TaxTMI 
TaxTMI 
2013 (4) TMI 754
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....Later on, a revised return was filed by the assessee returning the same income, but claiming credit for TDS of ₹ 3,72,793/-. Notice under section 143(2) was issued to the assessee on 11-9-2008 to proceed with scrutiny assessment. After the issue of the said notice, there was a survey carried out at the business premises of the assessee under section 133A of the Act on 26-2-2009. On the basis of the details collected in the course of survey and other details available in the accounts and records of the case, the Assessing Officer issued a detailed questionnaire to the assessee seeking clarifications on various points. After going through the replies filed by the assessee against the questionnaire and also after considering the explanations offered by the assessee in respect of other queries made by the Assessing Officer, he zeroed down the area of his enquiry to the amounts collected by the assessee-company towards its share capital, in the previous year relevant to the assessment year under appeal. The Assessing Officer found that the assesseecompany has issued shares to different parties in the relevant previous year. The shares issued by the assessee-company were of the fac....
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....s provided by the assesseecompany and Shri Shahul Hameed were diametrically opposite and contradictory. He observed that all the subsequent explanations offered by Shri Shahul Hameed and the assesseecompany were only damage control exercises to save the face of the assessee and to save out of the adverse inference arising out of the initial statements made by them, which were contradictory. In the case of Smt. Savithri also, the Assessing Officer found that the assessee-company had initially paid the money to Smt.Savithri on the ground that the moneys were due to her on account of her late husband and immediately thereafter the moneys were collected by the assessee-company and allotted shares to her. In the case of Shri Prakash Chand Jain also, the moneys were collected by the assessee-company against allotment of shares without explaining the reason as to why Shri Prakash Chand Jain had acquired shares of ₹ 10/- each for a huge premium of ₹ 1,490/-. The Assessing Officer has pointed out the same reason in the case of M/s.Heritage Creations Pvt. Ltd. as well. 5. The Assessing Officer further observed that inspite of the above persons having subscribed to the share capi....
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....ing compliments and the other gift articles to customers. The Assessing Officer disallowed the claim on the ground that the assessee had not produced any evidence to support the purchase of those materials and incurring of the said expenditure. Accordingly, the said amount of ₹ 10,45,913/- was disallowed and added to the income of the assessee. 11. In first appeal, the Commissioner of Incometax( Appeals) held that the assessee has not produced any evidence to support the incurring of such expenditure and, therefore, the Assessing Officer was justified in making the addition of ₹ 10,45,913/-. He confirmed the said addition. 12. The assessee is aggrieved by the above finding of the Commissioner of Income-tax(Appeals) and therefore filed the second appeal before the Tribunal. 13. As already stated, the Revenue is aggrieved by the order of the Commissioner of Income-tax(Appeals) deleting the additions made by the Assessing Officer against the amounts credited in the share capital and share premium accounts of the assessee-company. The grounds of the Revenue relating to the above issue are as follows:- "(i) That the Commissioner of Income-tax(Appeals) has erred in not u....
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....mmissioner of Incometax( Appeals) ought to have not accepted such arguments to undo the addition made by the Assessing Officer; (viii) that the Commissioner of Income-tax(Appeals) ought to have considered the judgment of the Hon'ble Supreme Court in the case of CIT vs. Ashwini Lease Finance Pvt. Ltd., 309 ITR 320, wherein the court has held that cognizance of circular on trading in shares entered for evading tax should be taken into account by courts; and (ix) that the Commissioner of Income-tax(Appeals) ought to have considered the distinction between public issue and private placement of shares, as held by the Hon'ble Delhi High Court in the case of CIT vs. Divine Leasing Finance Ltd., 299 ITR 268." 14. In the light of the above detailed grounds, Shri Suneel Verma, the learned Commissioner of Income-tax appearing for the Revenue, argued the case at length. He contended that each and every story explained by the assesseecompany to substantiate the genuineness of the amounts collected by the assessee-company by way of share capital and share premium, is incredible and unacceptable. He explained that here is a classical example of cycling and recycling of transactions in a r....
