TaxTMI 
TaxTMI 
2016 (1) TMI 1233
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....as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in making an addition u/s.68 of the Income Tax Act, 1961 of Rs. 93,240/- by treating the labour charges as bogus, without considering the facts and circumstances of the case. 3. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in considering the various statement of parties without granting an opportunity to the appellant, to comment on such statement. 4. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in considering the reports of JClT, Range 1 which was prepared without any jurisdiction and authority of law. 5. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in making an addition u/s.68 of the Income Tax Act, 1961 by treating the Share capital & Share premium of Rs. 16,84,24,300/- (1,30,86,000/- plus 15,53,38,300/-) as alleged Unexplained Cash credit, without considering the facts and circumstances of the case. 6. On the facts and circumstances of the case as well as in Law....
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....on the decision of Hon'ble Supreme Court in the case of NTPC Ltd. reported in 229 ITR 383 and Jute Corporation of India Ltd. reported in 187 ITR 688 and the decision of Hon'ble Bombay High Court in the case of Ahmedabad Electricity Company reported in 199 ITR 351. 5. After hearing both the sides we admit the additional ground for adjudication since the same is a legal ground and no new facts are required to be investigated. 6. In ground of appeal No.1 the assessee has challenged the order of the CIT(A) in confirming the disallowance of Rs. 1,08,81,171/- u/s.14A by the AO. 7. Facts of the case, in brief, are that the assessee company is a subsidiary of M/s. Ram Infrastructure Pvt. Ltd. (RIL) of Jalgaon in which it has shown to have invested in share of Rs. 17,74,50,000/- as on 31-03-2008 and Rs. 24,37,38,850/- as on 31-03-2009. Besides the above the assessee had invested Rs. 5,25,00,000/- in the equity shares of M/s. Pranjal Infrastructure Pvt. Ltd. (PIPL), another group concern in A.Y. 2009-10. Hence, the total investment of the assessee company in shares of RIL and PIPL comes to Rs. 29,62,68,850/- as on 31-03-2009. From the various details furnished by the assessee the AO....
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....her assessee has received any dividend income or not, the provisions of section 14A r.w. Rule 8D are clearly applicable. To acquire shares in new companies is not the business of the assessee and dividend whether earned or not is not taxable under the I.T. Act. Hence, provisions of section 14A r.w. Rule 8 D is clearly applicable. In view of the above, the AO disallowed an amount of Rs. 1,08,81,171/- u/s. 14A of the I.T. Act. 11. Before CIT(A) it was submitted that the working of disallowance referred to in the assessment order was done at the instance of the AO. However, in absence of any exempt income earned by the assessee the question of disallowance u/s.14A r.w. Rule 8D does not arise at all. Referring to the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Delight Enterprises and the decision of the Mumbai Bench of the Tribunal in the case of Avshesh Mercantile Pvt. Ltd. Vs. DCIT and various other decisions it was submitted that no disallowance u/s.14A can be made in the instant case. 12. However, the CIT(A) was also not satisfied with the explanation given by the assessee and upheld the disallowance made by the AO. While doing so, he noted that the asses....
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....(4) would increase to that extent. For the above proposition, the Ld. Counsel for the assessee relied on the decision of Hon'ble Supreme Court in the case of Liberty India Ltd. Vs. CIT reported in 317 ITR 218 and various other decisoins. He accordingly submitted that in case the disallowance u/s.14A r.w. Rule 8D is upheld, then a direction may be given to the AO to increase the deduction u/s.80IA(4) to that extent. 16. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). He submitted that the Ld.CIT(A) has given cogent reasons while upholding the order of the AO in disallowing an amount of Rs. 1,08,81,171/- u/s.14A of the Act. The assessee has diverted its interest bearing funds towards share capital of sister concern, i.e. the holding company. Merely because they have not received any dividend the same cannot be a ground not to make disallowance u/s.14A of the Act. He accordingly submitted that the order of the CIT(A) be upheld and the ground raised by the assessee on this issue should be dismissed. 17. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on....
