AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (4) TMI 11
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....in spite of the specific submissions made regarding the nature of the expenditure which are necessary for the company maintenance. 2. The first issue raised by assessee is that the learned CIT(A) erred in confirming the disallowance of Rs. 3,00,00,000/- under Section 68 of the Act on account of sale of shares. Briefly stated, the facts are that, the assessee is a private limited company and engaged in the business of manufacturing / assembling, buying, selling, exchanging, converting, importing, altering, exporting or otherwise handling or dealing in vacuum cleaners, washing machines, mixers, juicers etc. The assessee, during the year has sold its investment made in the shares of M/s Regent Realtech Private Limited (formerly known as Hoover International Limited) (for short RRPL) for Rs. 3,00,00,000/- only. The assessee sold its investment in shares in offline market to certain parties as detailed below:- Sl. No. Name of the Purchaser No. of shares Amount Transaction type Share Certificate number 1 Jackpot  ....
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....15 was furnished by the assessee therefore, the AO issued notices to all the six parties to whom the investment was sold by the assessee under Section 133(6) of the Act. But there was no compliance from any of the party. 5.1 In case of M/s Snowdrop Tradecom Private Limited and Jackpot Vintrade Private Limited, the notices were returned back by the postal authorities as un-served with the remark not known. 6. Accordingly, the AO issued summon under section 131 of the Act to the assessee vide letter dated 19th March, 2015 to justify the sale of investment claimed in the return of income. In compliance thereto Shri Ved Prakash Arya, Director of the company appeared along with Shri Anil Jain, Advocate of the assessee and filed a detailed submissions vide letter dated 24.3.2015. The relevant contents of the letter are extracted below:- (i) The contract note for sale of investment were duly furnished along-with the PAN of the purchasers companies vide letter dated 12.1.2015. (ii) A letter confirming the transfer of shares by the assessee to the aforesaid six purchasers was issued by M/s RRPL vide letter dated 27.2.2015. (iii) All the payments from the afo....
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....o the aforesaid six companies were either not served or no reply was made by them. (iii) The contract notes furnished by the assessee contains no information about the details of broker / dealer therefore, the contract notes supplied by the assessee cannot be relied upon. (iv) The contract note furnished in respect to M/s Newedge vinimay Private Limited, M/s Intime Dealers Private Limited and M/s Vedant Commodeal Private Limited does not contain the distinctive numbers of the shares sold to them. The companies to whom the shares were sold are the companies having no business transaction and therefore these are bogus companies. Thus the AO was of the view that the sale of investment for Rs. 3 crores is representing the assessee's own money routed through these companies. 8. In view of the above, the AO concluded that the conditions specified under Section 68 of the Act have not been satisfied by the assessee. Accordingly, the amount of sale consideration of Rs. 3,00,00,000/- was treated as unexplained income under Section 68 of the Act and added to the total income of the assessee. 9. Aggrieved assessee preferred an appeal to learned CIT(A). 10. The assess....
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....hat the RRPL was listed company as per MCA data though the assessee claimed that the shares of RRPL were not listed. The ld. CIT-A also observed that the address in respect of six companies as per MCA data were different with the details provided by the assessee. It was also observed that the payment made by the six companies to the assessee for the purchase of shares was preceded by the credit entries on & around the same date of sale of shares. 16. The assessee in response to the remand report submitted that in case the credit entries reflected in the bank of the six companies then the additions if at all needs to be made then it has be made in the hands of those companies. The assessee in support of his claim relied on the judgment of Hon'ble Supreme Court in the case of Lovely Export Pvt. Ltd. reported in 216 CTR 195. 17. However, the learned CIT(A) after considering the submissions of the assessee and remand report of the AO confirmed the order of the AO by observing as under:- "I have given my careful consideration to the remand report of the AO and the rejoinder of the appellant. At the outset, as already mentioned herein before, the appellant has traded in th....
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....ials and ITR namely "123, 1st Floor, Cotton Stree, Burra Bazar, Kolkata 700007" is different from the address filed in the confirmation letter before AO dated 10.02.2017 and the address furnished to MCA which is "1, Muktaram Babu Street, 2nd Floor, Kolkata 700007." 3.5.6 It would be worthwhile to note that three out of the six purchasers (namely Intime Dealers Pvt. Ltd., Jackpot Vintrade and Vedant Commodeal Pvt. Ltd.) are in receipt of funds received from a little known company namely Hamraj Financial Consultants Pvt. Ltd., which has been incorporated only on 03.08.2009. The directors of this company are placed as directors in Sunflower Vintrade Pvt. Ltd., Littlestar Vyapaar Pvt. Ltd., Sunbright Distributors Pvt. Ltd. and Rosemery Agencies Pvt. Ltd. A fourth purchaser company M/s Newedge Vinimay Pvt. Ltd., has sourced the funds of Rs. 50 lakhs from Sunflower Vintrade Pvt. Ltd. Further the extracts of the bank statement of the appellant (a/c no.02712020005643) with HDFC Bank Ltd. Kalkaji, New Delhi, shows that the amounts received from the purchaser companies stand transferred to Modi Hoover International Ltd. This shows that the appellant is not the real investor in share....