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...., 228 ITR 664(Ker.) 8. Amal Kumar Chakraborthy vs. CIT, 207 ITR 376(Cal.), etc. 17. Shri U.M.Khalilullah, the learned chartered accountant, appeared for the assessee and argued the case. He submitted that the parties disputed by the Assessing Officer had in fact invested in the share capital of the assessee-company for valid reasons. The assessee-company was contemplating expansion of its business by opening branches in different places. This proposition was made known to a few persons, who showed keen interest to invest in the company. The assesseecompany had spent crores of rupees in the past on advertisement and other promotional activities and has built up a very good name in the field of jewellery business. This big name built up by spending huge amounts of money and lot of efforts made in the past, is an invaluable asset in the hands of the assessee-company and it is for this reason that the parties have invested in the shares of the assessee-company after paying a premium. 18. The learned chartered accountant explained that there is no secrecy in the transactions reflected in the share capital and share premium accounts of the assessee-company. Every transaction has be....
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....mium accounts of the assessee-company. The payments relating to the subscription of shares have already been made through cheques. He himself appeared before the Assessing Officer. Whatever is possible, has been done by the assessee and in such circumstances there is absolutely no reason to hold that the amount of ₹ 5,75,00,000/- invested by Shri Shahul Hameed in the share capital and share premium account of the assessee-company has not been proved. 21. In the case of Smt. Savithri, the learned chartered accountant explained that she is the wife of late M.S.Kandasamy, who was the founder chairman of the assessee-company. There was some amount due to him at the time of retirement. On his death, the amount was agreed to be paid to his wife Smt.Savithri by all the legal heirs. An amount of ₹ 1,41,60,000/- was thus paid to Smt.Savithri. Smt. Savithri, thereafter thought it fit to invest the amount in the shares of the assessee-company and the company was also very much willing to accommodate her request, especially for the sentimental reason that she is the wife of the founder chairman of the assessee-company. These transactions are made through banking channels and the e....
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....vely prove that the person making such payment had enough resources in his hands to make such payment. It is always possible to transact through banking channels and still manipulate the original character of the amount as to whom it belonged and how it was earned. Therefore, we cannot decide this appeal only on the ground that the payments objected in this case have been effected through banking channels. 27. Next we have to examine whether the explanations offered by the assessee on the question of the parties investing in the share capital of the assessee-company are acceptable as plausible explanations. The managing director of the assesseecompany and his wife together held 98.50% of the share capital of the assessee-company. In other words, the managing director of the assessee-company and his wife, for all practical purposes, owned the assessee-company. The shareholding of other persons are absolutely insignificant. They cannot have any voice in the management of the assessee-company, control of the assessee-company and they cannot have even a good return on the money invested in the company. It is to be seen that the face value of a share is ₹ 10/-. The shares have be....
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....e has sold such jewellery and gold to the assessee-company. When the Assessing Officer asked for the resources available in his hands to purchase the old jewellery and gold, he furnished the details of money received from certain parties like M/s.Arihant Foundations and Housing Ltd. and M/s. Ultramarine Property Developers Pvt. Ltd. According to the details furnished by Shri Shahul Hameed, the amounts were received during the period from 18-7-2007 to 1-10-2007, whereas according to him the jewellery and gold were purchased during the period 18-11-2006 to 20-2-2007. This itself clearly shows that according to Shri Shahul Hameed the amounts were collected by him much after the purchase of jewellery and gold. According to him the purchases were made from the assessee as well as from M/s.A.K.Exports, which is the proprietary concern of the Managing Director of the assesseecompany. There is nowhere a case of credit purchase or sale. It is very clear that at the time when Shri Shahul Hameed had purchased jewellery and gold, the so called funds were not available with him. 29. Another important aspect is that even though Shri Shahul Hameed states that he is a big contractor for big comp....
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.... out by the assessee-company. It is also to be seen that she did not appear before the Assessing Officer. 32. In the cases of Shri Prakash Chand Jain and M/s.Heritage Creations Pvt. Ltd., they did not appear before the Assessing Officer. Enquiries were made through the Income-tax Office at Delhi. They reported that these parties are not much resourceful so as to invest in the share capital of the assesseecompany. Except the address provided in the paper, there was nothing available before the Assessing Officer to verify the genuineness of the investments made by the so called parties. It is stated that Shri Prakash Chand Jain is a big business-man in Dubai. Ofcourse the money came through his bank account. But there is no other communication from him. 33. In the case of M/s.Heritage Creations Pvt. Ltd., things are as in the case of Shri Prakash Chand Jain. But the most interesting aspect is that M/s.Heritage Creations Pvt. Ltd. sold the shares within a year to M/s.A.K.Exports, which is the proprietary concern of the Managing Director of the assesseecompany. The shares were not sold for profit within a short span of time. M/s. Heritage Creations Pvt. Ltd. incurred a loss of ͅ....