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.... under : "This appeal has been preferred by the revenue against the order dated 02.12.2011 passed by the Income Tax Appellate Tribunal, New Delhi in ITA No.4245/Del/20 11 in respect of the assessment year 2008-09. The issue before the Tribunal, which is also an issue before us, was whether in the facts and circumstances of the case the Commissioner of Income Tax (Appeals) had erred in restricting the disallowance under section 14A of the Income Tax Act, 1961 to 2% of dividend income of Rs. 20,27,812/-. It was the contention of the revenue that Rule 8D of the Income Tax Rules, 1962 had not been applied properly in respect of the assessment year 2008-09. This aspect has been considered by the Tribunal in detail and it has observed as under: - 6.3 We have carefully considered the submissions and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has given a finding that only interest of Rs. 2,96,731/- was paid on funds utilized for making investments on which exempted income was receivable. Further, Ld. Commissioner of Income Tax (Appeals) has observed that in respect of investment of Rs. 6,07,775,000/- made in subsidiary companies as....
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....extent is acceptable. In this view of the matter, we set aside the order of the CIT(A) and direct the AO to delete the disallowance made u/sa.14A. Ground of appeal No.1 as well as the first issue in the additional ground raised by the assessee are accordingly allowed. 20. In grounds of appeal No.2 to 7 the assessee has challenged the order of the CIT(A) in treating the entire share capital of Rs. 17.66 crores as bogus share capital and further enhancing the income by Rs. 35,32,000/- on account of alleged commission paid for obtaining bogus share capital. 21. Facts of the case, in brief, are that the assessee is a Private Limited Company and is engaged in Infrastructure Development activity mainly construction of Roads and Bridges on Built, operate and Transfer (BOT) basis. The assessee filed the return of income on 19-092009 declaring total income at NIL after claiming deduction u/s.80IA at Rs. 20,62,716/-. 22. During the course of assessment proceedings the AO noted that the assessee has shown receipt of share capital from the following parties : S. No. Name of the Allottee in Full Address of the Allottee Occupation Number of share Allotted &....
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....p; 23. The AO therefore issued notice u/s.133(6) to the above parties out of which notices in respect of following 6 parties were received back unserved : 1. Anusuya Tradelink Pvt. Ltd. 2. Kalash Advertisement Pvt. Ltd. 3. Countship Commodities Pvt. Ltd. 4. Ziwani Bartec Pvt.Ltd. 5. Punya Leather Pvt. Ltd. 6. Giltee Vincon Pvt. Ltd. He also noted that there are differences in the balances and in some cases the assessee has not given the extracts of the parties as appearing in the books of accounts. 24. The AO, therefore, vide letter dated 30-11-2011 asked the assessee to show cause as to why the amounts, as appearing in the above-mentioned accounts, shall not be added to the total income of the assessee. He noted that suddenly at 5.01pm on 05-12-2011 a letter from the above 6 parties was received through Fax stating thereunder as under : "RE : Information require u/s.133(6) in case of Hari Infrastructure Pvt. Ltd. submission of information A.Y. 2009-10. Sub : Requested to give a week time. We are in receipt of your office letter, mentioned above. In this respect we are submitti....
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....to return their share capital amount. Therefore, these parties are not co-operating us. g. We are not having relations with the Company and its directors and not know to them. It is submitted as regards these companies we have collected the information like Co. PAN No., Company Registration number, financial statements, etc. which is possible to us. The details of companies and documents collected and attached are as under : Sr. No. Name of the Allottee in Full Address of the Allottee PAN No. & Co. Reg. No. No. shares allotted of Documents Enclosed (See Page No.35 to 53) Equity 1 Anasuya Tradelink Pvt. Ltd. 56/1/1, Kings Road, Howara (W.B. 701101) AAGCA4402K Co. Reg. No. 1250 Pan Card Proof ROC Inspection Receipt (35-36) 2 Kalash Advertising Pvt. Ltd. Bhandari Bunglow, Subhash Lane, Malad (West) Kumbai 400097 AADCK1331L C....