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....sion of CIT vs. Nipun Builders & Developers (P) Ltd. (30 taxman.com 292) wherein Delhi High Court held that assessee has to prove the identity & creditworthiness of the person from whom the money has been taken. It was held a Private Limited Company, which cannot issue shares in same manner in which a Public Limited does, generally has to depend on a person known to its directors or shareholders directly or indirectly to buy its shares. Once the monies are received and shares are issued, it is not as if the share subscriber and the assessee company lose touch with each other and become incommunicado. It is a continuing relationship, and mere furnishing of copies of bank accounts of the subscribers is not sufficient to prove their creditworthiness. There should be some positive evidence to show the nature and sources of share subscriber himself. Failure to produce the principal officers of the subscribing companies before the AO so that they could explain the sources from which the share subscription was made would also have taken care of any difficulty of the assessee in proving the creditworthiness of the subscriber companies. It is to be noted that the present case involves recei....
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....evealed mere rotation of money, the bank accounts, therefore, did not reflect their creditworthiness or even genuineness of the transaction. The beneficiaries, including the respondent-assessee, did not give any share-dividend or interest to the said entry operators/subscribers. The profit motive normal in case of investment, was entirely absent. When there is surrounding evidence and material manifesting and revealing involvement of the assessee in the "transaction" and the same was not entirely an arm's length transaction, resort or reliance to the usual doctrine of "source of source" may be counter-productive and contrary to equity and justice and the assessee would be required to prove the unimpeachable creditworthiness of the sha-e subscribers. The High Court held in the case of N.R Portfolio (supra) as under: "29. In CIT v. Nipun Builders & Developers (P.) Ltd., this principle has been reiterated holding that the assessee and the Assessing Officer have to adopt a reasonable approach and when the initial onus on the assessee would stand discharged depends upon facts and circumstances of each case. In case of private limited companies, generally persons known to di....
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....aid companies. It is the persons behind the company who take the decisions, controls and manage them." 3.6.3. A distillation of the legal precedents discussed herein above shows that the assessee has to prima facie prove the identity of the creditor/subscriber, the genuineness of the transaction and the creditworthiness or the financial strength and when the assessee is not in a position to prove beyond doubt the creditworthiness, the AO is duty bound to investigate the same and the veracity of the transaction. Since in the present case, the surrounding circumstances do not reflect the identity, genuineness and creditworthiness of the purchaser companies, the addition made by the AO is seen to be justified. Keeping in view the discussion herein before the addition of Rs. 3 crores u/s 68 is upheld. Ground no.3 is dismissed." 18. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. The learned AR before us filed a paper book which is running from pages 1 to 130 and reiterated the submissions made before the learned CIT(A). 19. The learned AR drew our attention at page 21 of the paper book where the confirmation of M/s RRPL for the tr....
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....ormerly known as M.G. Express Ltd) 200.000.00 565868 Equity Shares of Rs. 10/- (PY 3565868) 5,630,347.00 each fully paid up in Modi Hoover International 20,000.00 Limited UNQUOTED (NON-TRADE) AT COST 200,000.00 20000 Equity Shares of Rs. 10/- each (P.Y. 20000) In Agache Associate Limited 20,000.00 2000 Equity Shares of Rs. 10/- each (P.Y. 2000) In Modi Overseas Investment Limited Total 6,257,747.00 36,257,747.00 23. The learned AR also submitted that the name of the assessee was duly recorded by the RRPL in the list of annual return of shareholders furnished to the ROC as on 31.03.2011, the copies of the annual return filed by the RRPL is placed on pages 112 to 130 of the paper book. The learned AR also submitted that the AO during remand proceedings has accepted t....
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....s M/s. Modi Hoover International Ltd.) from the assessee company during the F.Y. 2011-12, the fresh notice u/s 133(6) of the Act were issued to following six parties for necessary compliance on 13.02.2017. After the verification, the resultant of the same is being produce as under:- S No . Name of the Party and address Date of Reply received Remarks 1. Srishti Developers Pvt. Ltd. 228A Bagur Avenue block- B, 4^th Floor, Kolkata, West Bengal-700055 Not received Notice u/s 133(6) of the Act issued vide dated 27.01.2017 received back unserved on 21.02.2017 2. Intime Dealers Pvt. Ltd. 12, Sir Hariram Goenka Street 1^st Floor, Kolkata, West Bengal-700007 Reply dated 11.02.2017 received on 20.02.2017 As per notice u/s 133(6) of the Act dated 27.01.2017 in point no. 4, it was asked to provide copy of bank account alon....
