SAVE AS OTHERWISE PROVIDED IN SUB - SECTIONS (2) TO (5) 1 OR ANY OTHER LAW FOR THE TIME BEING IN FORCE] AND SUBJECT TO THE PROVISIONS OF SUB - SECTIONS (6) TO (8), - (A) ALL INVESTMENTS MADE BY A COMPANY ON ITS OWN BEHALF SHALL BE MADE AND HELD BY IT IN ITS OWN NAME; AND 1. INS. BY ACT 65 OF 1960, S. 15. (B) WHERE ANY SU CH INVESTMENTS ARE NOT SO HELD AT THE COMMENCEMENT OF THIS ACT THE COMPANY SHALL, WITHIN A PERIOD OF ONE YEAR FROM SUCH COMMENCEMENT, EITHER CAUSE THEM TO BE TRANSFERRED TO, AND HOLD THEM IN, ITS OWN NAME, OR DISPOSE OF THEM. (2) WHERE THE COMPANY HAS A RIGHT TO APPOINT ANY PERSON OR PERSONS, OR WHERE ANY NOMINEE OR NOMINEES OF THE 38 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 COMPANY HAS OR HAVE BEEN APPOINTED, AS A DIRECTOR OR DIRECTORS OF ANY OTHER BODY CORPORATE, SHARES IN SUCH OTHER BODY CORPORATE TO AN AMOUNT NOT EXCEEDING THE NOMINAL VALUE OF THE QUALIFICATION SHARES WHICH ARE REQUIRED TO BE HELD BY A DIRECTOR THEREOF, MAY BE REGISTERED OR HELD BY SUCH COMPANY JOINTLY IN THE NAMES OF ITSELF AND OF EACH SUCH PERSON OR NOMINEE OR IN THE NAME OF EACH SUCH PERSON OR NOMINEE 1 . (3) A COMPANY MAY HOLD ANY SHARES IN ITS SUBSIDIARY IN THE NAME OR NAMES OF ANY NOMINEE OR NOMINEES OF THE COMPANY, IF AND IN SO FAR AS IT IS NECESSARY SO TO DO, TO ENSURE THAT THE NUMBER OF MEMBERS OF THE SUBSIDIARY IS NOT REDUCED, WHERE IT IS A PUBLIC COMPANY, BELOW SEVEN, AND WHERE IT IS A PRIVATE COMPANY, BELOW TWO. (4) SUB - SECTION (1) SHALL NOT APPLY TO INVESTMENTS MADE BY A COMPANY WHOSE PRINCIPAL BUSINESS CONSISTS OF THE BUYING AND SELLING OF SHARES OR SECURITIES. (5) NOTHING IN THIS SECTION SHALL BE DEEMED TO PREVENT A COMPANY - (A) FROM DEPOSITING,, WITH A BANK, BEING THE BANKERS OF THE COMPANY, ANY SHARES OR SECURITIES FOR THE COLLECTION OF ANY DIVIDEND OR INTEREST PAYABLE THEREON; OR (AA) 2 FROM DEPOSITING WITH, OR TRANSFERRING TO, OR HOLDING IN THE NAME OF, THE STATE BANK OF INDIA OR A SCHEDULED BANK, BEING THE BANKERS OF THE COMPANY, SHARES OR SECURITIES, IN ORDER TO FACILITATE THE TRANSFER THEREOF; PROVIDED THAT IF THIN A PERIOD OF SIX MONTHS FROM THE DATE ON WHI CH THE SHARES 39 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 OR SECURITIES ARE TRANSFERRED BY THE COMPANY TO, OR ARE FIRST HELD BY THE COMPANY IN THE NAME OF, THE STATE BANK OF INDIA OR A SCHEDULED BANK AS AFORESAID, NO TRANSFER OF SUCH SHARES OR SECURITIES TAKES PLACE, THE COMPANY SHALL, AS SOON AS PR ACTICABLE AFTER THE EXPIRY 1. THE WORDS' EXPRESSLY DESCRIBED AS A NOMINEE OF THE COMPANY' OMITTED BY ACT 65 OF 1960, S. 15. 2. INS. BY S. 15, IBID. OF THAT PERIOD, HAVE THE SHARES OR SECURITIES RETRANSFERRED TO IT FROM THE STATE BANK OF INDIA OR THE SCHEDU LED BANK OR, AS THE CASE MAY BE, AGAIN HOLD THE SHARES OR SECURITIES IN ITS OWN NAME; OR] (B) FROM DEPOSITING WITH, OR TRANSFERRING TO, ANY PERSON ANY SHARES OR SECURITIES, BY WAY OF SECURITY FOR THE REPA YMENT OF ANY LOAN ADVANCED TO THE COMPANY OR THE PERFORMANCE OF ANY OBLIGATION UNDERTAKEN BY IT. (C) 1 FROM HOLDING INVESTMENTS IN THE NAME OF A DEPOSITORY WHEN SUCH INVESTMENT ARE IN THE FORM OF SECURITIES HELD BY THE COMPANY AS A BENEFICIAL OWNER.] (6) THE CERTIFICATE OR LETTER OF ALLOTMENT RELATING TO THE SHARES OR SECURITIES IN WHICH INVESTMENTS HAVE BEEN MADE BY A COMPANY SHALL, EXCEPT IN THE CASES REFERRED TO IN SUB - SECTIONS (4) AND (5), BE IN THE CUSTODY OF SUCH COMPANY OR 2 WITH THE STATE BANK OF INDIA OR A SCHEDULED BANK], BEING THE BANKERS OF THE COMPANY. (7) WHERE, IN PURSUANCE OF SUB - SECTION (2), (3), (4) OR (5), ANY SHARES OR SECURITIES IN WHICH INVESTMENTS HAVE 40 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 BEEN MADE BY A COMPANY ARE NOT HELD BY IT IN ITS OWN NAME, THE COMPANY SHALL FORTHWITH ENTER IN A REGISTER MAINTAINED BY IT FOR THE PURPOSE - (A) THE NATURE, VALUE, AND SUCH OTHER PARTICULARS AS MAY BE NECESSARY FULLY TO IDENTIFY THE SHARES OR SECURITIES IN QUESTION; AND (B) THE BANK OR PERSON IN WHOSE NAME OR CUSTODY THE SHARE S OR SECURITIES ARE HELD. (8) THE REGISTER KEPT UNDER SUB - SECTION (7) SHALL BE OPEN TO THE INSPECTION OF ANY MEMBER OR DEBENTURE HOLDER OF THE COMPANY WITHOUT CHARGE, DURING BUSINESS HOURS, SUBJECT TO SUCH REASONABLE RESTRICTIONS AS THE COMPANY MAY, BY ITS ARTICLES OR IN GENERAL MEETING, IMPOSE, SO THAT NOT LESS THAN TWO HOURS IN EACH DAY ARE ALLOWED FOR INSPECTION. (9) IF DEFAULT IS MADE IN COMPLYING W ITH ANY OF THE REQUIREMENTS OF SUBSECTIONS (1) TO (8), THE COMPANY AND EVERY OFFICER OF THE COMPANY WHO IS IN DEFAULT, SHALL BE PUNISHABLE WITH FINE WHICH MAY EXTEND TO FIVE THOUSAND RUPEES. (10) IF ANY I NSPECTION REQUIRED UNDER SUB - SECTION (8) IS REFUSED, THE 3 COMPANY LAW BOARD] MAY, BY ORDER, DIRECT AN IMMEDIATE INSPEC - TION, OF THE REGISTER. NOTHING IN THIS SUB - SECTION SHALL BE CONSTRUED AS PREJUDICING IN ANY WAY THE OPERATION OF SUB - SECTION (9). (11) IN THIS SECTION,' SECURITIES' INCLUDES STOCK AND DEBENTURES. 