TaxTMI 
TaxTMI 
TaxTMI 
2015 (10) TMI 2494
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....mited at premium. The Assessing Officer asked for the Income Tax Return, assessee's PAN number, mode of acceptance of money with date, bank account of M/s Glacis Investment Limited to prove identity, credit worthiness and genuineness of the transactions. The assessee contended that M/s Glacis Investment Limited is non resident company at Mauritius. It was also submitted that amount was received through bank and Reserve Bank of India has confirmed the inflow of the amount invested. The Assessing Officer thereafter contended that these documents does not prove the credit worthiness of the party and genuineness of the transaction in the matter. The assessee further contended that certificate of incorporation of the investor company is placed on record and relied upon various case laws. The Assessing Officer, however, noted that assessee failed to prove the credit worthiness of the party and genuineness of the transaction and made the addition. 4. The assessee challenged the addition before ld. CIT(Appeals). During the appellate proceedings, the assessee reiterated the submissions made before Assessing Officer. It was further contended that as per provisions of Section 68, assesse....
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....see, by referring to the balance sheet of the subscriber submitted that the principal activity of the company is that of investment holding and has sufficient assets to make investment in the assessee company and also submitted that the balance sheet of M/s Glacis Investment Limited shows that subscriber company has made investment in assessee company M/s Lotus Integrated Taxpark ltd.(PB-21). On the other hand, ld. DR objected to the admission of additional evidence and submitted that the subscriber company was not having any income in assessment year under reference and that the entire amount has been invested in the assessee company creates a doubt. He has, therefore, submitted that additional evidence may not be admitted. 6. We have heard rival submissions. The ld. CIT(Appeals) in his findings noted that assessee has failed to produce the bank statements or balance sheet etc. of the subscriber company and as such, assessee failed to prove credit worthiness of the subscriber company being a foreign investment. In the opinion of the ld. CIT(Appeals), the filing of the balance sheet was necessary to prove credit worthiness of the subscriber company. Therefore, the balance sheet of....
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....so filed copy of bank account of assessee showing the receipt of money in question i.e. Rs. 3,70,00,000/- through transfer in the account of the assessee (PB-2 - 1). He has also filed balance sheet of the assessee ending March, 2010. The ld. counsel for the assessee, therefore, submitted that the initial onus upon assessee to prove genuine transaction in the matter has been discharged. The credit worthiness of the subscriber is proved being the amount received through banking channel with approval of the Reserve Bank of India. No evidence has been brought on record that it was the money of the assessee which is routed through the subscriber. He has relied upon following decisions in support of his contention : i) Decision of Delhi High Court in the case of CIT V Steller Investment Ltd. 192 ITR 287 in which it was held as under : "If it be assumed that the subscribers to the increased share capital were not genuine, even then under no circumstances could the amount of share capital be regarded as undisclosed income of the assessee. It may be there were some bogus shareholders and the money may have been provided by some other persons. It would have been more sensible to re-open,....
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....onfirmation certificate from A along with PAN number, The assessee had confirmed that the liability was still outstanding. Hence Section 41(1) was not applicable.(ii) That at the time of the original assessment, the assessee had had supplied the list of the persons to whom the shares were sold along with their addresses. The Assessing Officer did not doubt the identity of the persons from whom the assessee had shown receipt of application money. Merely because some of the persons did not respond to the notice issued by the Assessing Officer under section 133(6) of the Act, it could not be taken that the transaction was not genuine. The amount could not be taken as unexplained income in the hands of the assessee. v) Decision of Delhi High Court in the case of CIT V Real Time Marketing (P) Ltd. 306 ITR 35 in which it was held as under : Section 68 of the Income-tax Act, 1961 - Cash credits - Assessment year 2001-02 - Assessee-company took some unsecured loan from ACL and also filed confirmation thereof - Assessing Officer asked assessee to file a copy of income-tax return of ACL along with its audited profit and loss account, balance sheet and copy of bank statement for relevant pe....
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....t would not give the revenue the right to invoke section 68. One must not lose sight of the fact that it is the revenue which has all the powers and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the 'source of source." ix) Decision of Delhi High Court in the case of CIT V Winstral Petrochemicals (P) Ltd. 330 ITR 603 in which it was held as under : Undisputedly the share application money was received by the assessee by way of account payee cheques, through normal banking channels. It was not the case of the revenue that the payment of share application money was not made from the bank account of the applicant-companies. Admittedly, copies of applications for allotment of shares were also provided to the Assessing Officer. It was not the case of the revenue that the share applications were not signed on behalf of the applicant-companies and were forged documents or the shares were not actually allotted to the companies. Therefore, the Commissioner (Appeals) and the Tribunal were justified in holding that the genuineness of the transactions had been duly established by the assessee. x) Decision of Delhi High Court in the ca....
