TaxTMI 
TaxTMI 
2018 (4) TMI 11
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....f 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 Vintrade Pvt. Ltd. 5,00,000 50,00,00....
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....he 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 aforesaid six parties were received through banking channel and the same is reflected in the bank statement of the assessee. (iv) All the shares were sold in offline market therefore there was no involvement of DP. (v) The shares were sold to the aforesaid six parties about three years back and presently the assessee is not in contact with those companies. Moreover, the assessee was also not required to know the whereabouts of these companies after....
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....om 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 assessee before the learned CIT(A) submitted that the investment in RRPL was held from the last several years. All the notices issued upon the assessee by the AO were duly complied with and the necessary details / supporting documents were furnished to proof the genuineness of the above transaction. 11. The assessee in its balance-sheet as on 31.3.2011 has shown investment of 35,65,868/- equity shares which was reduced to 5,65,868/- shares as on 31.3.2012 making the sale of 30 lacs equity shares of RRPL. 12. All the shares were sold in off lin....
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....n 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 the shares of a list company, Regent Realtech Ltd. offline market and that too, at par. It has not been able to prove that these were investments held since a long time. Neither the ITRs for the relevant years nor the returns filed with the ROC, let alone the source of the said investments have been proved in the assessment or remand proceedings. Assuming but not admitting that these investments were held by the appellant, the method of disposal of these investments casts serious doubts as to whether the transactions were genuine or not. The purchaser companies ....
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....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 shares, which were actually owned by Regent Realtech Ltd. All in all the evidences in hand negate the contention of the appellant that the documents furnished before the AO during the assessment and remand proceedings amount the discharge of onus in the part of the appellant u/s 68. Rather, it is found that the documents furnished do not establish even the identity of the purchasers and the source of the credit in the books of the appellant. 3.5.7 It has been judicially established that the primary onus is on the assessee to prove the identity & creditworthiness of the ....
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....hip, 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 receipt of amounts in the books of accounts by way of sale of so called investments and hence the same principal expounded by the Delhi High Court in the above case would apply. Reliance is also placed upon the case of CIT vs. MAF Academy (P) Ltd. [2014] 42 taxman.com 377(Delhi) wherein it had been held that mere production of incorporation detail, PAN No. or income tax details may not be sufficient when surrounding and attending facts predicate a cover up. 3.6.1 The reliance placed by the AR on the summary dismissal of Department's SLP in the case of Lovely Exports Pvt. Ltd. by the Supreme Court without laying down any law, is....
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.... 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 directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call monies, dividends, warrants etc. have to be sent and the relationship is/was a continuing one. In such cases, therefore, the assessee cannot simply furnish details and remain quiet even when summons issued to shareholders under Section 131 return unserved and uncomplied. This approach would be unreasonable as a general proposition as the assessee cannot plead that they had received money, but could do nothing more and it was for the assessing officer to enforce share holders attend....
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...., 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 transfer of shares was placed. 20. The learned AR also submitted that the shares of RRPL was purchased by the assessee on 23.4.1997 and in support of assessee's claim filed confirmation which is placed at page 22 of the paper book. The contents of the confirmation is reproduced as under:- INVESTMENT CONFIRMATION "This is to certify and confirm that M/s Kesha Appliances Private Limited was allotted 1,09,80,000 (One Crore Nine Lacs Eighty Thousand Shares) equity shares of Rs. 10 each of Modi Hoover International Limited (now known as Regent Realtech Limited) on 23.04.1997. The entire subscription amount of 1,09,80,000 equity shares was fully received prior to the ....
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....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 the genuineness of the transaction in respect of four companies. The relevant extract of the remand report is placed at pages 56 to 61 of the paper book. 24. On the other hand, the learned DR submitted that the identity of the companies to whom the shares were sold by the assessee was not accepted. Therefore, the same represents the unexplained cash credit of the assessee. The learned DR vehemently supported the orders of the authorities below. 25. We have heard the rival contentions and perused the materials available on record. The addition in the present case was made by the AO for the proceeds of sales of investment which were sold by the assessee to six companies as stated above. As per the AO, the parties to whom shares were sold did not respond to the notices issued under section 133(6) of the Act, therefore, the same was treated as unexplained cash credit under section 68 of the Act. The view taken by the AO was subsequently confirmed by the learned CIT(A). 26. On perusal ....