41 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 SECTION 187C O F THE C OMPANIES ACT, 1956 187C. 1 DECLARATION BY PERSONS NOT HOLDING BENEFICIAL INTEREST IN ANY SHARE. (1) NOTWITHSTANDING ANYTHING CONTAINED IN SECTION 150 SECTION 153B OR SECTION 187B, A PERSON, WHOSE NAME IS ENTERED, AT THE COMMENCEMENT OF THE COMPANIES (AMENDMENT) ACT, 1974 , (41 OF 1974 ) OR AT ANY TIME THEREAFTER, IN THE REGISTER OF MEMBERS OF A COMPANY AS THE HOLDER OF A SHARE IN THAT COMPANY BUT WHO DOES NOT HOLD THE BENEFICIAL INTEREST IN SUCH SHARE, SHALL, WITHIN SUCH TIME AND IN SUCH FORM AS MAY BE PRESCRIBED, MAKE A DECLARATION TO THE COMPANY SPECI FYING THE NAME AND OTHER PARTICULARS OF THE PERSON WHO HOLDS THE BENEFICIAL INTEREST IN SUCH SHARE. (2) NOTWITHSTANDING ANYTHING CONTAINED ELSEWHERE IN THIS ACT, A PERSON WHO HOLDS A BENEFICIAL INTEREST I N A SHARE OR A CLASS OF SHARES OF A COMPANY SHALL, WITHIN THIRTY DAYS FROM THE COMMENCEMENT OF THE COMPANIES (AMENDMENT) ACT, 1974 , (41 OF 1974 ) OR WITHIN THIRTY DAYS AFTER 1. INS. BY ACT 41 OF 1974, S. 15 (W. E. F. 1 - 2 - 1975 ). HIS BECOMING SUCH BENEFI CIAL OWNER, WHICHEVER IS LATER, MAKE A DECLA - RATION TO THE COMPANY SPECIFYING THE NATURE OF HIS INTEREST, PARTICULARS OF THE PERSON IN WHOSE NAME THE SHARES STAND REGISTERED IN THE BOOKS OF THE COMPANY AND SUCH OTHER PARTICULARS AS MAY BE PRESCRIBED. (3) WHENEVER THERE IS A CHANGE IN THE BENEFICIAL INTEREST IN SUCH SHARES THE BENEFICIAL OWNER SHALL, WITHIN THIRTY DAYS 42 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 FROM THE DATE OF SUCH CHANGE, MAKE A DECLARATION TO THE COMPANY IN SUCH FORM AND CONTAINI NG SUCH PARTICULARS AS MAY BE PRESCRIBED. (4) NOTWITHSTANDING ANYTHING CONTAINED IN SECTION 153 WHERE ANY DECLARATION REFERRED TO IN SUB - SECTION (1), SUB - SECTION (2) OR SUB - SECTION (3) IS MADE TO A COM PANY, THE COMPANY SHALL MAKE A NOTE OF SUCH DECLARATION, IN ITS REGISTER OF MEMBERS AND SHALL FILE, WITHIN THIRTY DAYS FROM THE DATE OF RECEIPT OF THE DECLARATION BY IT, A RETURN IN THE PRESCRIBED FORM WITH THE REGISTRAR WITH REGARD TO SUCH DECLARATION. (5) (A) IF ANY PERSON, BEING REQUIRED BY THE PROVISIONS OF SUB - SECTION (1), SUB - SECTION (2) OR SUB - SECTION (3), TO MAKE A DECLARATION, FAILS WITHOUT ANY REASONABLE EXCUSE, TO DO SO, HE SHALL BE PUNISHABLE WITH FINE WHICH MAY EXTEND TO ONE THOUSAND RUPEES FOR EVERY DAY DURING WHICH THE FAILURE CONTINUES. (B) IF A COMPANY FAILS TO COMPLY WITH THE PROVISIONS OF THIS SECTION, THE COMPANY, AND EVERY OFFICER OF THE COMPANY WHO IS IN DEFAULT, SHALL BE PUNISHABLE WITH FINE WHICH MAY EXTEND TO ONE HUNDRED RUPEES FOR EVERY DAY DURING WHICH THE DEFAULT CONTINUES. (6) ANY CHARGE, PROMISSORY NOTE OR ANY OTHER COLLATERAL AGREEMENT, CREATED, EXECUTED OR ENTERED INTO IN RELATION TO ANY SHARE, BY THE OSTENSIBLE OWNER THEREOF, OR ANY HYPOTHECATION BY THE OSTENSIBLE OWNER OF ANY SHARE, IN RESPECT OF WHICH A DECLARATION IS REQUIRED TO BE MADE 43 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 UNDER THE FOREGOING PROVISIONS OF T HIS SECTION, BUT NOT SO DECLARED, SHALL NOT BE ENFORCEABLE BY THE BENEFICIAL OWNER OR ANY PERSON CLAIMING THROUGH HIM. (7) NOTHING IN THIS SECTION SHALL BE DEEMED TO PREJUDICE THE OBLIGATION OF A COMPANY TO PAY DIVIDEND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 206, AND THE OBLIGATION SHALL, ON SUCH PAYMENT, STAND DISCHARGED. THE COMPANIES (DECLARATION OF BENEFICIAL INTEREST IN SHARES) RULES, 1975 NOTE : - PROVISIONS OF SECTION 187C HAVE BECOME REDUNDANT ON AND AFTER THE COMMENCEMENT OF T HE COMPANIES (AMENDMENT) ACT, 2000. IN EXERCISE OF THE POWERS CONFERRED BY SECTION 187 - C, READ WITH CLAUSE (A) OF SUB - SECTION (1) OF SECTION 642, OF THE COMPANIES ACT, 195 6 (1 OF 1956), THE CENTRAL GOVERNMENT HEREBY MAKES THE FOLLOWING RULES, NAMELY : - 1. SHORT TITLE AND COMMENCEMENT. - (1) THESE RULES MAY BE CALLED THE COMPANIES (DECLARATION OF BENEFICIAL INTEREST IN SHARES) RULES, 1975. (2) THEY SHALL COME INTO FORCE ON THE DATE OF THEIR PUBLICATION IN THE OFFICIAL GAZETTE. 2. DEFINITIONS. - IN THESE RULES, UNLESS THE CONTEXT OTHERWISE REQUIRES, - (I) 'ACT' MEANS THE COMPANIES ACT, 1956 (1 OF 1956) ; (II) 'FORM' MEANS A FORM ANNEXED TO THESE RULES ; (III) 'SECTION' MEANS A SECTION OF THE ACT. 44 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 3. FORM OF DECLARATION AND THE PARTICULARS TO BE CONTAINED THEREIN. - (1) THE DECLARATION REQUIRE D TO BE MADE BY A PERSON REFERRED TO IN SUB - SECTION (1) OF SECTION 187 - C SHALL - WITHIN THIRTY DAYS FROM THE COMMENCEMENT OF THESE RULES, OR WITHIN THIRTY DAYS AFTER HIS NAME IS ENTERED IN THE REGISTER OF MEMBERS OF A COMPANY AS THE HOLDER OF A SHARE IN THAT COMPANY, WHICHEVER IS LATER, BE MADE TO THE COMPANY IN FORM I IN DUPLICATE. (2) THE DECLARATIONS REQUIRED TO BE MADE BY A PERSON WHO HOLDS A BENEFICIAL INTEREST IN THE SHARES OF A COMPANY UNDER SUB - SECTION (2) OR SUB - SECTION (3) OF SECTION 187 - C SHALL BE MADE TO THE COMPANY IN FORM II IN DUPLICATE. (3) THE RETURN REQUIRED TO BE FILED BY THE COMPANY WITH THE REGISTRAR UNDER SUBSECTION (4) OF SECTION 187 - C SHALL BE IN FORM III AND SHALL BE ACCOMPANIED BY A COPY EACH OF ALL THE DECLARATIONS MADE TO THE COMP ANY UNDER SUB - RULES (1) AND (2). (4) THE PERIOD OF THIRTY DAYS WILL START FROM THE DATE ON WHICH COMPLETE DECLARATIONS ARE RECEIVED BY THE COMPANY (DEPARTMENTAL CIRCULAR DATED 5.8.1976). 