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....The assessee has filed copy of the certificate of incorporation of M/s Glacis Investment Limited which is a registered company in Republic of Mauritius. The ld. CIT(Appeals) considering the subscriber company to be a company being legal entity held that the identity of the shareholder is proved. The assessee also filed copy of the Tax Residence Certificate issued by Mauritius Revenue authorities, certifying that M/s Glacis Investment Limited incorporated in Mauritius is a company resident in Mauritius for income tax purposes under the Income Tax Act. The assessee also produced the certificate of Reserve Bank of India in which the Reserve Bank of India by referring to letter of the assessee has referred to the transaction held between assessee and M/s Glacis Investment Limited, Mauritius for issuing the shares at paid up value and premium for 740000 equity shares were recorded by the Reserve Bank of India in their records. The ld. DR submitted that the name of M/s Glacis Investment Limited is wrongly recorded in the Reserve Bank of India certificate. It appears to be typographical error and is not having much significance on the same because the assessee has issued 740000 equity sha....
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....oney cannot be regarded as undisclosed income under section 68 of the Act of the assessee company. The other decisions relied upon by ld. counsel for the assessee support the fact that assessee has received genuine share application money from the shareholder company. 10(ii) The ITAT Indore Bench in the case of Peoples General Hospital Ltd. in ITA 57/2007 vide order dated 28.09.2007 considering the identical issue held in para 11 to 12.2 as under : 11. We have considered rival submissions and material on record. We have bestowed our careful consideration and do not find any justification to interfere in the order of the ld. CIT(A). 11.1 Full bench of Delhi High Court in the case of CIT vs. Sophia Finance Ltd. 205 ITR 98 held "Under section 68 of the Income-tax Act, 1961, the Income-tax officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of the assessee and it is immaterial as to whether the amount so credited is given the colour of a loan or a sum representing sale proceeds or even receipt of share application money. The use of the words "any sum found credited in the books". Section 68 indicates that the sec....
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....capital be regarded as undisclosed income of the company. No question of law arose out of the Tribunal's order." Hon'ble Supreme Court in the case of CIT vs. Stellar Investment Ltd., 251 ITR 263, held "We have read the question which the High Court answered against the Revenue. We are in agreement with the High Court. Plainly, the Tribunal came to a conclusion on facts and no interference is called for. The appeal is dismissed. No order as to costs." Delhi High Court in the case of CIT vs. Dolphin Canpack Ltd., 283 ITR 190, held "In its return for the assessment year 1998-99, the assessee claimed to have received share application money of Rs. 62 lakhs. The Assessing Officer rejected the explanation of the assessee and added the amount to the taxable income of the assessee. The Tribunal found that the assessee had furnished complete details to the Assessing Officer regarding the transactions in question, which included confirmation details of bank accounts and the permanent account numbers of the parties in whose favour the share capital was subscribed. The Tribunal also noted that all the payments were received by the assessee by cheques and that the assessee had, in the pro....
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.... Officer himself had noticed in his order that the applicant-share holders were income-tax payees. In such circumstances, it could not be presumed that the share holder who was assessed to tax was not in existence. That would tantamount to contradiction in the stand of the department itself." ITAT, Jodhpur Bench (TM) in the case of Uma Polymers (P) Ltd. vs. DCIT, 124 TTJ 124, held "In respect of share capital money, the assessee-company has to prove only the existence of the person in whose name share application is received and there is no further burden on the assessee to prove whether that person himself has invested the money or some other person has made the investment in his name; distinction between a public company and a private company is not very material for this purpose." Madhya Pradesh High Court in the case of CIT vs. Metachem Industries, 245 ITR 160, held "Once it is established that the amount has been invested by a particular person, be he a partner or an individual, then the responsibility of the assessee is over. Whether that person is an income-tax payer or not and where he had brought this money from, is not the responsibility of the firm. The moment the fi....
