TaxTMI 
TaxTMI 
2001 (6) TMI 172
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....ce in support of its claimed. (iii) allowing an amount of Rs. 29,00,148 disallowed by the Assessing Officer on account of interest tax on Interest free advances despite the fact that such expenses was made to divert the funds for non business purposes. (iv) allowing interest of Rs. 3,18,819 disallowed by the Assessing Officer despite the fact that the company had to pay huge interest on funds borrowed by it.' 3. Brief facts of the case are that the assessee-company is doing the business of manufacturing and selling of ICAM-PLC system. ICAM stands for Integrated Control Automation Monitoring & PLC stands for Programmable Logic Control. The share capital of the company as on 1-41988 being the first day of the previous year 1988-89, stood at Rs. 135 lakhs, being the nominal value of 1,35,000 shares of Rs. 100 each. The shareholders were as under: Name No. of Nominal ....
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.... name lender of Mr. D.K. Khaitan or his family members. It was further observed by the Assessing Officer that the concerned companies were just creation on papers by one Shri C.L. Bhansali and he further remarked that the shares shown to have been purchased in these names are fictitious and should be regarded as the black money of Shri D.K. Khaitan or his family members. Accordingly the Assessing Officer held that the share capital subscribed by M/s MTSL cannot be accepted to be genuine. In similar way the investment made by M/s DTL was also held as fictitious and bogus. Accordingly the impugned addition of Rs. 1,64,70,000 was made as unexplained cash credit under section 68 of the Income-tax Act, 1961. 3.2 The amount of Rs. 45 lakhs received from M/s DTL as loan was also disallowed on the reasoning narrated above. This cash 'Credit was also disallowed and added to the income of the assessee under section 68 of the Act. 3.3 These additions were challenged before the Commissioner of Incometax (Appeals) and the detailed submissions were filed before the CIT (Appeals). All the contentions raised before the Assessing Officer were again raised before the CIT (Appeals), who after c....
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....as they have no locas standi, as both the companies are regularly assessed to income-tax and their shares are quoted at Delhi Stock Exchange. The evidences were placed before the Assessing Officer as well as before the CIT (Appeals). The above said information clearly establishes that both the companies were genuine; the transactions were genuine and sources were also genuine as their creditworthiness has already been proved as per their balance-sheets filed before the department, which were duly accepted by the department. Therefore, there is no question for drawing any adverse inference against these companies without bringing out any other information on record. Therefore, we do not find any infirmity in the order of CIT (Appeals), who after examining all these information in detail, then accepted the submission of the assessee and accordingly both the additions, Le., of Rs. 1,64,70,000 and Rs. 40.50 lakhs were deleted. We further noted that CIT (Appeals) has also examined the issue on legal aspect also, as the decision of the jurisdictional High Court in the case of CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 and in the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 98....
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....that Assessing Officer would be entitled to enquire and it would indeed be his duty to do so, whether the alleged shareholders do, in fact, exist or not. It was further observed by the Hon'ble High Court that if the shareholder exists then possibly no further enquiry need be made, but if the Assessing Officer finds that the alleged shareholders do not exist, then, in effect, it would mean that there is no valid issuance of share capital as shares cannot be issued in the name of non-existing persons. There is no dispute that in such a case the Assessing Officer has jurisdiction if the facts, so warrant, to treat such credit to be the income of the assessee. 3.9 We have seen that on the facts of the present case the assessee had filed each and every detail. The shareholders are in existence; they are assessed to tax; complete details are available; share capital money as well as loan are received through account payee cheques and they were cleared through proper banking channels. Therefore, we feel that even the ratio of the decision in the case of Sophia Finance is applicable on the facts of the present case, because assessee has discharged its onus by furnishing full details of ....
