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TaxTMI 
TaxTMI 
TaxTMI 
2023 (10) TMI 298
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....12. 2. There is delay of 111 days in preferring 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 Ho....
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....ection 143(1) of the Act. Upon selection of this case for scrutiny notice under Section 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 assesse....
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.....A. Brothers to Mahima Clothing Pvt. Ltd. was of Rs. 1,53,50,000/- and Mewad Tradelink Pvt. Ltd. obtained Rs. 66,00,000/- from Mahima Clothing 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 ye....
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.... respect of share application of Rs. 5,25,00,000/- under Section 68 of the Act as unexplained cash credit, as the assessee failed to prove the identity, genuineness and creditworthiness and further failed to produce Directors of the Company. 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 ....
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....to the various provisions, definition and accounting entries related to the matter. Definition A "share" has been defined by the Indian Companies Act, under sec. 2(40) as A share is the share in the Capital of the Company a. Why Do Companies Issue Shares? Companies 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 valu....
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....undred shares. (d) Calls on Shares: The remaining amount of shares may be collected in installments as laid down in the prospectus. Such installments are called calls on Shares They may be termed as "Allotment amount, First Call, Second Call, etc. (e) Calls-in-Arrears:- Some shareholders may not pay the money due from them. The outstanding amounts are transferred 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) Issu....
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.... To Share First Call/Share Allotment Share Final Call A/c f) For receipt if calls in advance: Bank A/c Dr. To Calls in Advance A/c e FORFEITURE OF SHARES: When shares are allotted to an applicant, it becomes a contract between the shareholder & the company. The shareholder is bound to contribute to the capital and the premium if any of the company to the extent of the shares he has agreed to take as & when the company makes the calls. If he fails 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 sh....
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....rder, we give below point wise reply of the same a. The learned officer has pointed out that both the companies have not filed their Return of Income for AY 11-12 The learned Assessing Officer has forgotten the fact that the assessee company has taken money in the form of share capital hence non filing of return of income of these two companies is not relevant for the assessee. Further, we would like to add that mere not filling of the Return of Income of Mewad Tradelink Pvt ltd and Jai Jeena Mata Marketing Pvt Ltd doesn't make both the companies bogus companies b. The learned officer has pointed out that both the companies were formed in the month of May, Le on 15/05/2010 and 20/05/2010. The learned Assessing Officer has intentionally mentioned wrong year to 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 ....
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.... investment and where there is potential of growth/appreciation in the value of investment. These companies are formed on profit sharing basis. So the capital of these companies are also kept low i.e. Rs 1,00,000/-. So it cannot be said as bogus company just on the basis of loan or capital shown in balance sheet. e. The learned officer has also stated that both the companies have NL fixed Assets. The assessee has already stated that these are investment companies hence fixed assets are not required. Further, it is not relevant for the assessee company in the case under consideration f. The learned Assessing Officer has mentioned that both the companies, whose own credit worthiness is Nil, have given acceptance to share forfeiture and the process is finished between May-November 2010. The learned Assessing Officer 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 payme....
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.... Clothing Pvt. Ltd and out of that Rx 3.24 or has been given to the assessee Assessee Company is not aware of the fact that from where Mewad Tradelink Pvt Ltd has arranged money and it's not relevant for the assessee company also. These all companies may be group companies but it's not relevant for the assessee company The learned Assessing Officer has added this amount of Rs. 3.24 or as unexplained cash credit but we are unable to understand that how this transaction can be called as unexplained cash credit as nowhere cash is involved. All the transactions are done through cheque and banking channel. It's a clear transaction of investment only Further, the learned Assessing officer has mentioned in the chart that the assessee company has given Rs. 1.50 cr to Aakash Palace Developers Pvt. Ltd. We would like to draw to your honour's notice that the assessee companies 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 comp....
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.... Ltd the leaned assessing officer has mentioned that major receipt has came from: Sr. No. Name of the Company Amount Received 1 A.A. Brother 2,77,25,000 2 A.A. & Brother 1,49,51,030 Total 4,26,76,030 7. We would like to bring to yours honour's notice that receiving money from above is not an issue. As explained above all these companies are formed with the same intension of providing finance to appropriate companies. Moreover, the learned Assessing Officer has tried to prove that jai Jeen Mata Marketing Pvt. Ltd. has made major payments to: Sr. No. Name of the Company Amount 1. Shree Balaji Impex Pvt. Ltd. 1,08,00,700 2. Neha Exim Pvt. Ltd. 1,53,50,560 3. Niku Enterprise Pvt. Ltd. 64,00,196 Total 3,25,51,456 8. The learned assessing officer has haphazardly tried to prove that Jain Jeen Mata Marketing Pvt Ltd had made payment of 3.2 cr to these party which 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....
