TaxTMI 
TaxTMI 
2025 (2) TMI 1866
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....sessee company was tied up with Acuity/Sparkle Group USA for technical collaboration and also to make the assessee company as a 100% subsidiary of that Acuity/Sparkle Group USA. After the said tied up, the assessee company started receiving remittances from the parent Company through their group companies and concerns ie. Acuity Sparkle Limited and 350 Cambridge Partners LLC. The first such remittance came on 21st June 2006 and thereafter the remittances were received as when there was a requirements of money for the business as the assessee company's business was very competitive and facing tuff competition from very well known companies like Siemens, Thermax etc. The assessee company was receiving the remittances from the above companies but due to the reasons beyond the control of the assessee company i.e. delay in getting foreign Inward Remittance Certificate (FIRC) from the Bank, the assessee company could not file requisite forms to RBI as the same has to be filed within 30 days from the date of remittance. However, in some of the cases we were getting FIRC's on time there we were allotting the shares to parent company. This delay was happening till 13th July 2009 and....
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....application money credited to the books of accounts of the assessee during the previous year 2006-09 cannot be taxed u/s 68 of the Act in the A.Y 2018-19. It was also held that the assessee has succeeded to prove the creditworthiness and genuineness of the share capital of the respective companies Clean Water LLC USA to the tune of Rs. 9,68,28,000/-. However, the share capital including premium of Rs. 48,11,820/- received from 350 Cambridge Partner LLC remain unexplained. The Ld. CIT(A) was of the opinion that assessee has failed to prove genuineness and creditworthiness of the said company in the absence of any documents / material and liberty was given to the Ld.AO to take appropriate action u/s 147/148 of the Act for the relevant assessment year in which the said amount was credited to the books of accounts of the assessee. However, the appeal of the assessee was allowed on this ground also. The department is aggrieved by the impugned order and is in appeal before us and raised the following grounds of appeal: 1. "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A).erred in deleting the disallowance of Rs 9,69,28,000/- as unexplained cr....
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....s submitted that the Ld. CIT(A) has committed illegality while passing the impugned order and failed to appreciate that the capital amount including premium received earlier and shown as share application money or share capital premium has been accounted capital of the company only in the F.Y 2017-18 and therefore the year of the credit of the said amount in the books of the assessee has to be taken as F.Y 2017-18 which liable to be assessed in the A.Y 2018-19. It is further argued that the Ld. CIT(A) further deleted the addition of Rs. 48,11,820/- as unexplained credit despite the fact that the assessee has failed to prove the genuineness and creditworthiness of the said amount received as share capital money including premium from USA based company, whose whereabouts could not be ascertained despite efforts made by the Ld.AO. It is therefore prayed that the appeal of the department should be allowed and order of the AO be restored and assessee be brought to tax accordingly. 8. The Ld. AR on behalf of the assessee vehemently opposed arguments of the department and submitted that the amount received by the assessee from 21.06.2006 till 13.07.2009 has been duly accounted in the b....
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....ng of provisions of section 68 and subjected to tax u/s. 115BBE of the Act. A penalty proceeding under section 271AAC of the Act is being 4. Further, The company had received share capital money including premium of Rs. 48,11,820/- from USA based company 350 Cambridge Partners LLC. A FT &TR reference was sent vide letter dated 12.03.2021 to US authority for providing the genuineness and creditworthiness of the US based company 350 Cambridge Partners LLC. The response has been received from foreign Tax authorities vide letter dated 04.05.2022. The information sought and its reply submitted the FT & TR authority are as under: The following information is requested for period 01.04.2017 to 31.03.2018 in respect of 350 Cambridge partner LLC. Response of all questions: We diligently made attempts to contact 350 Cambridge Partner LLC and was informed the President and managing Member of 350 Cambridge Partner is deceased and records are not available. Further, According to the State of California-Secretary of State Public database, the company status is forfeited. 4.1 It is crystal clear that FT & TR authorities had made various attempts to con....