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....sp; investor seems to be proved. 4. M/s Jackpot Vintrade Pvt. Ltd., 42, Matcalfe Street, Room No. 204, 1st Floor, Kolkata, West Bengal- 700013 Reply dated 10.02.2017 received on 20.02.2017 As per notice u/s 133(6) of the Act dated 27.01.2017 in point no. 4, it was asked to provide copy of bank account along with source of income through which transaction has been made with the assessee. In response to this M/s Jackpot Vintrade Pvt. Ltd., has filed copy of bank account where in amount of Rs. 50,00,000/- has been debited on 8.4.2011 and this amount of Rs. 50,00,000/- was credited to its account on 4.5.2011 i.e. on the same date. On perusal of balance sheet and P & L account of the M/s. Jackpot Vintrade Pvt. Ltd., the credit worthiness of the investor seems to be proved. 5. M/s Snowdrop Tradecome Pvt. Ltd. 29A Weston Street, 3rd Floor Room no. C5 Kolkata West Ben....
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.... 3259 Snowdrop Tradecom Pvt. Ltd. 20.7.2011 500,000 2194 Kesha Appl P. Ltd 3260 Jackpot Vintrade Pvt. Ltd. 20.7.2011 500,000 2194 Kesha Appl. P. Ltd. 3261 Srishti Developers Pvt. Ltd. 20.7.2011 500,000 2194 Kesha Appl. P. Ltd. 3262 Vedant Commodeal Pvt. Ltd. 20.7.2011 500,000 2194 Kesha Appl. P. Ltd. 3263 Intime Dealers Pvt. Ltd. 20.7.2011 500,000 2194 Kesha Appl. P. Ltd. 3264 Newedge Vinimay Pvt. Ltd. The above transaction of the transfer of shares has also been confirmed by RRPL which ....
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....in the year when the transaction for the sale of shares was taken place. Moreover the value for the sale of the shares has not been questioned by the lower authorities. It is undisputed facts that the distinctive nos. for the sale of shares in respect of three companies were not provided by the assessee but the same cannot be basis for treating the same as unexplained cash credit under section 68 of the Act after disregarding the other evidences submitted by the assessee during the course of proceedings before the AO & ld. CIT-A. We also observe that the assessee has furnished all the necessary details of the aforesaid six companies along with PAN but none of the lower authorities have confirmed the same from the AO's having jurisdiction over the six aforesaid companies. Thus the assessee cannot be penalized merely on the ground that the six companies as discussed above failed to reply to the notices issued to them under section 133(6) of the Act. The assessee has duly explained the source of money received on the sale of shares/ investment and the assessee is not answerable for the source of money in the hands of aforesaid six companies. In this regard we draw support from t....
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....e genuineness of transaction as well as the creditworthiness of the creditor must remain confined to the transactions which have taken place between the assessee and the creditor. It is not the business of assessee to find out the source of money of creditors. Similar observation has also been given in the case of Hastimal MANU/TN/0536/1962 : 49 ITR 273 (Madr) and Daulatram Rawatmal MANU/SC/0290/1972 : (1973) 87 ITR 349 (SC). Ld. First Appellate Authority has cited various decisions rendered by the Hon'ble Supreme Court of India as well as the Hon'ble Jurisdictional High Court in the impugned order and finally has held that the assessee has substantiated the transaction regarding share application money received by it was genuine transaction and the same were not accommodation entries. He did not find any evidence collected by the AO which could prove otherwise and deleted the additions in dispute. As regard to the addition of Rs. 12,500/- made on account of commission which was presumed to have been allowed by the assessee for obtaining the Hawala entrey in dispute, the ld. CIT(A) observed that the Assessing Officer was not able to brought anything on record that it was as....
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....vt. Ltd. (158 ITD 125) has held that when there is a case of no business activity and it is not merely a temporary discontinuation of business, expenses cannot be allowed u/s 37(1). The operative portion of the order reads as under: "12. Section 37(1) of the Income Tax Act provides that any expenditure not being in the nature of capital expenditure or personal expenses of assessee, laid out or expanded wholly and exclusively for the purpose of business or profession shall be allowed in computing the income chargeable under the head 'profits & gains' of business or profession, the explanation to this Section also provides that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. The provisions of Section 37 therefore, clearly provides that the expenditure which is laid out or expanded wholly and exclusively for the purpose of business or profession, shall be allowed as deduction. The business of liquor in any form is controlled by the State Government. The ....
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....rage up to 30th September, 1944, on the sale of sugar made by the company direct to the dealers nominated by the Government. On 7th March, 1945, the directors of the company passed a resolution that the assessee would not be given any more brokerage for the sale of sugar after 1st October, 1944. The Appellate Tribunal found that during the period 1st October, 1944, to 30th September, 1945, the assessee did not enter into any agreement and did not receive any sugar from the company, nor did they do any work as selling agents nor were they paid any brokerage. The assessee claimed that the expenses incurred by it in maintaining the selling office between 1st October, 1944, and 7th March, 1945, should be deducted under Section 10(2)(xv) as expenditure laid out or expended wholly and exclusively for the purpose of the selling agency business: Held, that in the circumstances of the case the expenditure incurred was not an admissible deduction under Section 10(2)(xv)." Keeping in view these facts and circumstances, when it is found that the expenses have not been shown to be necessary even for the statutory compliances, these expenses cannot be claimed as wholly and exclusively i....