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....014 while both the companies were formed on 15/5/2009 and 20/5/2009 ie. approximately after 5 years of the companies have been formed Moreover the inspector has interacted with Shri Lakhubhai Udaysing Rohadiya who is not the proper person for interaction. His statements that above two concerns were running and were closed since many years itself make it confirm that these companies were in existence. Moreover if the Inspector had interacted with proper person then he might have concluded that these companies are shifted from current address to other address or has stopped working, etc. 11.1 Moreover, we would like to add that there are many companies whose registered address is director's premises. So there is no issue in having the address of companies as director's premises. Further, it has been stated earlier also that these are investment company and hence location, address, registered office is not important like any trading or manufacturing company Inspector has also visited the premises of Aakash 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 ment....
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.... Pvt. Ltd. on this he has replied that he was director of these companies. This question is totally irrelevant as Assessing Officer had verified the signed Balance Sheets of the companies only two signs of Mr S Sharma and Mrs Rekha Sharma This also shows the mental state of Mr Sharma as he was answering the question which was not being asked. -Clear example of nervousness of person can be seen for answer to question no 2 in which he was asked whom you are in contact with in Aatash Dredging & Construction Company Private Limited. He has replied that I know about MR. Jinofer Bhujwala but I have neither met him in person nor spoken to him and contradictonly stating that he does not know the gender of Mr. Jinofer Bhujwala Your honour he was NEVER asked to specify the gender of Mr Jinofer Bhujwala, also he has stated MR. Jinofer Bhujwala in the answer and later doubted the gender which shows the mind of the person and the tremendous pressure exerted on him. -In question No 5 he was asked to tell the name of the investor who gave him Rs 5 crores. On this he replied that he did not remember. This question was totally irrelevant as it is obvious that he will not remember ....
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.... or it does not show that he is not creditworthy. - He does not remember other directors of companies 15. Below are the few important points of statement of Mr. Sharma: -Your honour will observe that in the statement Mr. Sharma has stated that he did not know the names of few parties or has just heard about them as the investment/ deposits are brought in by professional person whose name is mentioned in his statement to your honour & he would not know such investors personally -He does not know who gave loans to his companies We would like to bring to your honour's notice that he was borrowing funds from the investee who were interested in investing in other potential companies. He borrowed funds from other companies for investing in other companies. So that amount can't be treated as loan. -He doesn't know who the shareholders of the companies are. Kindly note that the investments in the investee company made by various parties have never been in the doubt; neither has the investments made in Aatash Dredging & Constructions Private Limited made in doubt. HENCE, NEITHER THE SOURCES OF FUNDS NOR THE INVESTMENT IS IN D....
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....lace on 25/03/2014 at 11.30 am. The learned assessing officer in quest of hurry Didn't accept assessee's reply saying that the time allocated to you was over and the order is ready. We would like to bring to your honor's notice that delay of genuine 30 minutes would not refrain assessee representative form presenting the case. 19. Further the learned Assessing Officer has served notice dated 21/03/2014 on 2403/2014 given time of less than one day. The learned Assessing Officer could easily send a person to serve notice on 21/033/2014 only or could have asked assessee to collect the notice from their office. It is beyond the understanding of the assessee that when learned Assessing Officer has taken 3 days to reach notice to assessee then what went wrong in delay of 30 minutes. The delay was due to the fact that the Representative of the assessee company was busy with another Income Tax Authority only. Any mach can also understand that 30 minute delay can be due to traffic also. 20. Further, it was not 31/03/2014 and being last day of getting it time barred. The learned Assessing Officer could easily give date of hearing after few days to give sufficien....
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....t of nothing has inappropriately misunderstood the whole situation. The learned officer has stated that the transaction entered into have no tenable reason supported by evidence was furnished in support of the said. We would like to bring to your honour's notice that this is a case between Investee Company and Assessee Company. Here Assessee Company was in need of investment and despite of notice and calls the shareholders fail to pay full money so the assessee company decided to forfeited money. 25. We would like to bring to your honour's notice the below judgments which are relevant in assessee's case: -Commissioner of Incometax, Central Circle, Salem v. Victory Spinning Mills Ltd[2014] 50 taxmann.com 416 (Madras) Section 68, read with section 133, of the Income tax Act, 1961 Cash Credit (Share application money) A survey conducted in premises of assessee unearthed certain irregularities regarding investments in shares Assessing Officer concluded that transactions in shares were not genuine and creditworthiness of shareholders was doubtful and made addition under section 65 Most of share applicants had appeared when summons were issued and t....