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....820/- made by the AO u/s 68 of the Act. 8.1 The AO found that assessee company had received share capital including share premium of Rs. 9,69,28,000/- from USA based company Clean Water Capital LLC. A reference was made through the FT & TR authorities to the US authorities for ascertaining the genuineness and creditworthiness of the transactions with the said US based company. After perusal of the reply received through FT & TR authorities, the AO observed that the Clean Water Capital LLC was established for the sole purpose of submitting a bid to acquire the assets of Acuity Sparkle Ltd, a Cayman Island Company, in a bankruptcy auction. It was also seen that the sole assets of potential value of Acuity Sparkle Limited was the ownership of the stocks of assessee company Sparkle Clean Tech Pvt Ltd. On going through the reply received in respect of the FT & TR reference, the AO observed that Clean Water Capital LLC with a net worth of USD 500,000/- had no financial standing to acquire the shares amounting to Rs. 9,69,28,000/- (approximately USD 1,250,000/-) of the assessee company Sparkle Clean Tech Pvt Ltd. According to the AO, Clean Water Capital LLC had no function other ....
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.... and finally in 2017, the assessee company received permission from Reserve Bank of India to allot the shares to the allotees. Accordingly, the assessee company allotted the shares in AY 2018-19. According to the appellant, this share application money was lying in the accounts of assessee company since 2006 and appearing in the books of account and shown in balance sheet as Share Application money and there were scrutiny assessments almost every year and details of the said application money were submitted during the course of assessment proceedings and always accepted by the department. It was emphasized that this share application money was appearing in the Balance Sheets of the assessee since 2006 to 2009 and was not received in AY 2018-19. So, according to the appellant section 68 could not in any case be applied in its case for AY 2018-19. The appellant has also relied on certain case laws in support of its contentions. 8.2.1 As regards the genuineness and creditworthiness of the impugned transactions, the appellant argued that the AO had erred in holding that Clean Water Capital LLC did not have the financial standing to acquire shares amounting to Rs. 9,69,28,000/-....
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....under Bankruptcy, the notional value of the assets is always more than the price paid to acquire the bankrupt company. The fact that there was no direct transaction between Clean Water Capital LLC and Sparkle Clean Tech Pvt Ltd is clearly brought out in the reply received in response to the FT & TR reference and duly quoted by the AO in his order. The reply also clearly states that Clean Water Capital LLC acquired Sparkle Clean Tech Pvt Ltd stocks in a 2010 bankruptcy auction by paying USD 500,000/- to the bankruptcy trustee. Thus, it is clear that no adverse inference can be drawn regarding the genuineness and creditworthiness of the foreign company and the impugned transaction from the reply received in response to the FT & TR reference. 8.4 However, as regards genuineness and creditworthiness of the share capital money including premium of Rs. 48,11,820/- from another USA based company 350 Cambridge Partners LLC, no information was received in response to the FT & TR reference. While several attempts were made to contact the company 350 Cambridge Partners LLC, the authorities were informed that the President and Managing Member of 350 Cambridge partner LLC was deceased ....
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....ny prior to AY 2018-19 and appearing in the books of account and shown in balance sheet as Share Application money which is also evident from the perusal of the Balance Sheet as on 31.03.2017. There is thus merit in the argument of the appellant that section 68 could not in any case be applied in its case for AY 2018-19. 8.5.1 In this regard, the Hon'ble Bombay High Court in the case of Ivan Singh v ACIT [2020] 116 taxmann.com 499 (Bombay) has also held that any sum credited in the books of accounts for any previous year, for which no proper explanation is given by the assessee, can be charged to tax in "that" previous year only and not in any subsequent year. The relevant extracts are as under. 9. From the plain reading of the provisions of section 68 of the IT Act, it does appear that where any sum is found to be credited in the books of Account maintained for any previous year and there is no proper explanation for such credit, the sum so credited can be charged to the income tax as the income of the assessee of "that previous year". 10. In the present case, the material on record indicates that the Assessing Officer has relied upon the credits for....
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....he grounds of appeal are accordingly allowed. 11. We have also examined the balance sheet of the assessee as on 31.03.2018 column No. 4 & 5 are extracted as under: As at 31st March 2018 As at 31st March 2017 4 Share Application Money pending allotment Share Application Money pending allotment 19289372 101763885 19289372 101763885 5 Reserves and Surplus Security Premium As per Last Balance Sheet 262933142 214038642 Addition during the year 99384750 362317892 48894500 262933142 Balance in Profit and loss statement As per last balance sheet 260634377 229107781 Add: Profit (Loss) for the year 36023166 296657544 31526596 260634377 65660348 2298765 12. It is thus evident from the above contents of the balanc....