38 . IN V IEW OF ABOVE PROVISIONS OF THE COMPANIES ACT AND R ULES MAD E IN THAT REGARD, WE FIND THAT SECTION 49 OF THE C OMPANIES ACT, 1956 HAS GIVEN A N OPTION TO A PERSON TO HOLD THE SHARES AS NOMINEE OF A BENEFICIAL SHAREHOLDER AND FOR THE PURPOSE OF EXERCISING THIS OPTION, SECTION 187C OF THE 45 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 C OMPANIES ACT HAS MADE IT MAN DATORY FOR THE NOMINEE, BENEFICIAL OWNERS AND THE COMPANY WHOSE SHARES HAVE BEEN ISSUED, TO FILE THE DECLARATIONS IN PRESCRIBED FORM BEFORE THE R EGISTRAR OF COMPANIES WITHIN THE PRESCRIBED PERIOD. WE FIND THAT AS PER THE RULES MADE UNDER SECTION 187C OF TH E C OMPANIE S ACT, THE PRESCRIBED FORM NO. I IS TO BE FILED BY THE SHAREHOLDERS WITH THE COMPANY WITHIN ONE MONTH OF ALLOTMENT OF SHARES OR ENTRY OF THE NAME OF THE SHAREHOLDER IN THE R EGISTER OF MEMBERS OF THE COMPANY. SIM ILARLY, THE PRESCRIBED FORM NO. - II IS TO BE FILED BY THE BENEFICIAL OWNER OF SHARES WITH THE COMPANY WITHIN ONE MONTH OF ALLOTMENT OF SUCH SHARES, AND THEREAFTER , THE COMPANY IS REQUIRED TO SUBMIT FORM NO. - III ALONG WITH PRESCRIBED FORM NO. - I & II TO THE OFFIC E OF REGISTRAR OF THE COMPANIES(ROC) WITHIN ONE MONTH FROM THE DATE OF SUBMISSION OF FORM NO. I & II WITH THE COMPANY. THE ASSESSEE COMPANY WAS INCORPORATED ON 23 RD OCTOBER, 1993 AND , THEREFORE , IT WAS REQUIRED TO SUBMIT THE PRESCRIBED FORMS WITHIN THE STIPULATED PERIOD TO THE ROC . 39 . NOW , WE ADVERT TO T HE FACTS IN RESPECT OF THE ISSUE IN DISPUTE AS EMERGED FROM THE ORDERS OF THE LOWER AUTHORITIES AND OTHER RECORDS AS UNDER: (I) T HE ASSESSING OFFICER HAS OBSERVED THAT THESE PRESCRIBED F ORMS WERE FILED BY THE ASSESSEE IN THE OFFI CE OF THE REGISTRAR OF THE COMPANY IN JANUARY, 2000 . T HE ASSESSEE HAS ALSO ACCEPTED THIS FACT IN THE WRITTEN SUBMISSION FILED BEFORE US. THE FACT OF SUBMITTING OF THE FORMS IN JANUARY, 2000 HAS ALSO 46 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 BEEN CONFIRMED IN THE REPORT OF THE DEPUTY DIRECTOR (INS PECTION) OF COMPANY AFFAIRS, WHICH IS PLACED AT PAGE 255 OF THE ASSESSEE S PAPER BOOK. (II) THE ASSESSING OFFICER HAS OBSERVED THAT ON PERUSAL OF THE PRESCRIBED FROM NO. - I OF SEVEN SHAREHOLDERS, HE FOUND THAT SIGNATURE ON THESE FORMS WERE DATE D 25 TH OCTOBER, 1993 , BUT IN POST SEARCH INVESTIGATION CARRIED OUT BY THE DEPUTY DIRECTOR OF INCOME - TAX ( INVESTIGATION ) , IT WAS OBSERVED THAT THESE PRESCRIBED FORMS WERE PRINTED BY M/S . JAIN BOOKS AGENCY (SALE), C - 9, CONNAUGHT PLACE, NEW DELHI IN THE YEAR 1998. THE ASSESSING OFFICER HAS FURTHER MENTIONED THAT DURING THE COURSE OF INQUIRY, STATEMENT OF SH. NABHI KUMAR JAIN, PARTNER AND SMT. MEENAKSHI MATHUR, COUNTER SALE IN - CHARGE FOR M/S. JAIN BOOK AGENCY WERE RECORD ED ON OATH ON 28.02.2001 AND THO SE TWO PERSONS DEPOSED IN THE IR STATEMENT THAT THE FORMS FILLED BY THE SHAREHOLDERS OF THE ASSESSEE COMPANY COULD NOT HAVE BEEN SIGNED IN THE YEAR 1993 AS THOSE FORMS WERE PRINTED FOR THE FIRST TIME IN 1998 ONLY. FURTHER, THE ASSESSING OFFICER OBSERVED THAT THE DEPUTY DI RECTOR OF INCOME - TAX ( INVESTIGATION ) , NOTED THAT THE FAX NUMBER S TATED AT THE BOTTOM OF FORM NO. - I WAS ACTIVATED ONLY AFTER 25 TH OF OCTOBER, 1993. THE ASSESSING OFFICER HAS PRODUCED THE STATEMENT OF THESE TWO PERSONS IN THE ASSESSMENT ORDER. 47 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 (III) WHEN THESE F ACTS WERE CONFRONTED TO THE ASSESSEE BY THE ASSESSING OFFICER, IT WAS SUBMITTED BY THE ASSESSEE COMPANY THAT NECESSARY DECLARATION FORMS FROM SHAREHOLDERS WERE OBTAINED ON 23 RD OCTOBER, 1993 ON PLAIN PAPER AFTER GETTING TYPED ON COMPUTER AND THOSE DECLARAT ION FORMS WERE LYING IN THE OFFICE OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT WHEN THESE FORM S WERE SENT FOR FILING TO THE RO C, RECEIPT CLERK STATED THAT THOSE FORMS SHOULD BE SUBMITTED IN A PRE - PRINTED FORM AND SUBSEQUENTLY COPIES OF THE EARLIER DECLA RATION ON RECORD WERE MADE ON THESE PRE - PRINTED FORM AND, THEREFORE, NO ADVERSE COGNIZANCE COULD BE TAKEN FOR THE SAME. (IV) IN VIEW OF THIS SUBMISSION OF THE ASSESSEE, THE ASSESSING OFFICER MADE INQUIRY FROM THE SHAREHOLDERS, SH. ROBIN GUPTA AND SH. RADHIKA P RASAD DUBEY. THE ASSESSING OFFICER OBSERVED THAT SH. ROBIN GUPTA CATEGORICALLY STATED THAT HIS SIGNATURE, AS APPEARING ON THE F ORMS SUBMITTED WITH THE ROC UNDER SECTION 187C OF THE COMPANIES ACT, WERE NOT HIS SIGNATURE BUT FORGED. FURTHER, THE ASSESSING OF FICER OBSERVED THAT SH. RADHIKA PRASAD DUBEY STATED THAT HE WAS EARLIER WORKING AS AN EMPLOYEE OF SH. VINOD KUMAR BINDAL AND DEPOSED THAT THE SIGNATURES APPEARING ON THE DECLARATION F ORMS SUBMITTED BEFORE THE ROC WITH HIS NAME, WERE NOT HIS SIGNATURE. FURT HER, THE ASSESSING OFFICER 48 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 OBSERVED THAT BOTH THESE PERSONS STATED THAT THEY HAD SUBSCRIBED TO THE SHARES OF THE ASSESSEE COMPANY IN THEIR INDIVIDUAL CAPACITY AND NOT AS THE NOMINEE OF M/S. SUNAIR HOTEL LTD. THE ASSESSING OFFICER HAS ALSO REPRODUCED THE STATEMENT