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....o. 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 Intime Dealers Pvt. Ltd., has filed copy of bank account where in amount of Rs. 50,00,000/- has been debited on 7.5.2011 and this amount of Rs. 50,00,000/- was credited to its account on 7.5.2011 i.e. on the same date. However, on perusal of the balance sheet and Profit & Loss Account, credit worthiness of the M/s Intime Dealers Pvt Ltd could not be established because as per balance sheet of the investor it has been found that (i) Income Sale of current investment : Rs. 1.77 Crore Less additional loans / advances given: Rs. 1.75 Crore. Remaining balance: Rs. 0.02 Crore. On perusal of Balance Sheet and P & L Account it is crystal clear that there is no change in reserve & surplus, in liabilities and there is no sufficient income in the year under consideration then from where investor has invested Rs. 30,00,000/- (Rs. 50,00,000/-&nbs....
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....bsp; dated 10.2.2017 received on 20.2.2017 As per notice u/s 133(6) dated 27.1.2017 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. NewEdge Vinimay Pvt. Ltd., has filed copy of bank account where in amount of Rs. 50,00,000/- has been debited on 10.5.2011 and this amount of Rs. 50,00,000/- was credited to its account on 10.5.2011 i.e. on the same date. On perusal of balance sheet and P & L account of the M/s NewEdge Vinimay Pvt. Ltd., the credit worthiness of the investor seems to be proved. 27. After perusal of the remand report as discussed above, we are of the view the conditions specified under Section 68 of the Act has been duly satisfied in respect of four companies namely Intime Dealers Private Limited, Vedant Commodeal Private Limited, Jackpot Vintrade Private Limited and Newedge Vinimay Private Limited. Now the issue remains to be answered in respect of Sh. Shrishti Developers Private Limited and Snowd....
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....sp; 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. In view above we hold that the ownership of the investment shown by the assessee in its audited financial statement in RRPL cannot be doubted. The lower authorities have not brought any iota of evidence suggesting that the transactions were not made offline. Thus there is no question of involvement of DP arises in the given facts & circumstances. The transactions for the sale of shares were taken place on 20-7-2011 in off line market whereas the ld. CIT-A held that the shares....
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.... the lower authorities. 30. On specific question from the Bench to the learned DR about the remand report submitted by the AO, the learned DR has not pointed out any defect. 31. We also find support & guidance from the order of this Tribunal in the case of ITO Vs. Neelkanth, Finbuild Ltd. in ITA no. 2821/Del/2009 wherein it was held as under : "Keeping in view of the findings given so Assessing Officer as well as the Ld. First Appellate Authority and the documentary finding by the assessee before us. We are of the considered view that Ld. First Appellate Authority has deleted the addition in dispute on the basis of various documentary evidence filed by the assessee before the Assessing Officer as well as before him. Hon'ble Supreme Court of India in the case of CIT v. Lovely Export 299 MANU/SC/8539/2008 : ITR 261 (SC) which has confirmed the order of Hon'ble Delhi High Court has held that once the identity of the share holder have been established, even if there is a case of bogus share capital, it cannot be added in the hands of company unless any adverse evidence is not on record. Ld. First Appellate Authority has examined the documentary evidence filed by the assesse....
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.... to the total income of the assessee. 35. Aggrieved assessee preferred an appeal to learned CIT(A). The assessee before the learned CIT(A) submitted that the expenses were incurred towards bank charges, professional charges, audits remuneration and general expenses including depreciation. As per the assessee, these expenses were necessary to be incurred to keep the status of the company active. Therefore, the assessee should be entitled for such expenses. However, learned CIT(A) disregarded the contention of the assessee and confirmed the order of the AO by observing as under:- "I have given careful considerations to the submissions. It is noted that the appellant company had been engaged in the business of manufacturing of Modi Brand Appliances, but such operations had been stopped in the year 1993. It is also noted that vide the submissions dated 04.02.2015 made before the AO, it was stated that this company CIN had been deactivated and hence has been struck off the ROC Website due to non-filing of the statutory documents with the ROC. The expenses in question have not been proved to be genuine as even the statutory audit report has not been filed with the ROC. The bank statem....
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....he assessee's business ventures in Pakistan which stood transferred to the PPCIL and hence the assessee did not have any business which it could be said to be carrying on. Since the same was not incurred wholly and exclusively for the assessee's business it was not allowable under Section 37 of the Income Tax Act, 1961. The main object of the expenditure in question was to realize the sale consideration of the fixed assets in Pakistan in cash or in kind. The expenditure related directed to fixed assets and was capital in nature. Hence, the amounts claimed were not allowable." The Hon'ble Allahabad High Court in the case of Inderchand Hari Ram v. CIT [1953] 23 ITR 437 held as under: "In order that an expenditure can be deducted as business expenditure under Section 10(2)(xv) of the Indian Income-tax Act, 1922, the expenditure must be incurred for the purpose of the business which was in existence in the accounting year and the profits of which are under assessment. If, during the relevant period there was, in fact, no business either because it was discontinued or for some other reason it had ceased to exist, the question of computation of its income after deducting t....