TaxTMI 
TaxTMI 
TaxTMI 
2023 (10) TMI 298
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....rring the instant appeal before us. 3. The order passed by the Ld. CIT(A) for the year under consideration was received by the assessee on 09.03.2018 and thus, the appeal was supposed to be filed on 07.05.2018 but the same was filed only on 27.08.2018. Hence, the delay. 4. An affidavit explaining such delay has been filed by the Director of the assessee company, namely, Zubin Jinofer Bhujwala before us. The contents of the affidavit is as follows: "1. I am the Director of "Aatash Dredging and Constructions Pvt. Ltd.," The order passed by the learned Commissioner of Income-tax (Appeals) for the Assessment Year 2011-12 was received by the assessee on 09.03.18 and therefore, appeal before Your Honors was required to be filed on or before 07.05.18. However, appeal came to be filed on 27.08.18 and thus, there is a delay of 111 days in filing the appeal before Your Honors. The reasons for the said delay are: a) The impugned order passed by the Ld. CIT(A) was received by the assessee on 09.03.18. The said order was handed over to me for passing on the same to the concerned Chartered Accountant for filing appeal before Hon'ble the Income Tax Appellate Tribunal. However, inadverte....
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....on 143(2) of the Act dated 18.09.2012 followed by subsequent notice in terms of the statutory provisions was issued and served upon the assessee. The issue relates to the addition of forfeited amount of share capital to the tune of Rs. 5.25 Crores by the appellant company, for which, the appellant was directed to furnish details of a number of occasions commencing from 29.08.2013 by the Ld. AO but without result. Ultimately, show cause dated 18.10.2013 under Section 271(1)(c) r.w.s. 274 of the Act was issued whereupon partial details were furnished. The resolution dated 04.10.2010, copy of return of income, bank statement and agreement with the party, if any, though were directed to be furnished by the assessee, since nothing was forthcoming, penalty notice under Section 271(1)(b) of the Act was issued and order thereupon dated 13.11.2013 was passed for non-compliance of statutory notice. Finally, on 26.11.2013 following details were furnished by the appellant: Name of the Co. PAN Share forfeited amount Date of intention to invest shown by the Cos. Date of acceptations by the assessee cos. First installment by the assessee Share issued NOC by the cos. Share forfeit....
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....g Pvt. Ltd. It further appears that major payments made from the account of Jai Jeen Mata Marketing Pvt. Ltd. to Shree Balaji Impex Pvt. Ltd., Neha Exim Pvt. Ltd., Niku Enterprise Pvt. Ltd. apart from the payment made to the appellant company. In that view of the matter, the Ld. AO found the link between the companies, namely, Jai Jeen Mata Marketing Pvt. Ltd., Mewad Tradelink Pvt. Ltd., Aakash Palace Developers Pvt. Ltd. & Mahima Clothing Pvt. Ltd. 13. Further upon field verification made by the Inspector, namely, Shri Pravin Gorane report was furnished with the following notings: "1) Mewad Tradeline Pvt. 2) Jai Jeen Mata Marketing. Address: 48, Jai Mitra Society, Opp. Ranchodnagar, Vinzol Crossing, Vinzol, Ahmedabad. Submitted for kind perusal. I visited the above premises on 20/3/2014 at about 4:30 pm. At the above address, it is found that the same is a residential tenement having three rooms. One Shri Lakhubhai Udaysing Rohadiya, aged about 42 years is staying along with his family since last 8/10 years. His contact No. is 9825068983. He informed that his younger brother Shri Nagardan Udaysing Rohadiya, aged about 38 years is also staying along with his family at this....