OF BOTH SH. ROBIN GUPTA AND SH. RADHIKA PRASAD DUBEY IN THE ASSESSMENT ORDER. (V) FURTHER, THE ASSESSING OFFICER HAS NOTED IN THE ASSESSMENT ORDER THAT THE SIGNATURE OF SH. ROBIN GUPTA AS AP PEARING IN THE PRESCRIBED FORM NO. I ALONG WITH HIS SPECIMEN SIGNATURE WERE SENT TO THE GOVERNMENT EXAMINER OF QUESTION ED DOCUMENT S , POLICE RESEARCH & DEVELOPMENT BUREAU, MINISTRY OF HOME, SHIMLA AND THE REPORT WAS OBTAINED, WHEREIN THE EXAMINER OF QUESTIO N ED DOCUMENT S HAS OPINED THAT SIGNATURES ON PRESCRIBED FORMS WERE NOT TALLYING WITH THE SPECIMEN S IGNATURES OF THE SHARE HOLDERS. A COPY OF THE REPORT OF THE GOVERNMENT EXAMINER OF QUESTION ED DOCUMENT S IS PLACED AT PAGE NOS. 258 AND 259 OF THE ASSESSEE S P APER BOOK. FURTHER, THE DEPUTY DIRECTOR (INSPECTION) , DEPARTMENT OF COMPANY AFFAIRS , CARRIED OUT AN INSPECTION UNDER SECTION 209A OF THE COMPANIES ACT, 1956 ON 26.02.2001 IN THE CASE OF THE ASSESSEE COMPANY ( COPY PLACED ON PAGE 252 TO 256 OF THE ASSESSEE S PAPER BOOK) AND REPORTED THAT THERE WERE 49 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 CONTRADICTORY STATEMENT S IN FORM NO. II & III FILED BY THE ASSESSEE COMPANY. (VI) FURTHER, THE DEPUTY DIRECTOR( INSPECTION) , DEPARTMENT OF COMPANY AFFAIRS IN ITS REPORT DATED 4 TH AUGUST, 2000 , PLACED ON PAGE 98 OF THE ASSESSEE S PAPER BOOK, MENTIONED THAT MINUTES BOOK OF THE ASSESSEE COMPANY WAS FOUND TO BE INTERPOLATED BY PUTTING FLUID ON VARIOUS PAGES, HENCE, THERE WAS VIOLATION OF SECTION 193 OF THE COMPANIES ACT. OTHER VIOLATIONS OF THE COMPANIES ACT WERE ALSO OBSERVED IN THE SAID REPORT. (VII) BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS), THE ASSESSEE CONTENDED THAT SECTION 187C OF THE COMPANIES ACT IS A PROCEDURAL SECTION FOR THE PURPOSE OF DISCLOSURE OF BENAMAI HOLDING OF THE SHARES AND CANNOT BE IMPORTED INTO CONSIDERING FOR THE PURPOSE OF EXAMINING WHETHER THE CONDITIONS AS LAID DOWN UNDER SECTION 47(5) OF THE INCOME - TAX ACT, 1961 ARE ESSENTIALLY FULFILLED OR NOT. (VIII) DURING THE APPELLATE PROCEEDINGS BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) , THE ASSESSEE WAS PROVIDED OPPORTUNITY TO CROSS - EXAMINE SH. ROBIN GUPTA, HOWEVE R, NO QUESTIONS IN RESPECT OF SIGNATURE OF SH. ROBIN GUPTA ON PRESCRIBED FORM NO. I , NOT TALLYING WITH HIS SPECIMEN SIGNATURE , WERE ASKED BY SH. VINOD KUMAR BINDAL, CHARTERED ACCOUNTANT OF THE ASSESSEE COMPANY. 50 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 40 . BEFORE US, THE LEARNED COUNSEL OF THE A SSESSEE SUBMITTED THAT THE DELAY IN FILING OF THE DECLARATION UNDER SECTION 187C OF THE COMPANIES ACT WAS NOT A VIOLATION OF THE PROVISIONS AND IT WAS NOT THE CASE THAT THE IMPUGNED DECLARATIO NS WERE FILED AFTER THE SEARCH T OOK PLACE AS THE SAID DECLARATIO NS WERE FILED MUCH PRIOR TO THE DATE OF SEARCH AND LASTLY UNDER THE COMPOUNDING PROVISIONS OF THE COMPANIES ACT, 1956 THE DELAY STOOD CONDONED OF BY THE PAYMENT OF THE DELAYED FEE. THE L EARNED COUNSEL ALSO DISPUTED THE CLAIM OF THE ASSESSING OFFICER THAT T HE GOVERNMENT EXAMINER OF QUESTION ED DOCUMENTS HELD THE SIGNATURE OF SH. ROBIN GUPTA AS NOT GENUINE. ACCORDING TO THE LEARNED COUNSEL, THE GOVERNMENT EXAMINER OF QUESTION ED DOCUMENTS HAS CALLED FOR FURTHER DOCUMENTS FOR GIVING HIS FINAL OPINION IN THE MATT ER. THE L EARNED COUNSEL ALSO SUBMITTED BEFORE US THAT THE ASSESSEE WAS NOT PROVIDED THE CERTIFIED TRUE COPIES ON THE PRESCRIBED FORM NO S . I , II & III , WHICH CLAIMED TO HAVE BEEN COLLECTED BY THE DEPUTY DIRECTOR OF INCOME TAX (INVESTIGATION) FROM THE OFFICE OF THE REGISTRAR OF THE COMPANIES . 41 . AFTER CONSIDERING THE ARGUMENTS OF BOTH THE PARTIES AND FACTS AND CIRCUMSTANCES OF THE ISSUE IN DISPUTE , WE FIND THAT: (I) BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSING OFFICER DID NOT PROVIDE CERTIFIED COPIES ON PRESCRIBED FORM NOS. I , II & III , WHICH WERE CLAIMED TO HAVE COLLECTED BY THE DEPUTY DIRECTOR OF INCOME - TAX ( INVESTIGATION ) FROM THE OF FICE OF THE REGIS TRAR OF COMPANIES(ROC) AND THEREFORE HE RAISED DOUBT ON THE 51 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 AUTHENTICITY OF THE FORMS AS WELL AS INFORMATION CONTAINED THEREIN . W E FIND FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER BROUGHT INCONSISTENCY OF SIGNATURE OF SH ROBIN GUPTA IN PRESCRIBED FORM S TO THE KNOWLEDGE OF THE ASSESSEE , THEN THE ASSESSEE SUBMITTED HIS EXPLANATION IN RESPECT OF THOSE FORMS STATING THAT THE SAME WERE OBTAINED ON PLAIN PAPER AT THE TIME OF INCORPORATION OF THE COMPANIES ACT AND SUBSEQUENTLY SAME WERE REPRODUCED ON THE PRESCRIBED FORM S . IN OUR VIEW, ONES THE ASSESSEE ADMIT THIS FACT, IT CAN SAFELY PRESUMED THAT THE ASSESSEE WAS HAVING THOSE COPIES WITH IT. IT COULD NOT HAVE BEEN POSSIBLE TO GIVE EXPLANATION WITHOUT HAVING COPY OF SUCH FORMS. FURTHER, THE LEARNED COMMISSI ONER OF INCOME TAX (DEPARTMENTAL REPRESENTATIVE) SUBMITTED BEFORE US THAT THE ASSESSEE NEVER REQUESTED FOR PROVIDING CERTIFIED TRUE COPY OF THE PRESCRIBED FORM S IN FIRST APPELLATE PROCEEDINGS BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AN D THE LEARNED COUNSEL ALSO COULD NOT CONTROVERT THIS FACT. WE ALSO