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....ya Tradeline Pvt. Ltd., Kolkata Rs.25,00,000/- Kalash Advertising Pvt. Ltd. Mumbai Rs.25,86,000/- Countship Commodities Pvt. Ltd. Kolkata Rs.25,00,000/- Ziwani Bartec Pvt. Ltd., Kolkata Rs.25,00,000/- Punya Leather Pvt. Ltd., Kolkata Rs.10,00,000/- Gilltedee Vincon Pvt. Ltd., Kolkata Rs.20,00,000/- Total Rs.1,30,86,000/- 27. It was finally stated that the assessee, to avoid further litigation and for want of peace of mind, wants to surrender the above amount of Rs. 1,30,86,000/-. The AO accordingly made addition of the above amount u/s.68 of the I.T. Act. 28. The AO further noted that the company has allotted shares to the directors and other persons of sister concerns for the year ending 2009 only on the face value and apart from the above the company has also allotted shares to unknown persons/strangers at a premium of Rs. 1900/- per share in the year under consideration. He analysed the shareholding pattern as on 31-03-2008 and as on 31-03-2009 and noted that the assessee during the year under consideration has allotted shares to Ram Infrastructure Ltd. without any premium and those shares were held by M/s. Pranjal Infrastructure Pvt.....
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....d. Based on the above reasons, our company issued shares at the premium of Rs. 1900/- per share and the investors also responded to the same." 29. However, the AO was not satisfied with the explanation given by the assessee. According to the AO the assessee has no reason for charging such a hefty premium and therefore it cannot be justified by it. Keeping all these facts in mind, the AO held that it is its own money. The value of share premium for 88,300 shares comes to Rs. 16,77,70,000/-. Out of it for 6543 shares the assessee has already surrendered the share value and the share premium and thus for the balance of 81,757 shares the value of share premium comes to Rs. 15,53,38,300/-. The AO, therefore, added the above amount of share premium to the total income of the assessee u/s.68 of the I.T. Act. The AO also had made addition of Rs. 93,420/- u/s.68 in case of contractor Mr. Chandra kanta Sonawane for non-furnishing of confirmation letter where notice u/s.133(6) was returned unserved. 30. Since the rest of the parties have confirmed the transactions the AO following the decision of Hon'ble Supreme Court in the case of CIT Vs. Sumati Dayal reported in 214 ITR 801 ....
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....d that it had proved the creditworthiness of the share applicants and genuiness of the transactions. However, the contention of the appellant stands exposed in view of the aforesaid findings in respect of the share capital transactions especially from Amicitia Infrastructure (P) Ltd. (Rs. 15 crore). The appellant's contention is therefore rejected. The entire share capital of Rs. 17,66,00,000/- is treated as bogus and added back u/s 68 of the Act. The appellant had been given a reasonable opportunity by the AO during the remand proceedings to confront the revelations made by directors of M/s. Amicitia Infrastructure (P) Ltd. and M/s. B. C. Biyani Projects (P) Ltd. Since it has been established that the appellant had paid Rs. 30 lac as commission for an entry of Rs. 15 crore i.e. 2%, I hereby enhance appellant's income by Rs. 35,32,000/- (2% of Rs. 17,66,00,000/-) on account of commission paid outside the books of account and Rs. 81,75,700/- on account of bogus share capital (i.e. Rs. 17,66,00,000/- (-) Rs. 16,84,24,300/-, already added by A.O.) Hence, total addition on account of bogus share capital, share premium and commission comes out to be Rs. 18,01,32,000/-. Hence the....
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....1 Business 500 - 100 50000 6 Giltedee Vincon Pvt. Ltd. 85, Netaji Subhas Road, Kolkata (WB) 700 001 Business 1000 - 100 100000 35. As regards the remaining parties are concerned he submitted that despite the details given by the assessee the lower authorities have not considered the issue properly. He submitted that the AO in the order passed u/s.143(3) has accepted the share capital portion in case of 8 parties but disallowed the share premium portion holding that the same is bogus. The CIT(A) on the other hand enhanced the income by disallowing the share capital portion also. He has further enhanced the income by Rs. 35,32,000/- being commission paid for arranging the share capital which has been treated as bogus. 36. The Ld. Counsel for the assessee referring to the application for admission of additional evidence submitted that subsequent to the information given by the AO, the AO in the case of M/s. Amiticia Infrastructure Pvt. Ltd. and M/s. Pranjal Infrastructure Pvt. Ltd. have passed the orders u/s.143(3)/147 for A.Y. 2009-10. Admittedly, these orders were passed after the order of the CIT(A), therefore, these co....