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....f applicant companies and genuineness of transaction, addition made by Assessing Officer under section 68 was to be deleted-Held, yes SUMMARY OF ACTION TAKEN BY THE LEARNED ASSESSING OFFICER : -The learned Assessing officer has considered the transaction as unexplained cash credit u/s 68 but nowhere in the transaction cash is involved and all the transactions are through cheque only. -The learned Assessing Officer has not proved how section 68 applied to assessee as how and from where other two companies has raised funds is not question and important for the assessee company -The learned Assessing Officer has not proved how the assessee company has reduced tax liability by doing this transaction. -The learned Assessing officer has ignored the Assessment of the assessee company by his predecessor as the learned Assessing Officer has mentioned reference of Rs. 1.50 cr which is part of the payment made out of transaction of Rs. 9 10 cr done during AY 2009-10 -The learned Assessing Officer has merely concentrated on less important information like common director, office address, date of formation of the company, Return of income no....
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....d at 4.00 p.m. -Various mistake and action of the learned Assessing Officer clears the intention and predetermined mind. From the above explanations along with the case law, we request your honour to delete the addition made by the learned Assessing Officer. 17. Further, as per the direction of the Ld. CIT(A), a detailed remand report was filed by the Ld. AO upon which rejoinder to the following effect was given: "2.4 The appellant has submitted the Rejoinder of the Remand Report vide its letter dated 29/01/2018 before CIT (A)-1, which is reproduced as under:- 1. Below is the comparison of clause of section 68 and the case under consideration: Sr. No. Particulars Applicability of Section 68 Assessee case 1 assessee offers no explanation about the nature and source thereof Yes No 2 identity of the investors proved No Yes 3 Creditworthiness of investor proved No Yes 4 genuineness of the transaction Proved No Yes 5 Presentation of Lender/ Investor No Yes 6 Involvement of Cash Yes No 7 Involvement of Accommodation entry Yes No 8 Rotation of Assess....
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....een Mata Marketing Pvt. Ltd.; respectively. The details of documents, particularly, PAN, IT returns, bank statement and confirmation of the impugned parties were duly furnished before the authorities below in support of the identity and creditworthiness of the parties and genuineness of the transactions. According to the Revenue, the amount of forfeiture of share capital to be taxed in view of the provision of Section 56(2)(ix) of the Act introduced by the Finance (No.2) Act, 2014 which provides that "any amount received as advance or otherwise in the course of negotiation for transfer of a capital asset would be taxable as 'income from other sources' if such amount is forfeited and negotiations do not result in transfer of such capital asset." But the case of the assessee is otherwise. As per the assessee's submission prior to the introduction of such provision forfeiture of share application money was considered as a capital receipt and was not supposed to be taxed as income under Section 28(iv) or Section 41(1) of the Act. In this respect, the assessee relied upon the following judgments, the details whereof is as follows: i. DCIT vs. Brijlaxmi Leasing & Finance Ltd., r....
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....in nature and therefore, the source of source need not to be proved by the assessee as the said amendment is not binding upon the assessee's case for A.Y. 2011-12. The two following judgments have been relied upon by the assessee on this aspect: i. ITO vs. Valley Comtrade Pvt. Ltd. - ITA 2034/Ahd/2017; ii. CIT vs. Gagandeep Infrastructure Pvt. Ltd. - 80 taxmann.com 272 (Bom) ; 24. On the contrary, the Revenue has made the addition on the basis of the statement made by the common Director, Shri S. Sharma for the purpose of making addition. Upon perusal of the order impugned, we do not find any allegation of accommodation entry has been labelled against the assessee. Neither any involvement of any entry operator, on movement of cash or assessee's money is being involved has been alleged by the authorities below while making addition by the Ld. AO or confirming such addition by the Ld. CIT(A). Neither any cogent documents is forthcoming from the Revenue in order to establish the observation of having the device to reduce its tax liability. The other judgments relied upon by the assessee were duly considered by us where it has been repeatedly decided that the amoun....