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....y him by way of cheques from the creditors which was not in dispute. Once the assessee had established these, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter, the burden had shifted to the Assessing Officer to prove the contrary. The failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, could not, under the law be treated as the income from undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. The Assessing Officer failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub- creditors, had actually been received by the sub-creditors from the assessee. Therefore, the Assessing Officer could not have treated the said amounts as income derived by the assessee from undisclosed sources." Hon'ble Rajasthan High Court in the case of CIT vs. First Point Finance Ltd. 286 ITR 477, held "that it was not denied that all the share holders/ share applicant....
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....of their audited accounts. The findings recorded by the learned Commissioner of Income-tax (Appeals) are based on a proper appraisal of the material and we do not find any scope to interfere with the same. Consequently, the order of the learned Commissioner of Income-tax (Appeals) is upheld." 12. It is admitted fact that the assessee filed the confirmation letter from M/s. Alliance Industries Ltd. confirming that it has transferred foreign currency from their bank to the account of the assessee and in the said confirmation all the details of several payments are mentioned. It is also admitted fact that the said NRI Company is registered company and which fact is also proved by the certificate of incorporation of M/s. Alliance Industries Ltd. which is also certified by the Notary Public and is countersigned by the Governor and Commander in Chief of the city of Gibraltar. These certificates are supported by later on by Faria and Associates Chartered Accountants. The identity of the foreign investor M/s. Alliance Industries Ltd. is therefore established beyond doubt. The AO also did not dispute the identity and existence of the shareholder M/s. Alliance Industries Ltd. The AO also di....
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....of M/s. Alliance Industries Ltd. that has come to the assessee and that M/s. Alliance Industries Ltd. had the capacity to invest this much of the amount during the FY relevant to the AY in question. The transfer of foreign currency from the bank account of M/s. Alliance Industries Ltd. clearly proved the creditworthiness of M/s. Alliance Industries Ltd. It is a settled law that the income-tax authority cannot ask the assessee to prove source of the source. All the issue of the shares to M/s. Alliance Industries Ltd. have already been reported by the assessee to the Registrar of Companies. As per submission of ld. counsel for assessee though the Directorate of Enforcement Govt. of India conducted certain inquiries against the assessee under the provisions of foreign exchange management act but no further inquiry has been made into the matter. It would also prove that the money in question flow from M/s. Alliance Industries Ltd. therefore AO was not justified in drawing adverse inference against the assessee. The AO has not brought any evidence on record that the share application money received by assessee from M/s. Alliance Industries Ltd. belong to the assessee or that it was the ....
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....in were different from those in the assessment years 1962-63 and 1963-64 and, as such, the finding has to be consistent. The Tribunal has, therefore, not committed any error. In this respect, we would like to set out hereinbelow an excerpt from the decision of the Orissa High Court in CIT vs. Belpahar Refractories Ltd. [1981] 128 ITR 610 at pp. 613-614". Hon'ble Punjab & Haryana High Court in the case of CIT vs. Vikas Chemi Gum India, 276 ITR 32 held "That since the appellant did not challenge the order passed by the Tribunal in relation to the assessment year 1986-87 by which it confirmed the order of the Commissioner(Appeals) deleting the addition made by the AO on account of value of "bardana" used for storing "churi and korma", it could not challenge a similar order passed in relation to the AY 1988-89." Hon'ble Supreme Court in the case of Berger Paints India Ltd. vs. CIT, 266 ITR 99 held "HIGH COURT-DECISION IN THE CASE OF ONE ASSESSEE-DEPARTMENT ACCEPTING AND NOT CHALLENGING CORRECTNESS-NOT OPEN TO DEPARTMENT TO CHALLENGE IN THE CASE OF OTHER ASSESSEES, WITHOUT JUST CAUSE." In view of the above facts and decisions noted, we do not find any merit in the submission of ld. D....
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....iend. 12.1 On going through the above documentary evidences on records and the judicial pronouncements referred to above, it is clear neither the AO nor the ld. DR appearing for the revenue have disputed the documentary evidences filed by the assessee before the authorities below. The only point agitated by the AO was creditworthiness of M/s. Alliance Industries Ltd. which is also satisfactorily proved by the assessee. The decision of the full Bench of Delhi High Court in the case of M/s. Sophia Finance Ltd. (supra) holds the field. Hon'ble MP High Court in the case of Dhar Ispat Pvt. Ltd. held that the question of genuineness of entries regarding share application money is a question of fact to be decided on the basis of evidence available on record. The assessee on the basis of evidence available on record has been able to prove creditworthiness of M/s. Alliance Industries Ltd. The ratio of the decisions relied upon by the ld. counsel for assessee and referred to by us in this order are squarely applicable to the facts and circumstances of this case. The assessee through the evidences on record has been able to prove the identity of shareholder, its existence and transfer of mon....
