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TMI Blog2012 (6) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... nd cannot be accepted Regarding business income or other sources - assessee in the present case was running a hotel which was temporarily closed for the renovation - Held that: link between the amounts borrowed for purchase of capital asset and development of infrastructure before commencement of business and the amount invested in fixed deposit receipts is absent in the present case as no document whatsoever has been brought on record to show that whatever was invested in fixed deposit receipt was actually out of the amount received by the assessee for acquiring capital asset or for development of infrastructure - In the absence of such link, the amount has to be assessed separately as income from other sources - Decided against the assessee - I. T. A. No. 5827/Del/2010 - - - Dated:- 30-9-2011 - I. P. Bansal, Shamim Yahya, JJ. K. Sampath for the Assessee Salil Mishra for the Department ORDER I. P. Bansal, Judicial Member:- This is an appeal filed by the assessee. It is directed against the order passed by the Commissipner of Income-tax (Appeals) dated November 4, 2010 for the assessment year 2006-07. The grounds of appeal read as under:- 1. On the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the assessee. First, Rs. 50,00,000 on account of unexplained share application money and second, on account of income from other sources Rs. 9,75,668 and the assessment resulted in nil demand. The assessee during the year under consideration received share application money of Rs. 4,78,00,000 which included Rs. 25 lakhs each received by the assessee from M/s. Orchid Leafin P. Ltd. (OLPL) and M/s Unit Commercial P. Ltd. (UCPL). The assessee was required to explain the genuineness of such transaction and in the absence of satisfactory explanation, the same was added to the income of the assessee. During the course of appellate proceedings before the Commissioner of Income-tax (Appeals) it was submitted that the assessee-company decided for renovation and upgradation of the hotel and the operation was suspended with effect from June 30, 2003 and renovated hotel started reoperation from October, 2008. For the purpose of renovation, the assessee took term loan of Rs. 45 crores from Indian Overseas Bank during the assessment year 2004-05. Unsecured loans were raised to the extent of Rs. 16 crores and share application money was raised at a sum of Rs. 4.78 crores. There was a cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no evidence as required by the Assessing Officer has been furnished by the assessee. The only plea taken by the assessee was that he was having a strained relationship with the aforementioned share applicants and this reason is not sufficient to accept the claim of the assessee. He, therefore, has upheld the addition by referring to various judicial pronouncements and has held that the assessee has not been able to establish any of the three ingredients of proving the share application money and, in this manner, the addition of Rs. 50 lakhs has been sustained. After narrating the facts, it was vehemently pleaded by the learned authorised representative that the assessee was having strained relationship with the aforementioned two share applicants. He submitted that letter dated December 18, 2008 which was filed before the Assessing Officer is submitted at pages 28 to 30 of the paper book. He submitted that the assessee had received aggregate amount of Rs. 4.78 crores from three parties as share application money which has been described in the following table:- S. No. Particulars Amount (Rs.) PAN 1. Orchid Leafin P. Ltd., B- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were received from those parties and deposited in the bank account of the assessee which is placed at page 33 of the paper book. He further drew our attention towards copy of the bank account of the assessee wherein, the aforesaid amount showing the same cheque nos. were deposited in the bank account, which is account No. 310614258 in the American Express Bank. He also invited our attention to the ledger account, of the aforementioned two parties in the books of the assessee, copies of which are placed at pages 36 and 37 of the paper book. Then, making reference to the decision of the hon'ble Supreme Court in the case of CIT y. Lovely Exports P. Ltd. [2009] 319 ITR (St.) 5 (SC), he submitted that in a case where identity of share applicants have been proved, no addition can be made in the hands of the recipient and even if the share applicants are bogus shareholders whose names are given to the Assessing Officer, that the Department is free to proceed to reopen their individual assessments in accordance with the law. He further submitted that the Assessing Officer has also issued letter to both the aforementioned parties seeking information from the concerned Assessing Officer reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng any information. After stating so, it was submitted by the assessee that those parties are incorporated bodies and registered with the Registrar of Companies having independent identity where all the details including their annual accounts, list of shareholders and directors, registered office addresses, etc., are available and reference was made to the print outs obtained by the assessee from the website of the Registrar of Companies and it was stated that the information should be procured directly from the Registrar of Companies at the cost of the assessee. In addition to the said letter and the copies so obtained from the website of the Registrar of Companies, the other evidence is in the shape of copy of pay-in-slip through which it is claimed that cheques obtained from those parties were deposited in the bank account of the assessee. Along with the said letter, copy of bank account of the assessee where such deposit was made were furnished and the copies of account of the said parties from the assessee's books of account were also submitted. It is pertinent to note that the Assessing Officer had asked the assessee to file confirmations, copy of income-tax returns and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived from those parties and copy of bank accounts of those parties, it cannot be said with certainty that the said amount was actually tendered by those parties only. Though these parties are private limited companies and have existence on the record of Registrar of Companies, in our humble opinion, identity of the creditor has to be seen vis-avis the deposit made by the creditor. In the present case there is complete absence of linkage of the amount credited by the assessee in its books of account and the amount having been paid by those creditors and, therefore, it cannot be said that the identity has been established vis-a-vis the deposits received by the assessee from those companies. However, technically it can be said that if the amount has been received by the assessee from those parties, then, their identity cannot be doubted as they are incorporated bodies and they exist on the record of the Registrar of Companies. Now, coming to the capacity of the creditors, no document other than the record obtained from the website of the Registrar of Companies has been filed. In the absence of the balance-sheet, the copy of the income-tax return, etc., it cannot be said that those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was written back by the assessee in its account on November 21, 2009 and the date of order of the Commissioner of Income-tax (Appeals) is November 4, 2010. The appeal was heard by the Commissioner of Income-tax (Appeals) in November, 2010. This fact has not even been shown to be placed before the Commissioner of Income-tax (Appeals) and also is not contained in the impugned order. In any case, according to section 68, the credit has to be examined in the year of credits. Therefore, from the afore-mentioned account, it is clear that the shares were never allotted by the assessee to those parties and the said amount was never returned to those parties and written back by the assessee in its books of account are unclaimed, and added to the profits and loss account. Therefore, there is complete absence of prima facie material placed on record on the basis of which it can be said that the assessee has discharged initial burden laid upon it. The burden will shift upon the Revenue only if the assessee will discharge the initial onus laid upon it and that can be either confirmation from those parties or by furnishing the copy of the application vide which the aforementioned deposit was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was set off against the project cost and it cannot be considered to be income from other sources and, for this purpose, reliance has been placed on the decision of the hon'ble Delhi High Court in the case of Indian Oil Panipat Power Consortium Ltd. v. ITO [2009] 315 ITR 255 (Delhi). In the assessment order, it has been mentioned by the Assessing Officer that the assessee was required to furnish reasons for adjusting the revenue income against capital nature expenses and the assessee could not furnish any justification for doing so and, in this manner, he has assessed the said income under the head income from other sources. The submissions of the assessee before the Commissioner of Income-tax (Appeals) were as under:- "3.1 The learned authorised representative stated as below:- The fact is that the appellant has taken fund as secured loan, unsecured loan, by way of share application is evident from the record itself. Further the appellant has to give LC and BGs for importing of capital goods (which is being received continuously including the year under appeal). The appellant has to give the bank margin for obtaining LC and BG which was given in the form of fixed deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case where new business is being set up. Now, on these facts, the case of the assessee has to be examined in the light of the decision relied upon by the learned authorised representative. In the case of Indian Oil Panipat Power Consortium Ltd. v. ITO [2009] 315 ITR 255 (Delhi), the assessee was incorporated on October 6, 1999 in pursuance of a joint venture entered into between Indian Oil Corporation and Marubeni Corporation, Japan. The joint venture was conceived to set up a power project at Panipat in the State of Haryana and it was expected that the project would be set up by the end of the financial year 2000-01. In order to effectuate the purpose for which the joint venture was conceived, share capital was contributed by Indian Oil Corporation and Marubeni Corporation of Japan which included Rs. 20 crores by way of additional share capital. It was the stand taken by the assessee before the Assessing Officer that these funds were required primarily for purchase of land and development of infrastructure. However, due to legal entanglements with respect to title of land, which the Haryana Government was to acquire for the assessee, in the interregnum, the funds acquired by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding the issue in favour of the assessee was section 208 of the Companies Act, 1956, according to which, a company can pay interest on share capital which is issued for a specific purpose to defray expenses for construction of any work and which cannot be made profitable for a long period subject to certain restrictions contained in subsections (2) to (7) of section 208 and, in this manner, it was held in that case that interest was required to be set off against pre-operative expenses. In our considered opinion, the facts of the case of Indian Oil Panipat Power Consortium Ltd. v. ITO [2009] 315 ITR 255 (Delhi) do not match with the facts of the present case of the assessee. According to facts of present case, it is not a case of setting up of business, but it is a case of temporary lull in the business where renovation was being effected for the restart of the hotel. Secondly, it has not been shown at all that the amount which has been invested in fixed deposit receipts was actually relating to the amount borrowed for setting up of capital assets. According to the ratio of the aforementioned decision, there should be a direct link between the amounts borrowed for purchase of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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