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....ny. Therefore, the Director, namely, Shri S. Sharma of Mewad Tradelink Pvt. Ltd. & Jai Jeen Mata Marketing Pvt. Ltd. was produced. The statement was recorded on 23.02.2014 of the common Director, namely, Shri S. Sharma who confessed of doing the entire work for commission of Rs. 25,000/- to Rs. 50,000/-. Considering the statement recorded from the said Shri S. Sharma on 22.03.2014 and upon examination of witnesses, the Ld. AO came to a finding that creditworthiness and genuineness of the entire transaction is far from established, the same as existed on paper only but not in reality. No return was filed by any of the companies. Upon verification, no such existence of the company was found. The assessee was further directed to attend. Since, the assessee did not attend before the Ld. AO, he proceeded to deal with the matter on the basis of records available before him. The Ld. AO was of the opinion that the transaction entered into by the appellate company resulting is merely an artifice or a device employed so as to introduce capital which is unexplained. However, he further opined that though, each in the said transaction appears to be legally permissible but when seen in its enti....
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....anies need to raise money to support the ongoing growth of the company -to do this they need to either borrow money, or sell part of the company. As each share is a small part of the company, the latter option is issuing shares Debt financing is the first option - borrowing money to expand Companies either take out a loan from a bank, or borrow money from bond holders for a fixed period (e. issuing bonds). Equity financing is the second option-issuing shares. The advantage of issuing shares over debt financing is that the company is not mandatory to pay back the money or make interest payments. In return for investing in the shares. shareholders hope that the value of the company will increase and they will be able to sell the shares for a higher price than what they paid for them. This means that shareholders take on the risk that the company's value may not go up, and the value of the shares will be less than what was paid for them. b. Procedure for Issue Of Shares: (a) Issue of Prospectus:- Whenever shares are to be issued to the public the company must issue a prospectus. Prospectus means an open invitation to the public to take up the shares of the company thus a p....
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....red to an account called up as "Calls-in- Arrears account. The Balance of calls-in-arrears account is deducted from the Called-up capital in the Balance Sheet (f) Calls-in-Advance:- According to sec. 92 of the Companies Act, a Company may if so authorized by it's articles, accept from a shareholder either the whole or part of the amount remaining unpaid on any shares held by them, as Calls in advance. No dividend is paid on such calls in advance. However, interest has to be paid on such calls in advance c. Terms of Issue of Shares: A limited company may issue the shares on following different terms. (a) Issue of Shares for Consideration other than cash or for cash or on capitalization of reserves (b) Issue of Shares at par Le, at face value or at nominal value. (c) Issue of Shares at a Premium i.e. at more than face value (c) Issue of Shares at a Discount Le at less than the face value. d. ACCOUNTING ENTRIES: a) For receipt of application money: Bank A/c Dr. To Share Application A/c b) On Allotment: 1) Transfer of Applicat....
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....ails to pay the calls then his shares may be forfeiture by the directors it authorized by the Articles of Association of the company The Forfeiture can be only for non-payment of calls on shares and not for any other reasons. When the Company forfeits the shares, the person loses his membership in the company as well as the amount already paid by him towards the share capital and premium. His name is removed from the register of members. The directors must observe strictly all the legal formalities required by the Articles of Association before forfeiting the shares ACCOUNTING ENTRIES FOR FORFEITURE OF SHARES: Share Capital A/c Dr. (no of forfeited shares amount called up per shares) Security Premium A/c (to the extent premium not received) To Calls in Arrears A/c To Share Forfeiture A/c (amount received towards share received) Note: Once the security premium is collected cannot be cancelled later on. Therefore Forfeited shares were issued at a premium and the premium money is already received on those Forfeited shares, se....
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.... make something out of nothing Both the companies are formed in the month of May 2009 with the date mentioned by the learned Assessing Officer. Enclosed herewith Company master from the MCA web site. The learned Assessing Officer has not even think that if the company would have been formed in May 2010 then there should not be previous year comparative amount in Balance sheet. This shows that the learned Assessing Officer has predetermined her mind. c. The learned officer also laid out that both the companies are having same address Le. 48, Jai Mitra Society, Opp. Ranchhodnagar Vinzol Crossing Road, Vinzol Ahmedabad" We would like to bring to your honour's notice that both the companies are formed by group of directors. Assessee has never denied with the fact that those companies are group companies. The learned Assessing Officer has not seen the fact that registered officer of the companies is same as per MCA site but address is 302. Pratibha -1, B/h Sakar-1, Nr. Gandhigram Railway Station, Ashram Road, Ahmedabad. It shows that learned Assessing Officer has not done proper work due to predetermined mind and hurry to pass order. Further, we would like to add that merely same ....
