9911796707
TMI Blog2017 (9) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... money. The very approach of the Assessing Officer and the Tribunal are completely opposed to settled legal principles enunciated and they have arrived at conclusions contrary to the legal principles on the subject. Further, they are finding fault with the assessee for the alleged failure of it's investors in proving beyond doubt that they have the capacity to invest at the moment they did in the assessee company. That is clearly a perverse view, as the assessing officer is not expected to perform a near impossibility. The assessee cannot call upon its investors to disclose all such business transactions thay carried on in the immediate past and as to how much they made from their respective business enterprises. The assessee cannot also call upon its investors to prove their good business sense in investing in the assessee company, as such investors cannot gain any controlling stake. - Decided in favour of the assessee and against the Revenue - TCA Nos. 435 and 436 of 2013 and MP.Nos.1 and 1 of 2014 - - - Dated:- 11-8-2017 - Nooty Ramamohana Rao And M. S. Ramesh, JJ. For the Appellant : Mr.N.Muralikumar for M/s.McGan Law Firm For the Respondents : Mr.T.R.Senthilkumar, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer from one bank account or the other to that of the assessee. The assessee has reflected the increased share capital in its return for the assessment year 2007-08 filed on 12.11.2007. The assessment has been picked up for scrutiny under Section 143(2) of the Act by drawing a notice dated 11.9.2008. A survey was also conducted under Section 133A of the Act on 26.2.2009. The scrutiny assessment was completed on 31.12.2009. 5. During survey operations, two gold purchase vouchers bearing Nos. 237 and 239 dated 20.2.2007 aggregating to ₹ 4,90,00,000/- (Rupees four crores and ninety lakhs) have come for scrutiny and the concerned purchaser Sri.Shahul Hameed was issued with summons under Section 131 of the Act to appear before the Assessing Officer. Sri.Shahul Hameed appeared accordingly on 7.10.2009 and gave his statement. Though, at the first instance, Sri Shahul Hameed denied having purchased or sold any gold to and from the assessee, but, however, later on, he furnished the details of the sources for purchase of the gold from the assessee. Rejecting the claim of gold purchases made by Sri Shahul Hameed, the Assessing Officer has recorded the said inflated transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received the money from those persons, against which payment, respective shares were allotted and hence, it may not be the concern of the Assessing Officer to find out as to why the investors have chosen to invest in the assessee company. Hence, the CIT (Appeals) has deleted the addition of the amount aggregating to ₹ 21,96,60,000/- (Rupees twenty one crores ninety six lakhs and sixty thousand only) contributed by the four individual members towards the share capital of the company from computation of income of the assessee. 9. Aggrieved by this decision of the CIT (Appeals), the Revenue preferred the second appeal before the Income Tax Appellate Tribunal. 10. While making the assessment order, a further sum of ₹ 10,45,913/- (Rupees ten lakhs forty five thousand nine hundred and thirteen only) was added towards income by disallowing the expenditure said to have been incurred by the assessee in buying the compliments and gift articles to be presented to it's customers. The Assessing Officer has disallowed the claim, as no evidence to support the purchase of such gift articles has been brought before it. The CIT (Appeals) has also held that the assessee has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rthiness of the sources of the assessee. In other words, when once the investors of the assessee company are traced out and the monies have been shown to have been received by the assessee through banking channels from them and those sources have identified their respective sources and they were also investigated for a while by the Department, but having found no adverse material against them, cannot now disallow the said investment received by the assessee on one ground or the other. According to the learned counsel for the appellant, assessee is only required to explain the sources of investment and when once that gets established, it is for the Department to proceed against the investors in case those investors have not properly explained their own resources for investing in the assessee company. It was further urged that it is not the concern of the assessee company to find out as to why the investors have chosen to invest in the assessee company. It is also equally not the concern of the Department as to why a fabulous amount of premium has been paid for acquiring the shares of face value of ₹ 10/-, in as much as the valuation of the shares of the assessee compay is alto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been set out therein as under: Before dealing with the facts of this case, we may advert to the principles which should govern the decisions of the court in such like cases. Findings on questions of pure fact arrived at by the Tribunal are not to be disturbed by the High Court on a reference unless it appears that there was no evidence before the Tribunal upon which they, as reasonable men, could come to the conclusion to which they have come; and this is so, even though the High Court would on the evidence have come to a conclusion entirely different from that of the Tribunal. In other words, such a finding can be reviewed only on the ground that there is no evidence to support it or that it is perverse. Further, when a conclusion has been reached on an appreciation of a number of facts, whether that is sound or not must be determined, not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole [Sree Meenakshi Mills Ltd. Vs. Commissioner of Income-Tax [1957] 31 ITR 28 : [1956] SCR 691 (SC)]. 16. When a Court of fact acts on material partly relevant and partly irreleva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artly relevant and partly irrelevant, and it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its decision, a question of law arises, whether the finding of the court is not vitiated by reason of its having relied upon conjectures, surmises and suspicions not supported by any evidence on record or partly upon evidence and partly upon inadmissible material. On no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises, nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures and surmises. In that case, the so-called hundi racket in which the assessee was alleged to have been involved was not proved. That was only a suspicion of the Revenue. 