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....ciate the following comprehensive law laid down under the Companies Act, 1956 regarding the issue and allotment of shares by, companies. 3.12 Section 68A of the Companies Act speaks about personation for acquisition of shares, According to this section, any person, who makes in a fictitious name an application to a company for acquiring or subscribing for any shares therein or otherwise induces a company to allot or register any transfer of shares therein to him or to any other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five years. These provisions are required to be prominently reproduced in every form of application for shares which is issued by the company to any person. It is worthwhile noting that these provisions were introduced in the Companies Act w.e.f. 1965 based on the recommendations of the Bose Commission. The Commission had adverted to a case where shares to the extent of Rs. 16 lakhs in a public company were applied for on behalf of non-existing shareholders. The Commission itself took note of the fact that benami shareholding and shareholding in the names of fictitious or non-existing persons was common. The ....
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.... from M/s DTL, as the cheque was cleared through bank channels on21-7-1988. Confirmation and other supporting evidences were filed and bank copy was also filed. Therefore, there was no point to disbelieve the loan amount of Rs. 45 lakhs. Therefore, in view of these facts and circumstances and in view of the legal position, we hold that the CIT (Appeals) was justified in deleting both these additions. 4. Ground Nos. 3 and 4 in appeal of department are against the deletion of additions of Rs. 29,00,148 and Rs. 3,18,819 on account of disallowance of interest made by the Assessing Officer. 4.1 Brief facts in regard to these two additions are that the Assessing Officer noticed that total liability for payment of interest incurred by the appellant during the relevant accounting year was Rs. 53,59,328. The Assessing Officer further noted that certain amounts had been advanced by assessee-company to M/s DITL free of interest. The assessee was required to explain the reason for advancing the amount free of interest and why interest to this extent should not be disallowed. It was stated by the assessee that these amounts represented advances in connection with the business and in absen....
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....nbsp; Advances Supplies/Reco- Closing ended on Balance Made veries made balance (Rupees in lakhs) 31-3-1988 0.55 105.44 18.58 85.41 31-3-1989 85.41 198.37 167.67 116.11 31-3-1990 116.11 166.45 177.49 105.70 4.5 From the above chart it is seen that the advances of Rs. 116.11 lakhs were outstanding against M/s DITL and agai....
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....ts were higher in all the subsequent years. The explanation of the assessee was not accepted by the Assessing Officer and by observing that the subsidiary company had almost gone into liquidation and the same was before BIFR. It was further observed by the Assessing Officer that assessee-company paid the amount just to help the subsidiary company. Accordingly he rejected the claim of the assessee. CIT (Appeals) also confirmed the action of the Assessing Officer by observing as under -. 'I am unable to agree with the appellant. It is not believable that the technology obtained from M/s DEIL as far back as in 1976 could fetch a market value of Rs. 70 lakhs, 23 years thereafter in 1988-89. Apparently, the payment had been made to DEIL to revive the same from its sickness. In any case, the evidences produced by the appellant are not strong enough to support a claim of payment of Rs. 70 lakhs. I am, therefore, inclined to agree with the Assessing Officer that the amortisation claimed by the appellant is not allowable. Accordingly, this ground is dismissed." 5.2 Now the assessee is in appeal against these findings of CIT (Appeals) here before us. 5.3 The learned counsel of the a....
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....rned by assessee were Rs. 2.89 lakhs; in the assessment year 1990-91 these profits increased to Rs. 10.33 lakhs, and again from assessment years 1991-92 to 1993-94 they were increased to Rs. 68.78 lakhs; Rs. 87.57 lakhs and Rs. 115.30 lakhs respectively. We further noted that after acquiring the technical know-how the company was able to obtain the following major turnkey contracts : (i) Kalyanpur Cement 242 lakhs (ii) TISCO Cement Project 355 lakhs (iii) Hira Cement Project 239 lakhs (iv) Rathi Steel & Alloys Ltd. 113 lakhs (v) Keshri Steels & Alloy Ltd. 99 lakhs 5.6 After perusing the written submissio....