OBSERVE THAT D URING THE PROCEEDING OF CROSS - EXAMINATION OF SH. ROBIN GUPTA ALSO, NO QUESTION WAS ASKED BY THE COUNSEL OF THE ASSESSEE ABOUT THE SIGNATURE OF SH. ROBIN GUPTA ON PRESCRIBED FORM. FROM THE RECORDS, WE ARE NOT ABLE TO FIND THAT ANY CROSS - EXAMINATION OF THE E XAMINER OF QUESTIONED DOCUMENT WAS SOUGHT BY THE ASSESSEE. FURTHER, AS ADMITTED BY THE ASSESSEE, THESE PRESCRIBED FORMS WERE FILED BY THE ASSESSEE BEF ORE THE REGISTRAR OF THE COMP ANIES , THEREFORE, IT WAS THE RESPONSIBILITY OF THE ASSESSEE COMPANY TO PRODUCE 52 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 THE COPY OF SUCH FORMS . T HE ASSESSEE ITSELF COULD HAVE OBTAINED COPY OF THOSE FORMS FROM THE OFFICE OF T HE REGISTRAR OF THE COMPANIES (ROC) . IN VIEW OF THE ABOVE FACTS, WE DO NO T FIND ANY MERIT IN THE ARGUMENT OF THE LEARNED COUNSEL RAISING DOUBT ON AUTHENTICITY OF THE PRESCRIBED FORM NO. I , II AND III AS MENTIONED BY THE ASSESSING OFFICER . WE ALSO FIND THAT THE COPY OF THESE FORMS ARE AVAILABLE ON PAGE 41 TO 47 AND PAGE 276 TO 2 77 OF THE ASSESSEE S PAPER BOOK. (II) FURTHER, SH. ROBIN GUPTA HAS DENIED OF PUTTING HIS SIGNATURE ON FORM NO. I AND THE GOVERNMENT EXAMINER OF QUESTION ED DOCUMENT HAS ALSO GIVEN HIS OPINI ON THAT THE SIGNATURE OF SH. ROBIN GUPTA ON A PRESCRIBED FORM NO. 1 DID NOT TALLY WITH THE SPECIMEN SIGNATURE . THIS REPORT IS AVAILABLE ON PAGE 258 OF THE ASSESSEE S PAPER BOOK. I N OUR VIEW, THE GOVERNMENT EXAMINER OF QUESTION ED DOCUMENT HAS GIVEN A DETAILED REASONING FOR HIS CONCLUSIONS, WHICH ARE AVAILABLE ON PAGE 259 OF THE ASSESSEE S PAPER BOOK , WHICH WE ARE REPRODUCING AS UNDER: REASONS FOR OPINION AS IN PARA 2: MY OPINION THAT THE PERSON WHO WROTE THE SIGNATURES REPRODUCTION COPIES OF WHICH IS RED ENCLOSED AND MARKED A8 TO A12 DID NOT WRITE THE SIGNATURES REPRODU CTION COPIES OF WHICH IS RED ENCLOSED AND MARKED Q2, IS BASED UPON THE FOLLOWING CONSIDERATIONS: - BOTH THE QUESTIONED AND THE STANDARD SIGNATURES SHOW DIFFERENCES. DIFFERENCES ARE ALSO OBSERVED IN THE GENERAL WRITING HABITS SUCH AS MOVEMENT WHICH IS WRIST AND FOREARM COMBINED IN QUESTIONED WHEREAS WRIST 53 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 PREDOMINANT WITH SOME ACTION OF FOREARM IN STANDARD, SKILL SUPERIOR IN QUESTIONED AS COMPARED IN STANDARD, SPEED FAST IN QUESTIONED AS COMPARED TO STANDARD AND SHOW DIFFERENCE IN SLANT, SPACING, ALIGNMENT, RELATIVE SIZE AND PROPORTION OF LETTERS AND THEIR COMBINATION. THEY ALSO SHOW DIFFERENCES IN INDIVIDUAL WRITING HABITS SUCH AS, EXECUTION OF R WITH THE NATURE OF ITS VERTICAL STAFF, RELATIVE SIZE OF THE UPPER CURVED PART, FORMATION OF LOOP IN THE INTERM EDIATE PART, DIRECTION OF FINISH IN QUESTIONED IS DIFFERENT AS COMPARED TO ADMITTED IN WHICH THERE IS A UPPER CURVED PART IS COMPARATIVELY SMALLER AND THERE IS AN ANGULARITY IN THE INTERMEDIATE PART; THERE IS DISTINCT FORMATION OF P IN QUESTIONED, IT IS NOT SO IN STANDARD; EXECUTION OF D' WITH THE NATURE OF RELATIVE SIZE OF THE VERTICAL STAFF, CURVED PART, ANGULARITY IN THE LOWER PART IN QUESTIONED WHEREAS THERE IS A DISTINCT LOOP IN THE LOWER PART OF D' IN STANDARD; EXECUTION OF U WITH THE NATURE OF SMOOTH CONCAVITY IN QUESTIONED WHEREAS IT LOOKS LIKE V IN STANDARD; EXECUTION OF B WITH THE NATURE OF UPPER AND LOWER PART IN QUESTIONED WHEREAS IT LOOKS LIKE F IN STANDARD; THERE IS A DISTINCT EXECUTION OF E IN STANDARD, IS NOT SO IN QUESTIONED ; EXECUTION OF Y WITH THE NATURE OF ITS UPPER PART AND DOWNWARD FINISH IN QUESTIONED WHEREAS THERE IS A FORMATION OF TRIANGLE IN THE LOWER PART OF Y . THE AFORESAID DIFFERENCES ARE NOT DUE TO THE NATURAL VARIATIONS FOUND IN THE WRITINGS OF A PERSON AND ALSO NOT DUE TO DISGUISE ON THE PART OF THE WRITER OF THE STANDARD. THE AFORESAID DIFFERENCE LEAD ME TO THE CONCLUSION OF DIFFERENT AUTHORSHIP. (III) IN VIEW OF THE ANALYSIS AND REASONING GIVEN BY THE GOVERNMENT EXAMINER OF QUESTION ED DOCUMENT S , WE DO NOT HAVE ANY DOUBT THAT THE SIGNATURE OF SH. ROBIN GUPTA ON FORMS WAS NOT TALLYING WITH HIS SPECIMEN SIGNATURE. THE REPORT OF THE EXAMINER HAS CORROBORATED THE STATEMENT GIVEN 54 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 BY SH. R OBIN GUPTA THAT HE DID NOT SIGN THE PRESCRIBED FORM N O. I IN QUESTION. (IV ) THE DEPUTY DIRECTOR (INSPECTION) OF THE COMPANY AFFAIRS CARRIED INSPECTION OF THE PRESCRIBED FORMS SUBMITTED BY THE ASSESSEE COMPANY AND REPORTED INCONSISTENCY IN THE FORMS. THE RELEVANT PARA OF THE REPORT OF DEPUTY DIRECTOR(INSPECTION) OF THE COMPANY, WHICH IS AVAILABLE ON PAGE 255 OF THE ASSESSEE S PAPER BOOK IS REPRODUCED AS UNDER: AS PER FORMS DT. 25. 