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.... has not seen the real business world so said that. The assessee company is in growing situation and hence in need of capital and fund. It was specifically decided that in the absence of final call all the money which has been paid as share application will be forfeited. Hence the assessee company has forfeited the amount in the absence of final call payment. Looking from the investor perspective, those companies have decided to invest with the specific motive considering various factors like future growth of the company, orders on hand, tenders filed by the company and its status etc. Companies must have considered the same things while making final call payment of Rs. 4.23 cr with stat details available. A clever investor reviews the salon every time while making the payment. Hence, those companies must have lot that it's better not to lose further money then what amount is already been lost Accordingly investor group has taken clever decision in their opinion by again reviewing the situation and by saving final cal payment. There may be several factors for this action like loss of order by the assessee company, may be over valuation, etc which is their internal matter and no....
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....es have paid the amount to Aakash Palace Developers Pvt. Ltd. because they have acted as a sub contractor for the assessee company in the FY 2008-09 and the total value was Rs. 9.10 cr. We have enclosed herewith copy of invoice as well as copy of Form 18A for your ready reference. The assessee company has paid outstanding portion of this amount during the year, hence question of doubting this transaction does not arise. Further, we would like to draw your honour's attention that the assessee company's case has been selected for scrutiny for FY 2008-09 and nothing been added /disallowed for the expenses related to Aakash Palace Developers Pvt. Ltd. Accordingly, its proved that the point raised by the learned Assessing Officer is baseless and shows the intention of the learned Assessing Officer to make something out of nothing. 5. We would like to draw your honour's attention to the fact that Aakash Palace Developers Pvt. Ltd seeing the good work and the worthiness of the assessee company decided to bring investors for the assessee company. The leaned assessing officer in quest of proving the assessee company wrong has inappropriately tried to prove the nexus. The lea....
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....ich in turn had made payments to AA Brothers and AA & Brothers and in turn AA Brothers and AA & Brothers has made payments to Jai Jeen Mata Marketing Pvt. Ltd. We would like to bring to your honour's notice that Jai Jeen Mata Marketing Pvt. Ltd has made payment to the above mentioned party of 32 cr while AA Brothers and AA & Brothers have given Rs 4.20 cr which is more by Rs 1.06 cr than what payment have been made by Jain Jeen Mata Marketing Pvt. Ltd to Shree Balaji Impex Pvt. Ltd. Neha Exim Pvt Ltd Niku Enterprise Pvt. Ltd Further, we would like to add that Jain Jeen Mata Marketing Pvt Ltd had made investment in assessee company of 2.01 cr out of 4 26cr received from AA Brothers and AA & Brothers The credit worthiness of Jain Jeen Mata Marketing Pvt Ltd can't be questioned as AA Brothers and AA & Brothers have given Rs 4 26 cr Moreover we would like to bring to your note that each and every transaction is done through cheque, there is no involvement of cash. 9. The assessee is not able to understand how it is relevant from whom Jai Jeen Mata Marketing Pvt Ltd has taken money and to whom money is given and how it can be called as unexplained cash The learned Assessing Of....
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....ash Palace Developer Pvt. Ltd. at 302, Pratibha 1, B/H Sakar -1, Opp Gandhigram Railway Station, Ahmedabad. He reported that no such company was there on the above mentioned address. We would like to bring to your honour's notice that the company may have shifted on the other place. 11.2 On visit to the premises of M/s AA Brothers, at B-113. Orchid Green, Nr. Girdhamagar Bus Stop. Ahmedabad Inspector stated in the report that it was a residential complex and that the flat was closed since last 2-3 months and no signboard of M/s A A Brothers was found. Your honour kindly note that he has mentioned that sign board of Shri Anmol Aggarwala was found who may be the owner of A.A. Brothers also as short form of his name is A.A. Further we may not ignore the possibility of that Mis AA Brothers has shifted to another place. 11.3 Again, we would like to bring to your honor's notice that since the companies have their registered address as the director's premises doesn't make the companies a fake one. We would like to bring to your honour's notice that many companies are having their address registered with ROC the residential address of director of the company We may ....