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....rove the identity, genuineness and credit worthiness of these transactions and to comply with all requirements of section 68 of the I.T. Act, 1961. He submitted that neither the AO nor the CIT(A) either in the course of original assessment proceedings or in remand proceedings have been able to find out that this money was unaccounted money of the assessee. There is no iota of finding as to how the assessee company or its holding company or otherwise could have generated this much of unaccounted cash so as to route the same in this form. Relying on various decisions he submitted that where the share application money is received by the assessee company from alleged bogus shareholders whose names are given to the AO, then the department is free to proceed to reopen their individual assessments in accordance with law but it cannot be regarded as undisclosed income of the assessee company. For the above proposition the Ld. Counsel for the assessee relied on the following decisions : 1. CIT Vs. Lovely Exports Pvt.Ltd. - 216 CTR 195 (SC) 2. CIT Vs. Divine Leasing & Finance - 299 ITR 268 (SC) 3. CIT Vs. Creative World Telefilms Ltd - 333 ITR 100 (Bombay) ....
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....rs Ltd. - ITA No.1039/2009 (Gujarat) 37. CIT Vs. Himatsu Bimet Ltd. - ITA No.546/2009 (Gujarat) 38. CIT Vs. Ujala Dyeing & Printing Mills Pvt. Ltd. - ITA No.375/2008 (Gujarat) 39. CIT Vs. M/s. Goyal Synthetics Pvt. Ltd. - ITA No.498/2010 (Gujarat) 40. CIT Vs. M/s. Aks Alloys Pvt. Ltd. - ITA No.495/2011 (Madras) 41. CIT Vs. Akj Granites Pvt. Ltd. -212 CTR 25 (Rajasthan) 42. CIT Vs. M/s. Sanchati Projects Pvt. Ltd. - ITA No.140/2011 (Calcutta) 43. ACIT Vs. The Mahakali Developers Patiala & Resorts Pvt. Ltd. - ITA No.544/Chd/2010 (ITAT Chandigarh) 39. He submitted that since the assessee in the instant case has given full details of the shareholders including their PAN No., manner of receipt, i.e. Cheque No. or DD No. etc, therefore, addition, if any can be made in the hands of those shareholders only and not in the hands of the assessee company. 40. In his alternation contention he submitted that since various documentary evidences filed before the lower authorities were not properly appreciated by them, therefore, the matter may be restored to the file of the AO with a direction to decide the issue afresh in the li....
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....Lane Malad West Mumbai Business 1293 - 100 129300 5 Punya Leather Pvt. Ltd. 85, N.S. Road, Kolkata (WB) 700 001 Business 500 - 100 50000 6 Giltedee Vincon Pvt. Ltd. 85, Netaji Subhas Road, Kolkata (WB) 700 001 Business 1000 - 100 100000 43. Since assessee has surrendered the share capital received from the above parties and Ld. Counsel for the assessee also did not bring to our notice any other material, therefore, addition to this extent sustained by AO and upheld by the CIT(A) is upheld. 44. So far as other parties are concerned we find the AO accepted the face value of the shares of Rs. 100/- each in respect of 81757 shares invested by these companies. However, he did not accept the huge amount of share premium of Rs. 1,900/- per share of Rs. 15,53,38,300/- relatable to 81,757 shares. Since the assessee has already surrendered the share capital and share premium in respect of 6 parties numbering 6543 shares the AO made addition of Rs. 15,53,38,300/- for the balance of 81,757 shares being the share premium u/s.68 of the I.T. Act. While doing so, the AO had also giv....