10.93 FILED WITH ROC ON 11.01.2000 I.E. AFTER A DELAY OF 7 YEARS, ALL THE ABOVE SUBSCRIBERS USING FORM I IN ACCORDANCE WITH RULE 3 (1) OF COMPANIES (DECLARATION OF BENEFICIAL INTEREST IN SHARE) RULES, 1975 IN ACCORDANCE WITH SUB - SECTION 187 - C DECLARED THAT THEY THEMSELVES ARE SHAREHOLDERS AND NOBODY ELSE WAS HOLDING THE BENEFICIAL INTEREST IN THESE SHARES. HOWEVER, FORM II, SIGNED B Y A DIRECTOR OF M/S SUN AIR LTD. DECLARES THAT THE BENEFICIAL OWNERSHIP OF THESE 700 SHARES (DISTINCTIVE NO. L TO 700) WAS HELD BY THE COMPANY ITSELF. ON THE BASIS OF FORMS, IN FORM III FILED BY THE COMPANY WITH ROC THE COMPANY MADE AN ENTIRELY DIFFERENT ST ATEMENT AND DECLARED BY THAT THE BENEFICIAL INTEREST OF THESE VERY 700 SHARES WAS HELD M/S SUNAIR HOTELS LTD. HENCE, THE FORM III, THE BASIS OF WHICH ARE FORM I & II BEING CONTRADICTORY, CANNOT BE RELIED UPON. WE MAY ASK FOR APPROVAL OF CENTRAL GOVT. U/S 3 72 OF THE ACT FOR THE PURPORTED INVESTMENT BY HOLDING COMPANY TO SEE IF THE SAME WAS ACTUALLY MADE AT RELEVANT TIME OR IS SIMPLY A FABRICATION OF FACTS TO CREATE CAPITAL WITHOUT SPENDING ANY MONEY. 55 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 42 . THE ABOVE FACTS ESTABLISH THAT THE CLAIM OF COMPLIA NCE OF SECTION 187C OF THE COMPANIES ACT, 1956 BY THE ASSESSEE IS DEFECTIVE BECA USE, FIRSTLY, IT HAS NOT FI L LED THE PRESCRIBED FORMS WITHIN THE PRESCRIBED PERIOD OR DURING THE RELEVANT ASSESSMENT YEAR AND SECONDLY, THE FORM S FILED WITH DELAY ARE NOT FOU ND HAVING GENUINE SIGNATURE OF SH. ROBIN GUPTA, THEREFORE, THE ASSESSEE CANNOT MA KE A CLAIM OF WHOLLY OWNED SUBSIDIARY OF M/S. SUNAIR HOTELS LTD. ON THE BASIS OF SUBMISSIONS FILED BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT DELAY IN FILING THE DECLARATION UNDER SECTION 187C OF THE COMPANIES ACT WAS NOT A VIOLATION OF THE PROVISIONS AND THE SAID DELAY HAS BEEN COMPOUNDED UNDER THE PROV ISIONS OF THE COMPANIES ACT ALONG WITH THE PAYMENT OF LATE FEE. IN OUR OPINION, WHEN THE SIGNATURE OF SH. ROBIN GUPTA HAS BEEN FOUND TO BE NOT GENUINE AND HE HIMSELF HAS DENIED OF PUTTING HIS SIGNATURE ON SUCH FORMS AND ALSO THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE ANY SUCH PRESCRIBED FORM WITH THE GENUIN E SIGNATURE OF SH. ROBIN GUPTA, M ERELY, FILING UNAUTHENTIC FORM OF SH. ROBIN GUPTA IN THE OFFICE OF ROC , IT CANNOT BE SAID THAT THE ASSESSEE HAS MADE COMPLIANCE OF THE PROVISIONS OF SECTION 187C OF THE COM PANIES ACT. AS PER THE COMPANIES ACT , FOR CLAIMING BENEFICIAL SHAREHOL DING, IT WAS MANDATORY FOR FILING SUCH FORMS AND IN THE ABSENCE OF COMPLIANCE OF THE PROVISIONS OF COMPANIES ACT, THE ASSESSEE CANNOT CLAIM THAT SH. ROBIN GUPTA WAS A NOMINEE OF M/S. SUN AIR HOTELS LTD. 43 . THE HON BLE HIGH COURT IN PARA 21 OF JUDGMENT (SUPRA) DIRECTED THE ASSESSEE TO LEAD SUFFICIENT EVIDENCE TO ENABLE THE 56 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 AUTHORITIES/TRIBUNAL THAT THE ASSESSEE COMPANY HAS DISCHARGED ITS ONUS. THE RELEVANT OBSERVATIONS OF THE HON BLE HIGH COURT ARE REPRODUCED AS UNDER: 21 NORMAL PRESUMPTION IN LAW IS THAT THE REGISTERED SHAREHOLDER HOLDS THE SHARE IN HIS OWN RIGHT AND IN HIS INDIVIDUAL/ PERSONAL CAPACITY. HE DOES NOT HOLD SHARES AS A NOMINEE OF A THIRD PERSON. IT IS THE CONTRARY WHICH HAS TO BE PROVED BY THE PARTY WHO CLAIMS OR ASSERTS THAT THE RECORDED SHAREHOLDER IS A NOMINEE. THE ONUS IS, THEREFORE, ON THE PARTY WHO CLAIMS TO THE CONTRARY. THE SAID PARTY HAS TO LEAD EVIDENCE SUFFICIENT IN LAW TO ENABLE THE AUTHORITIES/TRIBUNAL TO COME T O THE CONCLUSION THAT IT/SHE/HE HAS DISCHARGED THE ONUS. THE EVIDENCE SHOULD BE SUCH THAT IT CAN BE HELD THAT THE SHARES WERE NOT HELD BY THE SHAREHOLDER IN HIS INDIVIDUAL/ PERSONAL CAPACITY BUT AS A NOMINEE OF THE THIRD PERSON. [SEE IN RE: DINSHAW MANECKJ EE PETIT BART, AIR 1927 BOM 371] 44 . IN RESPONSE TO THE ABOVE FINDINGS OF THE HON BLE HIGH COURT, THE LEARNED COUNSEL HAS FILED THE FOLLOWING EVIDENCE IN SUPPORT OF ITS CLAIM THAT SH. ROBIN GUPTA WAS A NOMINEE OF M/S. SUNAIR HOTELS LTD. : (I) IN THE BALANCE - SHEET AND FINANCIAL STATEMENTS OF THE ASSESSEE AND M/S. SUNAIR HOTELS LTD., THE ASSESSEE COMPANY HAS BEEN SHOWN AS WHOLLY OWNED SUBSIDIARY COMP ANY OF M/S. SUNAIR HOTELS LTD AND THESE BALANCE SHEETS HAVE BEEN FILED BEFORE THE ROC AND INCOME - T AX DEPARTMENTS. (II) IN THE REGISTER OF THE MEMBERS OF COMPANY , A COPY OF WHICH IS MADE AVAILABLE BY THE ASSESSEE AT PAGE 19 - 20 OF THE PAPER BOOK, SHAREHOLDER S HAVE BEEN SHOWN AS NOMINEE OF M/S. SUNAIR HOTELS LTD. 57 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 (III) IN THE MINUTES OF MEETING OF BOARD OF DIRECTORS THE FACT OF THE ASSESSEE COMPANY BEING WHOLLY OWNED SUBSIDIARY OF M/S. SUNAIR HOTELS LTD. WAS DULY RECORDED. (II) IN VARIOUS LETTERS ADDRESSED TO THE MINISTRY OF INDUSTRIES (DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION) IN RESPECT OF COLLABO RATION WITH FOREIGN COMPANY, IT WAS CLAIMED BY M/S. SUNAIR HOTELS LTD. THAT THE ASSESSEE WAS A WHOLLY OWNED SUBSIDIARY OF M/S. SUNAIR HOTELS LTD. AND THIS CLAIM WAS MADE IN MAY, 1995. THE DOCUMENTS IN SUPPORT OF THE CLAIMS ARE MADE AVAILABLE ON PAGE 90 TO 96 OF THE ASSESSEE S PAPER BOOK. 45 . ON CONSIDERATION OF THE SUBMISSIONS OF THE ASSESSEE, WE FIND THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBMIT THE EVIDENCE WHICH COULD ESTABLISH ITS CLAIM OF BEING WHOLLY OWNED SUBSID IARY OF M/S. SUNAIR HOTELS LTD . BECAUS E OF THE FOLLOWING REASONS: (I) THE BALANCE SHEET, FINANCIAL STATEMENTS, REGISTER OF MEMBERS OF THE COMPANY, MINUTES OF MEETINGS AND DOCUMENTS IN RESPECT OF DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION ARE ALL UNILATERAL