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....plied that he did not remember. This question was totally irrelevant as it is obvious that he will not remember any name and addresses of investors orally -In question No 8,9,10,11 he was asked by that did he know Aakash Palace Developers, Mahima Clothing Pvt Ltd AA Brothers, Niku Enterprise, Neha Exim Pvt Ltd and Balaji Impex On this he denied We would like to bring to your honor's notice that your learned assessing officer has already proved the link that all these transaction are done between those companies but from his answer we can see his state of mind. -In question No. 12 he was asked who filed return of Income of Mewad Tradelink Pvt Ltd. and Jai Jeen Mata Marketing Pvt. Ltd. He answered that he has not done any work in it other than investment in Astash Dredging & Construction Pvt. Ltd. This reply clearly states that the main affairs of company are done by professionals. -In Question No. 14 he was asked how he agreed to forfeiture of Rs 5 crore when you are earning meager 20-25 thousands/months To this he replied that he did as per the direction and he was a person of very small means. We would like to here add that he was acting as an investee in assessee compan....
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....STMENT IS IN DOUBT. -He was merely a dummy to serve aim of Aatash Dredging & Construction Pvt. Ltd. We would like to inform you that he was working as an investee group who himself was borrowing fund from other professional. So he can't be considered as merely a dummy person. -He worked for meagre commission of 25000-50000 We didn't disagree with this As stated above ho was acting as a middle man for commission A person has a night to work in the capacity as a director his personal creditworthiness is not important but The creditworthiness of the company is important which is never in doubt 16. Kindly note that in any investments made by a person, there is always a commission paid to a person bringing in investment/depsotis or making investments These investments can be in the form of deposits, mutual funds or equity shares. So when a person ears commission, it is not a crime or it does not show that he is not creditworthy Your honour kindly note that the company is genuine Activities of only taking deposits and making investments does not show that it is not genuine and one cannot doubt the creditworthiness of the company. 17. To prove that the creditworthiness & g....
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.... it's not being last day the reaction of the learned Assessing Officer for not accepting reply is not appropriate and full of injustice. 21. Moreover the learned assessing officer in order of proving assessee wrong has informed authorized representative to collect the order at 3.00 pm whereas before few minutes was told that order is ready. When authorized representative reached there the order was handed at 4.00 pm. The representative of the assessee company seen the drama during the time gap of 3:00 pm to 4.00 p.m. Staff member of the learned Assessing Officer was preparing the Order and was literally running to complete the order in any way Staff member has also asked few details to the representative of Assessee Company to give it to learned Assessing Officer which was available in file which also shows that the learned Assessing Officer has not seen property the details submitted in the hurry to make something out of nothing with predetermined mind. The learned officer has just acted inappropriately in hurry of proving our assessee wrong. These all actions of learned Assessing Officer proved the Intention of the learned Assessing Officer and predetermined mind. 22. The....
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....of assessee. Deputy Commissioner of Income tax v. GDA Finvest & Trade (P.) Ltd. [2015] 57 taxmann.com 62 (Delhi Trib.) Section 68 of the Incometax Act, 1961 Cash credit (Share capital) Assessment year 2005-06 Assessee company received share capital from investor company Assessing Officer suspected genuineness of entries as all investors were Kolkata based companies Assessing Officer carried out investigation and based on inspector's report made addition in income of assessee as unexplained cash credit under section 68 It was found that inspector did not make enquiry about existence of investor companies Whether Inspector's report could not be sole basis for making addition when all other documents were in order -Commissioner of Income tax, Chennai v. Pranav Foundation Ltd. [2014] 51 taxmann.com 198 (Madras) Section 68 of the Income-tax Act, 1961 Cash Credit (Share application money) - Assessment year 2007-08 Assessee received share application money and share premium money from four parties-Assessing Officer treated said money as unexplained credit under section 68- However all four parties were limited companies and enquiries were made and received from four compan....