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....was issued on 15-02-2012, which was duly served. In compliance to notice u/s.148, the assessee filed a letter on 13-03-2012 stating that the Return of Income filed u/s.139(1) on 30-092009 vide E-filing No.98054580300909 may be considered as the return filed u/s.148 of the I.T.Act, 1961. Subsequently, notice u/s.143(2) and 142(1) were issued on 12-10-2012, seeking compliances. Initially, submission was filed on 01-11-2012, after considering which notice u/s.142(1) was again issued on 19-11-2012. On the basis of information submitted again, notice u/s.142(1) was issued on 14-12-2012 and on 2102-2013. Submissions are filed on 20-02-2013, 21-02-2013, 28-02-2013 and on 04-03-2013. The case was represented by Shri Devendra Agrawal, ITP authorized by the assessee & also by Director Shri Murlidhar P. Jawale. 2) During assessment proceedings, verification of purchases and sales made during the year were made and confirmation thereof were brought on record. Also verification in respect of purchase of shares at premium of Rs. 1,900/- per share was also made. As per submissions filed by the assessee, it is seen that the shares were purchased out of amount received from B.C. Biyani Pro....
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....he investment by Amicitia Infrastructure Pvt. Ltd. in the shares of Hari Infrastructure Pvt. Ltd. has been accepted by the AO of Amicitia Infrastructure Pvt. Ltd., then in that case no addition can be made in the hands of the assessee and the AO has to delete the addition to this extent. We hold and direct accordingly. 48. So far as the investment by the remaining 8 parties are concerned admittedly the assessee has provided the complete details including names and addresses, PAN numbers, details of the investors and the details of cheque Nos. etc. through which the amounts have been received. We also find force from the submission of the Ld. Counsel for the assessee that the statement recorded from different parties were not confronted to the assessee and he was not provided with an opportunity to rebut the same. Subsequent to the passing of the order of the CIT(A) various decisions have come according to which addition cannot be made in the hands of the assessee company where it has given the names and addresses, PAN numbers and bank accounts details of the alleged bogus shareholders and the addition can be made only in the hands of the bogus share holders. Therefore, consideri....
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....t debited and claimed deduction of any interest charged by the society. Therefore, as per our opinion the question of waiver of loan of Rs. 2.33 as revenue income does not arise. It is submitted that we have relied on the following decisions : i. Hon'ble Bombay High Court (2003-(IT2)-GJX-0042-BOM) in case of Mahindra and Mahindra V. Commissioner of Income Tax - decision copy already submitted with our previous submission dated Ist Sept. 2011. ii. Decided by ITAT, Ahmedabad Bench 'B', Ahmedabad in the case of Govindbhai C. Patel V. DCIT, Appeal No. ITA No.1675/Ahd/2009, decided on October 30, 2009. iii. [2009] 30 SOT 31 (MUM), In the ITAT Mumbai Bench 'D' DSA Engineers (BOM) Vs. Income Tax Officer, Ward 19(1)-3, Mumbai IT Appeal No.5354 (MUM) of 2007 [Assessment Year 2003-04], decision dated March 12, 2009." 52. However, the AO was not satisfied with the explanation given by the assessee. He noted that all the decisions cited by the assessee are distinguishable and not applicable to the facts of the present case. According to the AO, the facts of the case is covered by the decision of Hon'ble Bombay High Court in the case of Solid Containers Ltd. Vs.....
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....7.08 crore. The interest of Rs. 3.78 crore, charged since beginning till date of closure of account was not debited by the appellant in its P & L account. Further, the appellant company has reduced Rs. 2.33 crore(principal amount waived by the society) from the opening balance of BOT Project cost. The AO had made addition of Rs. 6.11 crore on account of the above referred waiver following the hon'ble Mumbai High Court decision in the case of Solid Containers Ltd. vs. Dy. Commissioner of Income tax & Anr .. The appellant's contention that the amount was used for BOT Project is found to be contrary to the facts. Appellant itself admitted that of Rs. 32 crore, Rs. 30.585 crore was given to RIL for purchase of preference/equity shares and reimbursement of loan. Only Rs. 7.96 lac was spent for making payment to the contractors and other site expenses. The company obtained a term loan of Rs. 27 crore from Federal Bank @ 13.75% rate of interest to repay the loan of Sahakar Mitra Shri Chandrakant Hari Badhe Sir Urban Cooperative Society, Varangaon. In view of the above, it is clearly established that borrowed funds were used for making investment in holding company i.e. RIL and oth....