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.... came by way of bank cheques and was paid through the process of banking transaction was not by itself of any consequence. The High Court misdirected itself and erred in disturbing the concurrent findings of fact." However, the facts and circumstances of the appeal before us are clearly distinguishable as noted above. The reliance of ld. DR on the cases referred to above are therefore misplaced. 12.2 Considering the above discussion, we do not find any infirmity in the order of the ld. CIT(A). The appeal of the revenue has no merit and is accordingly dismissed. No other point is argued or pressed." 11. The aforesaid order of the Indore Bench have been confirmed by Hon'ble Madhya Pradesh High Court in the case of CIT V Peoples General Hospital Ltd. 356 ITR 65 in which the Hon'ble High Court following the decision of Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. (supra) held as under ; Held, dismissing the appeals, that if the assessee had received subscriptions to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 of the Income-tax Act, 1961, in the absence....
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....uthorities below and delete addition of Rs. 3.70 Cr. In the result, ground No. 1 of appeal of the assessee is allowed. 14. On ground No. 2, assessee challenged the order of the ld. CIT(Appeals) in upholding the disallowance of a sum of Rs. 3 Cr paid to M/s Abhishek Industries Ltd. for up- gradation of Power Station required for supply of power to the assessee company. Briefly the facts are that assessee in the Schedule of Fixed Assets has shown the addition of Rs. 3 Cr as expenditure on up-gradation of Sub Station owned by the company. When confronted, the assessee, during the course of assessment proceedings submitted that the assessee company has developed Textile Capital with a cluster of units so as to ensure power supply and MOU was made between Abhishek Industries and the assessee company for uninterrupted supply of power by Abhishek Industries assessee's company. The assessee agreed to bear cost of Rs. 3 crores for up gradation of existing power station of Abhishek Industries Ltd. and the same amount was amortized over a period of 10 years @ of 10% on straightline basis. The assessee relied on various decisions, however, Assessing Officer did not accept the submission o....
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....ital in nature. The expenditure was not deductible. 15 (i) He has further submitted that the matter is remanded back to the High Court in the matter reported in 314 ITR 302. He has, however, submitted that depreciation on the capital expenditure is liable to be allowed by the authorities below. He has submitted that the grant-in-aid as is noted by the ld. CIT(Appeals) on this issue for denying depreciation in the case of assessee, was granted by Ministry of Textiles, Government of India in September,2005 introduced in a scheme namely 'Scheme for Integrated Textile Parks' (SITP or 'the scheme' ) by merging its erstwhile textile parks for export schemes and Textile Centre Infrastructure Development Scheme. The aim of the scheme is to encourage group of entrepreneurs to come together and establish integrated textile parks with world class infrastructure under a Public Private Partnership frame work. Under the scheme, Ministry of Textiles would pro vide a grant upto 40% of the approved capital cost of each textile park subject to ceiling of Rs. 40 Cr to the special purpose vehicle established for setting up the textile park. The objective to grant-in-aid to the entrepreneurs was to de....
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....Bench in the case of Inventaa Chemical Ltd. V ACIT 42 SOT 249 in which it was held as under : "II. Section 43(1) of the Income-tax Act, 1961 - Actual cost - Assessment year 2003-04 - Assessee had received Rs. 20 lakhs on account of State subsidy - Revenue held that said subsidy had to be reduced from cost of fixed assets for purpose of arriving at depreciation - Whether if payment of subsidy is not related to actual acquisition of assets and subsidy is granted on capital investment on land, building and machinery then it cannot be reduced from value of asset (written down value) - Held, yes - Whether further, if there is no special mention regarding intention to adjust said subsidy against actual cost of machinery, then that amount of subsidy cannot be reduced from cost of plant and machinery - Held, yes - Whether in view of above, issue was to be set aside to file of Assessing Officer to examine terms and conditions of sanction of subsidy and if subsidy was not given to meet cost of any specific capital asset and amount of subsidy so received was quantified according to investment made by assessee in plant and machinery and building, claim of assessee was to be allowed - Held, ye....