DECLARATION OR ACT OF THE ASSESSEE OR BY THE PERSONS UNDER THE CONTROL OF THE ASSESSEE COMPANY OR M/S. SUNAIR HOTELS LTD. NO DOCUMENTS CONTAINING THE SIGNATURE OF SH. ROBIN GUPTA OR ANY AGREEMENT BETWEEN SH. ROBIN GUPTA AND M/S. SUNAIR HOTELS LTD MENTIONING THE FACT OF SH. ROBIN GUPTA AS A NOMINEE OF THE SHAREHOLDERS , HAVE BEEN PRODUCED EITHER BEFORE THE LOWER AUTHORITIES OR BEFORE US. 58 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 (II) THE PRESCRIBED FORM NO. I UNDER SECTION 187C OF THE COMPANIES ACT, 1956 WITH THE GENUINE SIGNATU RE OF MR. ROBIN GUPTA HAS ALSO NOT BEEN PRODUCED BEFORE US OR BEFORE THE LOWER AUTHORITIES. (II I ) THE REGISTER OF MEMBERS OF COMPANY AVAILABLE ON PAGE 19 AND 20 OF THE ASSESSEE S PAPER BOOK DOES NOT BEAR THE SIGNATURE OF ANY OF THE DIRECTORS OF THE COMPA NY AND PARTICULARLY OF SH . ROBIN GUPTA . (IV ) REGARDING THE MINUTES OF MEETING, S H . ROBIN GUPTA HAS DENIED OF PUTTING HIS SIGNATURE ON THE MINUTES OF M EETING DATED 23.10.93. FURTHER, THE DEPUTY DIRECTOR (INSPECTION) OF COMPANY AFFAIRS IN HIS LETTER DATED 4 TH AUGUST, 2000, WHICH IS AVAILABLE ON PAGE NO. 98 OF THE ASSESSEE S PAGE BOOK, HAS GIVEN COMMENTS AS UNDER: 2. VIOLATION OF SECTION 193 OF THE ACT - & UNRELIABILITY OF MINUTES: (A) MINUTES BOOKS ARE NOT CONSEQUENTLY SERIALIZED. HENCE, THE COMPANY HAS VIOLATED SECTION 193 OF THE ACT. (B) USE OF FLUID TO HIDE PAGE NUMBERS OF MINUTES IN THE COPIES OF BOARD MINUTES PROVIDED TO ME IN THE COURSE OF INSPECTION AND ALTERATION OF THE DATE OF SIGNING THE MINUTES OF BOD MEETINGS DT. 24.03.94, 30.06.94, 27.08.94 , 2.8.94 AND SHAREHOLDERS MEETINGS DT. 30.09.94 BY THE CHAIRMAN RAISES DOUBTS AS TO RELIABILITY OF MINUTES. IT IS SEEN THE MINUTES BOOKS HAVE BEEN INTERPOLATED AND PUTTING THE FLUID ON PAGE NUMBERS. HENCE, VIOLATION OF SECTION 193 OF THE ACT. THUS, THE M INUTES OF MEETING RECORDED ARE NOT RELIABLE. 59 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 (V) IN THE DOCUMENTS SUBMITTED TO DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION, GOVERNMENT OF INDIA, M/S. SUNAIR HOTELS LTD. HAS CLAIM ED THAT THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY COMPANY OF M/S. SUNAIR HOTELS LTD. THERE IS NO INDEPENDENT FINDING AS TO THAT THE ASSESSEE WAS A WHOLLY OWNED SUBSIDIARY COMPANY OF M/S. SUNAIR HOTELS LTD. IN TERMS OF COMPANIES ACT OR OTHER LAWS. (VI) MERELY FINDING OF SHARE CERTIFICATES IN THE PREMISES OF M/S SUNAIR HOTELS LTD IS NOT SUFFICIENT TO ESTABLISH THAT IT WAS OWNING ALL THE SHARES AND THE SHAREHOLDERS WERE NOMINEES OF THE COMPANY. 46 . AS REGARDS TO T HE ARGUMENT OF THE LEARNED COUNSEL THAT EVEN BEFORE THE INCORPORATION OF THE ASSESSEE COMPANY , IT WAS THE INTENTION OF THE HOLDING COMPANY AS WELL AS THE PROMOTERS TO FORM A WHOLLY OWNED SUBSIDIARY COMPANY TO EXPLOIT THE POTENTIAL OF THE LAND DEVELOPMENT RI GHTS FOR CONSTRUCTION OF HOTELS, IS CONCERNED, W E FIND THAT MERE DEMONSTRATING THE INTENTION OF CREATION OF A WHOLLY OWNED SUBSIDIARY IS NOT SUFFICIENT. THE ASSESSEE IS REQUIRED TO DEMONSTRATE WITH THE HELP OF EITHER ANY WRITTEN AGREEMENT BETWEEN THE SHARE HOLDERS AND M/S. SUNAIR HOTELS LTD. OR WITH THE HELP OF COPY OF FORM - I PRESCRIBED UNDER SECT ION 187C OF COMPANIES ACT, 1 956 THAT THE SHAREHOLDERS WERE NOMINEE SHAREHOLDERS . IN VIEW OF ABOVE, IT IS APPARENT THAT THE ASSESSEE HAS NOT BEEN ABLE TO LEAD THE EVIDENCE REQUIRED TO ESTABLISH THAT THE SHAREHOLDERS WERE IN THE CAPACITY OF NOMINEE OF M/S. SUNAIR HOTELS LTD. 60 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 47 . REGARDING THE ARGUMENT OF THE LEARNED COUNSEL THAT SH. ROBI N GUPTA WAS NOT INVOLVED IN DAY TO - DAY WORKING AND HE COULD NOT SUBSTANTIATE THE INVESTMENT OF RS. 1000/ - , THE HON BLE HIGH C O URT HAS OBSERVED IN PARA 23 OF THE JUDGMENT, W HICH IS REPRODUCED AS UNDER: 23. THEREAFTER, THE TRIBUNAL HAS STATED THAT THE STATEMENT OF ROBIN GUPTA, THAT HE HAD NOT SIGNED FORM I PRESCRIBED UNDER RULE 3 RELATING TO DECLARATION UNDER SECTION 187C , SHOULD BE IGNORED FOR THE REASON THAT HE WAS UNABLE TO RECALL THE MODE OF PAYMENT OF SHARE CAPITAL AND IT WAS STATED THAT DAY TO DAY AFFAIRS OF RESPONDENT ASSESSEE WAS LOOKED AFTER BY S.P. GUPTA - ANOTHER SUBSCRIBER. IT IS NOT NECESSARY FOR THE SHAREHOLDER TO BE INVOLVED IN DAY TO DAY WORKING. NEITHER DOES THE SHAREHOLDER BECOME A NOMINEE SHAREHOLDER IF HE IS NOT INVOLVED IN DAY TO DAY WORKING. FURTHER, THE SHARES WERE ISSUED IN THE NAME OF ROBIN GUPTA. THE AMOUNT INVOLVED WAS ONLY RS.1,000/ - WHICH WAS NOT BIG OR SUBSTANTIAL AMOUNT. WE HAVE ALREADY REFERRED TO THE FINDINGS RECORDED BY THE TRIBUNAL THAT THE PAYMENT OF SHARE CAPITAL WAS MADE BY SUNAIR HOTELS LTD. BY CHEQUE IS FACTUALLY INCORRECT. 