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....concerned, it is the submission of the Ld. Counsel for the assessee that the said loan was taken for construction of Toll Road and assessee reduced the value of the said assets to the extent of loan waived by the bank. According to the Ld. Counsel for the assessee, in view of the decision of Hon'ble Bombay High Court in the case of Mahindra and Mahindra Vs. CIT reported in 261 ITR 501 section 28(iv) do not apply to the waiver of loan which was advanced to the assessee by the supplier on capital assets. It is also his submission that the decision relied on by the CIT(A) in the case of Solid Containers Ltd. reported in 308 ITR 417, is not applicable to the facts of the case since in that case the loan was taken for trading activity whereas in the case of the assessee the loan was invested in capital assets. 57. We find a somewhat similar issue had come up before the Hon'ble Bombay High Court in the case of Mahindra and Mahindra Ltd. (Supra). In that case, certain loan was granted by the Foreign company for import of capital asset for which it had obtained a loan from the supplier which was repayable after 10 years in instalments with interest at 6% free of Income Tax. Subsequently....
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....e 7, 1965, the Government of India and the Reserve Bank of India, in this case, approved the arrangement under which KJC (supplier of toolings) was permitted to advance a loan of $ 6,50,000 to the assessee for ten years bearing interest at the rate of 6 per cent., free from income-tax. KJC was later on taken over by AMC and as a part of take-over, AMC agreed to waive the principal amount of the loan and not the interest. In the circumstances, as stated in the above three undisputed facts, the assessee paid interest at 6 per cen. per annum for ten years, being the contractual period. According to the Assessing Officer, the loan arose from business dealings. According to the Assessing Officer when AMC waived the loan, the credits became part of business income ; that prior to such waiver, the credits represented liability. In the circumstances, the Assessing Officer has taxed such credits as business income. However, in this connection, there are two important facts which are overlooked by the Assessing Officer. Firstly, the assessee has continued to pay interest at 6 per cent. for a period of ten years on the loan amount. In this case, the Assessing Officer has not gone behind the l....
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....e of Rs. 27,29,585 and, therefore, the amount of Rs. 27,29,585 should be set off against Rs. 57,74,064. We do not find any merit in this argument. The Department's case is that the assessee got remission of Rs. 57,74,064. Remission for depreciation is not in issue before us. The only argument of the Department throughout has been that the waiver constituted remission of Rs. 57,74,064. In the circumstances, we cannot direct set off of Rs. 27,29,585 against Rs. 57,74,064. It is important to bear in mind that before section 41(1) came to be enacted, various judgments as reported in Mohsin Rehman Penkar v. CIT [1948] 16 ITR 183 (Bom) and Orient Corporation v. CIT [1950] 18 ITR 28 (Bom) had laid down that remission was not income and in order to get over those judgments section 41(1) came to be enacted. In the case of CIT v. Phool Chand Jiwan Ram [1981] 131 ITR 37 (Delhi), the assessee-firm had purchased goods. They had also obtained loans from a party, accounts were settled and the balance was credited to the partners" account. It was held by the Delhi High Court that the amount referable to loans was not a trading liability. That, only amounts allowed as deduction in earlier years....
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....on 37(2B) of the Income-tax Act during the assessment year in question ?" Answer : Since the amount involved is only Rs. 20,000, we do not wish to answer the above said question No. (ii). "(iii) Whether the Tribunal was right in holding that the roads constructed by the company constituted plant within the meaning of section 43(3) of the Act and whether it was eligible for depreciation allowance ?" Answer : In view of the judgment of the Supreme Court in the case of CIT v. Gwalior Rayon Silk Mfg. Co. Ltd. [1992] 196 ITR 149, we hold that roads are buildings and not plant and, therefore, the abovesaid question No. (iii) is answered in the negative, i.e., in favour of the Department and against the assessee. "(iv) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the donation for Rs. 92,500 to an education society was allowable as expenditure incurred for business purposes ?" Answer : The Tribunal has given a finding of fact which shows that Mahindra and Mahindra had paid Rs. 92,500 to an education society which runs the school in which children of the employees of....