19. It would also be appropriate to notice the observation of the Supreme Court in the case of Orissa Corporation P.Ltd., at page 83, as under : In Sreelekha Banerjee Vs. CIT [1963] 49 ITR 112, this Court held that if there was an entry in the account books of the assessee which showed the receipt of a sum on conversion of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approach to be adopted in this type of matters, as under : It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself. 22. The above view on the point of approach to the subject has been approved by the Supreme Court in CIT Vs. Stellar Investment Ltd., on 20.7.2000, in Civil Appeal No.7968 of 1996. 23. Applying the legal principles noticed supra, let us examine as to how the issue has been handled by the Assessing Officer at the first instance. The Assessing Officer disallowed the investments made towards the share capital of the assessee. As was noticed supra, three individuals and one compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry details. He also furnished all the details relating to the purchase of gold by M/s.AK Exports and the assessee company. 27. The Assessing Officer then asked the said Sri.Shahul Hameed to produce his accounts and he also produced his sources of payments, as they (M/s.Sun Land) received substantial sums of money from various contracting parties of theirs between 18.7.2007 and 04.10.2007. Thereafter, the Assessing Officer assigned the following reasons for not believing the statement of Sri.Shahul Hameed : By going through the above details, anyone can understand that the submission by Sri.Shahul Hameed does not rescue the case due to firstly not producing any of the above parties from whom the money was received by him and further even if for the sake of argument we accept that the receipt was there, the question still remains that how the money received during the period 18.7.2007 and 01.10.2007 can be used for the purchase of standard gold and new jewellery during 18.11.2006 to 20.2.2007, which was at least five months prior to the date of the alleged receipts. 28. The Assessing Officer, in spite of tracing the investor of the assessee and in spite of the said source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rawing the amount in the bank account of AL Mowaiji Jewellers LLC with Standard Chartered Bank, Deira Branch, Dubai vide bank draft No. DDD219070321009 dated 21.3.2007 favouring M/s.Lalitha Jewellery Mart Private Limited. Except the only information available on record that one Sri.Prakash Chand Jain has applied for the shares in the assessee company and got allotted with the shares, nothing is available to prove further. By the above observation of the Assessing Officer, it is clear that he is looking for proof of resources of the investors of the assessee and such proof is beyond the realm of possibility of production by the assessee. The Assessing Officer has adopted a totally unreasonable attitude and was acting unreasonably. That was exactly what was frowned upon by the Supreme Court in Sreelekha Banerjea's case, (1963) 49 ITR (SC) 112. 29. When it came to M/s.Heritage Creations Private Limited, in paragraph 2.9.2, it has been noted as under : During the survey in the statement recorded, the CMD of the assessee company stated that the investment was actually made by one Sri.Sanjay, who was said to be his friend, through the company M/s.Heritage Creations P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment made by Smt.Savithri, it was explained by the assessee company that her husband Sri.M.S.Kandasamy was a Director of the assessee company till his death and therefore, the legal heirs of M.S.Kandasamy agreed and instructed the assessee company that the amounts due to Sri.Kandasamy may be paid to their mother Smt.K.Savithri and that they have no objection for any such payment made to her. That was the reason why a sum of ₹ 65,61,374/- was claimed as due and payable to Sri.Kandasamy by the date of his death on 1.8.2005. It is Smt.Savithri, who favoured allotment of shares instead and accordingly applied for allotment of 4,374 shares. She also applied for the balance of 5,166 shares duly making payment through cheques drawn at ICICI Bank, T.Nagar. 31. Thus, the assessee company has completely explained the sources of investments received by it. It has also disclosed the identity of such investors. The Assessing Officer traced out and reached all the four investors of the assessee. He also found as a fact that all the payments have been received through banking channels. Hence, the burden cast on the assessee stood discharged. But yet, the Assessing Officer disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letely family held concern. Therefore, the investors will not be able to gain any control over the affairs of the assessee company, by their investment. The second is that there is no reason set forth as to why the assessee company s shares should be picked up at a higher premium of ₹ 1,490/-. The reason assigned by the Tribunal in the concluding part of paragraph 27 reads thus : They are all business people. Therefore, the decision of those business people to invest in the share capital of the assessee company by paying such a huge premium needs to be reasonably demonstrated before the Assessing Officer. The explanation offered by the assessee is not convincing at all. 34. In paragraph 28, it went into the dynamics of the financial capacity of Sri.Shahul Hameed to invest in the assessee company and it has arrived at a finding that at the time when Sri.Shahul Hameed purchased jewellery and gold, funds are not available with him. It concluded their enquiry in paragraph 30 in the following terms : It is very difficult to accept the contentions of Sri.Shahul Hameed as genuine when we go through the long journey of exercise carried out by him to raise funds, thereaft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded by the Assessing Officer and hence, they were prevented from producing the same before the Assessing Officer. The Tribunal noted that the assessee was not without any remedy and that they could have secured copies of the vouchers, which are impounded by the Assessing Officer and thus, the assessee could have established the genuineness of the expenditure incurred. This concurrent finding of fact could not have been challenged without producing any reasonably acceptable evidence that expenditure claimed was truly incurred. The fact that the assessee has reported a turnover of ₹ 150.00 crores is no proof of the actual expenditure it claimed to have indulged in buying articles of gifts or complimentaries. 40. We agree that if the assessee is in a position to produce copies of vouchers for the expenditure incurred by it towards purchase of gifts and compliments, the failure to produce evidence in support of the expenditure is a justifiable reason for the Assessing Officer to disallow the expenditure claim. 41. However, the main theme, upon which, the Assessing Officer as well as the Tribunal proceeded to discredit the investors of the assessee is completely erroneous. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
