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TMI Blog2001 (6) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 disallowed by the Assessing Officer on account of interest tax on Interest free advances despite the fact that such expenses was made to divert the funds for non business purposes. (iv) allowing interest of Rs. 3,18,819 disallowed by the Assessing Officer despite the fact that the company had to pay huge interest on funds borrowed by it.' 3. Brief facts of the case are that the assessee-company is doing the business of manufacturing and selling of ICAM-PLC system. ICAM stands for Integrated Control Automation Monitoring PLC stands for Programmable Logic Control. The share capital of the company as on 1-41988 being the first day of the previous year 1988-89, stood at Rs. 135 lakhs, being the nominal value of 1,35,000 shares of Rs. 100 each. The shareholders were as under: Name No. of Nominal shares value (Rs.) (i) M/s Allen Bradley (Overseas) Ltd., U.K. 52650 52,65,000 (ii) M/s Debikay Technologies Ltd. 82350 82,35,000 3.1 During the year under consideration the appellant company issued right shares to the existing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the reasoning narrated above. This cash 'Credit was also disallowed and added to the income of the assessee under section 68 of the Act. 3.3 These additions were challenged before the Commissioner of Incometax (Appeals) and the detailed submissions were filed before the CIT (Appeals). All the contentions raised before the Assessing Officer were again raised before the CIT (Appeals), who after considering the details filed before the Assessing Officer as well as before him, was of the view that the assessee deserves to succeed in these grounds, as narrated above, accordingly these additions were deleted. Detailed reasonings were given by the CIT (Appeals) in his -order from pages 4 to 2 1. Against the findings of the CIT (Appeals) the department is in appeal here before the Tribunal. 3.4 The learned DR placed reliance on the order of the Assessing Officer; whereas the learned counsel of the assessee placed reliance on the order of the CIT (Appeals). 3.5 We have heard rival submissions and considered them carefully. We noted that Assessing Officer made an addition of Rs. 1,64,70,000 in share capital account under section 68 of the Income-tax Act and addition of Rs. 45 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then accepted the submission of the assessee and accordingly both the additions, Le., of Rs. 1,64,70,000 and Rs. 40.50 lakhs were deleted. We further noted that CIT (Appeals) has also examined the issue on legal aspect also, as the decision of the jurisdictional High Court in the case of CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 and in the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 982 were considered, and then the decision of the Supreme Court in the case of CIT v. Kwick Travels [ITC No. 168 of 1991], where SLP filed by the department was dismissed by the Hon'ble Apex Court. In the case of Kwick Travels, the assessee-company had increased its share capital, which it claimed, was received in cash. The Assessing Officer hold that identity of the persons who had acquired the shares as well as their creditworthiness were not established and treated the value of the shares as income from undisclosed sources of the assessee. The CIT (Appeals) reduced the amount of such income and the Tribunal affirmed his order. The Tribunal and Hon'ble High Court rejected the reference application of the department and SLP filed before the Hon'ble Supreme Court was also dismissed. 3.6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are assessed to tax; complete details are available; share capital money as well as loan are received through account payee cheques and they were cleared through proper banking channels. Therefore, we feel that even the ratio of the decision in the case of Sophia Finance is applicable on the facts of the present case, because assessee has discharged its onus by furnishing full details of the shareholders and depositors. 3.10 Of course in the case Sophia Finance, the Full Bench of the Hon'ble High Court has not laid down any norms for deciding the extent of onus of proof of the amounts credited. The Hon'ble Full Bench has observed as under : 'We make it clear that we are not deciding, nor it is our intention to decide as to on whom and to what extent is the onus to whom that an amount credited in the books of account is share capital and when does that onus stand discharged. This will depend upon on the facts of each case.' 3.11 This significant observation of the court clearly points out that there is a subtle distinction between an ordinary cash credit and a credit by way of share capital. Apparently, the Court had in its mind the comprehensive law contained in the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Companies Act w.e.f. 1965 based on the recommendations of the Bose Commission. The Commission had adverted to a case where shares to the extent of Rs. 16 lakhs in a public company were applied for on behalf of non-existing shareholders. The Commission itself took note of the fact that benami shareholding and shareholding in the names of fictitious or non-existing persons was common. The Commission, therefore, felt that this practice should be severely dealt with and, accordingly, applying for Mures in fictitious names was made a punishable offence under the Act. It has to be carefully noted that the company as such is not visited with any adverse legal consequence or is deemed to commit any offence but it is, only the person who makes the application in fictitious name or otherwise, induces a company to allot a share in fictitious name who is made punishable with imprisonment. 3.13 According to section 72, no allotment can be made without an application in writing and the company can call for only certain limited information from the shareholders for the purpose of allotment. 3.14 Section 75 of the Companies Act specifies that, whenever a company, having a share capital, mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer further noted that certain amounts had been advanced by assessee-company to M/s DITL free of interest. The assessee was required to explain the reason for advancing the amount free of interest and why interest to this extent should not be disallowed. It was stated by the assessee that these amounts represented advances in connection with the business and in absence of any understanding for charging of interest, the assessee could not have computed any interest on these advances. The Assessing Officer was not satisfied. Accordingly he disallowed the interest liability in a sum calculated @ 18 per cent on the average outstanding in respect of the advances and other loans given by assessee to third parties. Accordingly the above stated two additions were made. 4.2 It was submitted before the CIT (Appeals) that the appellant company had close business relationship with the subsidiary company, M/s DITL. It was further stated, that the company is engaged in the business of supply of Integrated Automation Monitoring System used in the processed plants, like cement etc. and during the assessment years 1988-89, 1989-90 and 1990-91 the assessee-company made advances aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot prove that on these two amounts the assessee paid any interest. On amount of Rs. 4.38 Crores there was no requirement to pay any interest, as these funds were assessee's own funds and again on the amount of Rs. 114.37 lakhs, which was received from the customers as advance, the assessee was not required to pay any interest and there is no dispute also that assessee had not paid any interest on this amount received from customers. The closing balance on account of advances made by assessee as on31-3-1989was only 116.11 lakhs, which is almost equal to the amount received by the assessee as advance from the customers. Therefore we do not see any reason for disallowing interest @ 18 per cent on the amount of Rs. 116.61 lakhs. Likewise we feel that there is no point to disallow the interest of Rs. 3,18,819 as the facts are similar as in regard to addition of Rs. 29,00,148. Accordingly we confirm the order of the CIT (Appeals) on both these additions. 5. Now we will take the appeal of the assessee. The following effective ground of appeal has been taken by assessee - 'That the learned Commissioner of Income-tax (Appeals) has erred in not allowing the claim of deduction of technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was submitted that in fact, this is not correct because that company could not revive till date. Further it was submitted that there is no dispute in regard to payment. It was further submitted that there is also no dispute that assessee had earned lot of profits after the purchase of this high technology, which was acquired by the subsidiary company from its parent company of USA in 1976. It was further stated that this is not the case of the department that the value of the technical know-how is not Rs. 70 lakhs, as from the profits earned by assessee, it can be easily ascertained that the assessee has earned huge profits which were many times more than the consideration paid by assessee. It was further submitted that the agreement was genuine. Attention of the Bench was drawn on the copy of agreement placed at page 56 in the paper book. Therefore, it was pleaded that the claim of the assessee should be allowed. 5.4 On the other hand, the learned DR strongly placed reliance on the orders of the authorities below. 5.5 After hearing rival submissions and considering the material on which our attentions were drawn, we feel that assessee deserves to succeed, as there is no disp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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