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.... - The learned Assessing Officer made references and details of more of other companies and less of the assessee company In the chart the learned Assessing Officer has shown how the amount is routed in between other companies to prove transaction covered us 68 that the cash of the assessee company is being used is missing. -The learned Assessing Officer mentioned that the company has made investment from loan taken which is not important in the assessee's case. It is important if the assessing Officer is doing assessment of that two companies The learned Assessing Officer has stated that to produce PAN card. Bank Statement, Balance sheet is not sufficient to prove identity, genuineness and creditworthiness of the transaction. -The learned Assessing Officer ignored the fact that both companies have raised more funds then what is invested in assessee company which itself proves the creditworthiness of companies. -Report of inspector is produce but has not mentioned any specific and the learned Assessing officer has tried to make something out of nothing. -The learned Assessing Officer has coerced the director and made a different atmosphere and given lecture for 15 minu....
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....ficer: > Lord Brightman in Furniss v. Dawson [1984] 1 All ER 530 Sr. No. Particulars Lord Brightman in Furniss v. Dawson Assessee's case 1 Assessee had sold the Shares to new formed company Yes No 2 Effect on the income tax Yes No 3 New issue of shares by the assessee itself No Yes 4 Series of Transactions Yes No 5 Transfer of assets from one to another before ultimate sell Yes No 6 New Company created Yes No > Workmen of associated rubber industry ltd v associated rubber industry ltd 157 ITR77 Sr. No. Particulars Workmen of Associated Rubber Industry ltd Assessee's case 1 Assessee had sold the Shares to new formed company Yes No 2 Effect on the Bonus payable to employees Yes No 3 New issue of shares by the assessee itself No Yes 4 Newly formed company wind up after few years Yes No 5 Related to lift the veil of corporate entity Yes No 6 New Company created Yes No 7 Case related to Income Tax Act No Yes McDowell & co. ltd. vs. commercial tax officer 154 ITR 148 Sr,No. Particulars Mcdowell & co. ltd Assessee's case 1 Matter related to tax evasion ....
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....nto force w.e.f. 01.04.2015 and cannot be made applicable to the case in hand and thus, the addition is not sustainable under Section 68 of the Act. Even otherwise the three ingredients prescribed under Section 68 of the Act being identity of the parties, genuineness of the transactions and creditworthiness of payer was proved by the assessee. When the initial burden has been duly discharged by the assessee by placing on records at the documentary evidences as mentioned in the foregoing paragraphs, the further onus of proving the assessee wrong shifts on the Revenue. Further that, in the present case, the receipt of share capital and identity of the share applicants was directed to be proved and once it is proved the assessee can be said to have been duly discharged the burden. On this aspect, the assessee relied upon the following judgments: i. CIT v. Lovely Exports (P.) Ltd. 216 CTR 195 (SC) ii. PCIT vs Chartered Speed P Ltd - Tax Appeal 126 & 126 of 2015; iii. CIT vs. Peoples General Hospital Ltd. - (2013) 356 ITR 65 (MP); iv. CIT vs. Steller Investment Ltd. -251 ITR 263 (SC); 21. Following judgments have been considered and the contention made by the assessee on this....
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....e assessee company decided to forfeit the shares of Mewad Tradelink Pvt. Ltd. and Jai Jeen Mata Marketing Pvt. Ltd. to tune of Rs. 3.24 Crore and Rs. 2.01 Crore, respectively which was decided by the Group of Members of assessee company mutually as the group of those investor group was not able to honour their commitment for funds. We further find from the observation made by the Ld. AO that the transaction entered into by the assessee company with those parties appears to be legally permissible but when seen in its entirety it becomes clear that the said transaction is merely a device to reduce its tax liability. Such observation, however, not found to be established by corroborative cogent evidence on the part of the Revenue. On the contrary, the source of documents as relied and furnished by the assessee before the authorities below are sufficient enough to come to a conclusion that the assessee has been able to prove the identity, creditworthiness and genuineness of the cash creditors. The three ingredients since being fulfilled, the addition under Section 68 of the Act is not found to be sustainable. Hence, with the above observation, we delete the addition made by the authori....