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....overnment or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee: Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee." 19. For applying the above provisions against the assessee, it is necessary to prove that portion of cost of asset acquired by the assessee has been met directly or indirectly by the government or the authority established under any law or by any other person in the form of subsidy or grant or reimbursement by whatever name called. In the decisions relied upon by ld. counsel for the assessee reproduced above, the various High Courts and the ....
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....enged the order of ld. CIT(Appeals) in upholding the disallowance of depreciation amounting to Rs. 3,04,63,791/-. The facts are that in this case, the assessee has received grant-in-aid of Rs. 40 Cr from the Ministry of Textiles, New Delhi under the scheme of Integrated Taxpark (SITP). Out of total grant of Rs. 40 Cr., Rs. 36 Cr was received upto 31.03.2010 including Rs. 12 Cr received during the year under consideration. As per provisions of Section 43 (1) Explanation 10, the Assessing Officer confronted as to why the grant may not be reduced from the capital assets and depreciation may not be recomputed on the reduced value of the fixed assets. The assessee, during the course of assessment proceedings has made his submission which is noted in the assessment order. It was submitted that grant was sanctioned for utilization against the project as a whole i.e. for development of textile park and was neither sanctioned nor disbursed for the specific assets individually. The Assessing Officer noted that total approved project cost was Rs. 110.26 Cr and grant-in- aid was sanctioned for Rs. 40 Cr. The Assessing Officer reproduced the sanction order in the assessment order. As per projec....
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....he was not justified to disallow depreciation amounting to Rs. 2,95,97,2121- due to reduction in brought forward balances from the last year. He was not justified to uphold the action of the Ld. Assessing Officer in reducing the amount of Rs. 36.00 crores from the value of total block of assets received by the appellant as grant-in-aid. 2. That he was further not justified to uphold the disallowance of a sum of Rs. 1,00,00,000/- crore paid to M/S Abhishek Industries Limited for upgradation of power sub-station required for supply of power to the appellant company. 3. That the Ld. CIT (Appeals) was not justified to arbitrarily uphold the following out of interest account:- a) a sum of Rs. 81,62,546/- in respect of capital advances which were advanced out of own funds as well as grant-in-aid received from Ministry of Textiles in earlier years. b) a sum of Rs. 30,68,339/- in respect of amounts spent towards capital work in progress. Inspite of the fact that these amounts were paid out of own funds as well as grants-in-aid received from Ministry of Textiles. 26. The ld. CIT(Appeals) on ground Nos. 1 & 2 above, followed his order for assessment year 2010-11 and confirmed the disall....
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....ers which was complete in the financial year 2010-11 and 2012-13. However, the Assessing Officer, on the basis of assessment records has submitted that no details of such work orders were filed. Regarding addition of Rs. 30,68,339/- assessee submitted that fixed assets were capitalized against the outstanding balance in term loans and that operating activity was started in financial year. Further investments were made out of own funds i.e. share capital and reserves and no borrowed funds have been used. The ld. CIT(Appeals), however, noted that even during the appellate proceedings, no details have been submitted in support of the contention that the amounts were given against work order. Even no plea was taken before Assessing Officer. The assessee is having common kitty out of which expenses were made. No evidence is submitted that advance is made out of interest free grant-in-aid. Further, no evidence regarding assets having been put to use in assessment year 2010-11 have been submitted and accordingly, this ground was dismissed. 29. We have heard ld. Representatives of both the parties. The ld. counsel for the assessee reiterated the submissions made before authorities below a....
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....he authorities below that the investments were made out of interest free grant-in-aid received from Government of India and from operating income. The Assessing Officer, however, relied upon decision of the Hon'ble Punjab & Haryana High Court in the case of Abhishek Industries Ltd. (supra) holding that when entire fund is kept in common kitty, therefore, this decision would apply against the assessee. Hon'ble Punjab & Haryana High Court in its subsequent unreported decision in the case of Bright Enterprises Pvt. Ltd. V CIT in ITA 224 of 2013 dated 24.07.2015 considered the similar issue of disallowance of interest under section 36 (1) (iii) of the Act of on account of disallowance of interest paid to the bank on the ground that assessee had advanced an interest free loan to its sister concern, although the assessee had no business dealings with the sister concern. The Hon'ble Punjab & Haryana High Court also considered its earlier decision in the case of M/s Abhishek Industries (supra). Hon'ble High Court has also considered the decision of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. (supra) and its earlier decision in the case of CIT V Marudhar ....