48 . REGARDING THE SUBMISSIONS OF THE ASSESSEE, SH. ROBIN GUPT A FAILED TO REPORT THE OWNERSHIP OF THE SHARES IN HIS BALANCE SHEET. THE HON BLE HIGH COURT HAS ALREADY OBSERVED IN PARA 25 OF THE JUDGMENT THAT THE ONUS IS ON THE ASSESSEE TO SHOW AND ESTABLISH THAT IT WAS A WHOLLY OWNED SUBSIDIARY OF THE HOLDING COMPANY AND THE ASSESSEE WERE MERELY THE NOMINEE OF THE HOLDING COMPANY. THE RELEVANT OBSERVATIONS OF THE HON BLE HIGH COURT ARE REPRODUCED AS UNDER: 25. THEREAFTER, THE TRIBUNAL HAS RECORDED THAT THE QUESTION OF REAL OWNERSHIP OF SHARES SHOULD HAVE BEEN ASCERTAI NED BY THE ASSESSING OFFICER BUT HE HAS FAILED TO DO SO. AS NOTICED AND HELD ABOVE, THERE IS NO PRESUMPTION THAT THE 61 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 REGISTERED SHAREHOLDER IS A NOMINEE OF A THIRD PERSON. IN CASE OF A DISPUTE, THE PERSON WHO CLAIMS TO THE CONTRARY HAS TO ESTABLISH AND SHO W THAT THE PERSON MENTIONED IN THE REGISTER OF SHAREHOLDERS WAS HIS NOMINEE. THE ONUS IS ON THE PERSON WHO STATES AND CLAIMS THAT WHAT IS APPARENT IS NOT REAL. IT WAS NOT FOR THE ASSESSING OFFICER TO ESTABLISH TO THE CONTRARY BUT FOR THE ASSESSEE TO SHOW A ND ESTABLISH THAT IT WAS A WHOLLY OWNED SUBSIDIARY OF THE HOLDING COMPANY AND THE SHAREHOLDERS WERE MERELY THE NOMINEES OF THE HOLDING COMPANY. THERE IS NO PRESUMPTION THAT THE SHAREHOLDERS WERE NOMINEES. 49 . BEFORE US , THE ASSESSEE HAS NOT BEEN ABL E TO LEAD ANY EVIDENCE , WHICH COULD SUBSTANTIATE THAT S H . ROBIN GUPTA WAS NOM INEE SHAREHOLDER OF M/S SUNAIR H OTELS LTD. 50 . FURTHER, IN PARA 20, THE HON BLE HIGH COURT HAS OBSERVED THAT FAILURE TO MENTION THE SHARES RECORDED/STANDING IN THE NAME OF NOMI NEE OF M/S. SUNAIR HOTELS LTD. WAS A LAPSE AND AN ERROR ON THE PART OF MR. ROBIN GUPTA. FROM THE SAID FACTUM, NO INFERENCE OR LEGAL CONCLUSION CAN BE DR AWN THAT M/S SUNAIR HOTELS LTD. WAS THE BENEFICIAL SHAREHOLDER. HON BLE HIGH COURT HELD THAT THIS KIND O F CONCLUSIONS WAS AND WOULD BE AN ERRONEOUS CONCLUSION. 51 . IN PARA 27, THE HON BLE HIGH COURT DIRECTED THE TRIBUNAL TO EXAMINE THE EFFECT OF BENAMI PROHIBITION ACT, 1988 ON THE TRANSACTIONS OF BENEFICIAL SHAREHOLDERS CLAIMED BY M/S. SUNAIR HOTELS LTD. H OWEVER, WE FIND THAT NO SUCH ARGUMENTS WERE RAISED BY THE REVENUE BEFORE US IN THIS RESPECT, THEREFORE, WE REFRAIN FROM GIVING ANY FINDING OF THIS ISSUE. 52 . FURTHER, IN PARA 30 OF THE JUDGMENT, THE HON BLE HIGH COURT DIRECTED THE TRIBUNAL TO EXAMINE THE CONTENTION OF THE 62 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 ASSESSEE, WHETHER THE ASSESSMENT PROCEEDINGS ARE BAD IN LAW AS NO MATERIAL OR EVIDENCE WA S FOUND IN THE COURSE OF SEARCH THE RELEVANT PARAGRAPH IS REPRODUCED AS UNDER: 30. AT THIS STAGE, WE MAY NOTICE TWO CONTENTIONS OF THE RESPONDENT. THE FIRST CONTENTION IS THAT BLOCK ASSESSMENT PROCEEDING ARE BAD AS NO MATERIAL OR EVIDENCE WAS FOUND IN THE SEARCH. THIS ASPECT HAS NOT BEEN EXAMINED AND DEALT WITH BY THE TRIBUNAL. A READING OF THE ORDER PASSED BY THE ASSESSING OFFICER WOULD SHOW THAT H E HAS REFERRED TO THE EVIDENCE AND MATERIAL WHICH WAS FOUND DURING THE SEARCH AND THEREAFTER, HE HAS REFERRED TO THE POST SEARCH INVESTIGATION AND VERIFICATION. AS PER THE ASSESSMENT ORDER, THE EVIDENCE/MATERIAL FOUND DURING THE SEARCH AND POST SEARCH INVE STIGATION HAD REVEALED THAT THE RESPONDENT ASSESSEE WAS NOT 100% SUBSIDIARY OF SUNAIR HOTELS LTD. AS WE ARE PASSING ORDER OR REMIT, THIS QUESTION, IF RAISED, WILL BE EXAMINED AND CONSIDERED BY THE TRIBUNAL. THE SECOND CONTENTION OF THE RESPONDENT RELYING U PON THE ASSESSMENT ORDER DATED 9TH FEBRUARY, 1998, DOES NOT HELP OR ASSIST THE RESPONDENT FOR THE SAID ORDER HAS PROCEEDED ON THE ASSUMPTION THAT THE RESPONDENT ASSESSEE WAS 100% SUBSIDIARY OF SUNAIR HOTELS LTD. HOWEVER, AS PER THE CASE OF THE APPELLANT, M ATERIAL AND EVIDENCE FOUND DURING THE SEARCH AND SUBSEQUENT ENQUIRIES HAD REVEALED THAT THE RESPONDENT ASSESSEE WAS NOT A 100% SUBSIDIARY OF SUNAIR HOTELS LTD. IT IS, THEREFORE, THE CONTENTION OF THE APPELLANT THAT THE ASSESSMENT ORDER DATED 9 TH FEBRUARY, 1998 DOES NOT HELP OR PROTECT THE RESPONDENT ASSESSEE AS THE SAID ORDER HAD PROCEEDED ON THE BASIS OF PREMISE AND ASSUMPTION THAT THE RESPONDENT ASSESSEE WAS NOT A 100% SUBSIDIARY OF SUNAIR HOTELS LTD. THIS ASPECT WILL BE EXAMINED BY THE TRIBUNA L. WE REFRAIN FROM DECIDING THIS ASPECT/QUESTION. ORDER OF THE TRIBUNAL WE RECORD IS SILENT ON THIS QUESTION. 53 . BEFORE US, THE ASSESSEE DID NOT FI LE ANY CROSS OBJECTION FOR TAKING ANY ADDITIONAL GROUND RAISING THE ISSUE OF JURISDICTION IN MAKING THE B LOCK ASSESSMENT I N THE ABSENCE OF ANY MATERIAL OR 63 IT (SS) A NO. 06/DEL/2004 BLOCK PERIOD : 01.04.1990 TO 21.11.2000 EVIDENCE FOU ND DURING THE COURSE OF SEARCH. AS THE ASSESSEE HAS NOT RAISED ANY SUCH ISSUE BEFORE US, WE ARE UNABLE TO GIVE ANY FINDING ON THIS ISSUE. 54 . IN VIEW OF THE ABOVE DISCUSSION , WE HOLD THAT THE ASSESSEE IS UNABLE TO PROVE THAT IT IS A WHOLLY - OWNED SUBSIDIARY OF M/S SUNAIR H OTELS LTD . AND THEREFORE ASSESSEE IS NOT ENTITLED TO THE BENEFIT OF SECTION 47(V) OF THE ACT. HENCE , THE CAPITAL GAIN OF RS. 21 C RORES ON TRANSFER OF DEVELOPMENT RIGHTS BY THE ASSESSEE COMPANY TO M/S . SUNAIR HOTELS LTD IS HELD AS TAXABLE IN THE HANDS OF THE ASSESSEE COMPANY. 55 . IN THE RESULT , APPEAL OF REVENUE IS ALLOWED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 2 0 T H SEPT. , 2016 . S D / - S D / - ( H.S. SIDHU ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 0 T H SEPTEMBER , 2016 . LAPTOP &RK / - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI