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TMI Blog2018 (4) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... ed law that a private limited company being a body corporate has to incur certain expenses to keep its status active. In this regard, we find support and guidance from the judgment of Hon'ble Calcutta High Court in the case of CIT vs. Ganga Properties Ltd.(1989 (5) TMI 10 - CALCUTTA High Court) - Decided in favour of assessee. - ITA No. 2715/Del/2016 - - - Dated:- 9-3-2018 - Mr. H.S. Sidhu, Judicial Member And Mr. Waseem Ahmed, Accountant Member Appellant by Sh. Rajiv Saxena Sh. Anil Jain, Advs Respondent by S. Amit Jain, Sr. DR ORDER Per Waseem Ahmed, AM. The assessee has raised the following grounds of appeal:- 1. That the learned CIT(A) has erred in confirming the order of the AO in completing the assessment at the income of ₹ 3,00,00,000/- as against the returned loss of ₹ 43,850/-. 2. That the learned CIT(A) has erred in confirming the disallowances of ₹ 3,00,00,000/- u/s 68 on account of sale of old investment in shares at par in spite of the fact that AO in the remand report has confirmed the fresh confirmation and other documents received by him from four out of the six parties. 3. The ld. CIT(A) has erred in conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No Details 3. The AO during the assessment proceedings to verify the genuineness of the transaction for the sale of investments issued a notice dated 28.1.2015 to the assessee for seeking certain clarification. The contents of the notice are reproduced below:- 7. The assessee company has disclosed substantial investments in M/s Regent Realtech Pvt. Ltd. (Formerly M/s Modi Hoover International Ltd.). Furnish details of such investments and substantiate the opening balances. Give details of financial transactions and documents of ROC, compliances. 9. Furnish copy of shares allotted by M/s Modi Hoover International Ltd. (M/s Regent Realtech Pvt. Ltd.) alongwith contract notes of transactions. Substantiate the transactions of purchase with copies of bank account statements of the relevant period. 10. Furnish details of Depository Participant (D.P) through which transactions of shares has taken place. Furnish complete address and relevant documents . 4. The assessee, in compliance thereto submitted vide letter dated 4th February, 2015 that the details for the sale of investment of M/s R.R.P.L. has already been furnished along with the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated. (ix) There is no control of the assessee over the purchaser s companies therefore the assessee is unable to produce the Directors of those companies. However, there is ample power given under the statutes to the income tax authorities and they can exercise the same for producing the Directors of the purchaser s companies. (x) The assessee cannot be penalized on account of non appearance / co-operation for the notices issued by the AO to these six companies as discussed aforesaid. (xi) Similarly, the deactivation of CIN number of the assessee company cannot be a ground for taking the adverse view against the assessee. It is because of the fact that the deactivation of CIN was revealed in the year 2015 but the instant case pertains to the assessment year 2012-13 and at that relevant time the CIN was very much active. However, the assessee is taking necessary steps for the activation of CIN. However, the assessee has been complying with all the provisions of the Income Tax Act therefore no adverse view can be taken against the assessee company. 7. However, the AO during the assessment proceedings observed certain facts as detailed under: (i) The assessee failed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has passed the order on 31.3.2015 after making the addition of ₹ 3,00,00,000/- only. Therefore, sufficient opportunity was not given by the AO to produce necessary supporting documents from the companies. However, the assessee now is filing additional documents with the confirmation of all the parties and updated present address of the companies. The assessee also filed the confirmation from RRPL showing the allotment of shares on 23.4.1997 along-with the annual return filed with ROC. 14. The assessee also submitted that the aforesaid companies have not denied the transaction for the purchase of shares therefore non response of the notices cannot be inferred as these companies were non-existent. There was no defect pointed out by the AO in the documents filed by the assessee. The assessee in support of his claim filed the copy of MCA website showing the current status of the company as active along-with PAN number of all the companies. The assessee also submitted that the AO was empowered under the statute to confirm the updated address of the registered office of the aforesaid companies from the ROC but he failed to exercise his power given under law. Moreover, the share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-13 is mentioned as 3, Raja Debendra Narayan Deb Lane, 1st Floor, Kolkata - 700 005 , whereas the confirmation before the AO mentions another address which is as per MCA. This company seems to have received share premium of ₹ 57,62 crores although the authorized share capital is only ₹ 1.05 lakh. This share premium stand utilized for purposes of making further investment in shares. However, the financials furnished do not give the break-up of the investment in shares amounting to ₹ 81.43 crores (up from 23.77 crores in the preceding year). This is a blatant violation of AS-13 issued by ICAI which requires the auditor's to give a break-up of investments by adhering to the Guidance Note. Coming to the case of Vedant Commodeal Pvt. Ltd., the perusal of the financials for the year and the ITR filed do not inspire any confidence as the total income for the year is ₹ 14,070/- and there is no change in the reserves, surplus or assets and liabilities. This company was authorized to issue share capital of ₹ 68 lakhs but has received premium of ₹ 62.40 crores. In the case of Newedge Vinimay Pvt. Ltd. the authorized share capital stands at ₹ 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available to one. The absence of the presence of the creditors, coupled with the furnishing of multiple addresses before various statutory authorities, does not facilitate cross verification of identity. The assessee has also failed to produce the directors of the concerned parties, in spite of opportunity granted to produce, along with its books of accounts anu otner relevant documents in support of the transaction. Reliance is placed on the following judicial pronouncements that in the absence of adequate explanations by the assessee who has failed to discharge its onus, the AO is entitled to make the additions: Kale Khan Mohammad Hanif vs. CIT(1963) 50 ITR 1(SC). CIT vs. Lachhman Dass Oswal (1980) 126 ITR 446 (P H). Nanak Chandra Laxman Dass Vs. CIT (1982) 140 ITR 151(All). R Dalmia vs. CIT (1976) 113 ITR 522 (Del.) CIT vs. Devi Prasad Vishwanath Prasad (1968) 72 ITR 194(SC). CIT vs. Hero Cycles (P) Ltd. Others (1997) 228 ITR 463(SC). CIT vs. Stepwell Industries Ltd. Others (1997) 228 ITR 171 (SC). Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC). CGT vs. Dr. George Kuru villa (1969) 74 ITR 328 (SC). CIT vs. Joseph John (1967) 67 ITR 74 (SC). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.6.2 In the case of Divine Leasing Finance Ltd.(158 Taxman 440), relied upon by the AR, the legal regime regarding the burden of proof in the case of public placement of shares vis-a-vis private placement of shares was discussed by the jurisdictional High Court. In the case of a public issue, the company concerned could not be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers but in the case of private limited company, where the parties are related or known to each other, the burden of proof was much more and therefore it was expected that some credible evidence of the creditworthiness of the investor should be taken on record. Relief was granted to the assessee as it was the case of public placement. This aspect of the shareholder vis a vis private limited company relationship was also discussed in a subsequent decision of the Delhi High Court in Globus Securities Finance (264 CTR 481) and also in the case of NR Portfolio Pvt. ltd. [IT Appeal Nos. 1018 1019 of 2011, dated 22-11-2013] which held merely producing PAN number or assessment particulars did not establish the identity of the person. The actual and tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness was not proved by mere issue of a cheque or by furnishing a copy of statement of bank account. Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus, finding or a conclusion must be practicable, pragmatic and might in a given case take into account that the assessee might find it difficult to unimpeachably establish creditworthiness of the shareholders. 30. What we perceive and regard as correct position of law is that the court or tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed the contract note and ROC Master data of all the six companies which are placed at pages 26 to 43 of the paper book. The learned AR also filed the financial statements of the assessee beginning from the financial year 31st March, 2006 to 31st March, 2009 which are placed on pages 62 to 88 of the paper book. The learned AR accordingly claimed that the investment made in RRPL was duly disclosed in its financial statements in the earlier years. 22. Similarly, the learned AR drew our attention on Note No. 10 on page no. 9 of paper book attached to the financial statements as on 31.3.2012 showing the investment made by the assessee in RRPL and sale of the same. The relevant extract of the same is reproduced below:- Note 10 Non Current Investments AS At 31.03.2012 AS AT 31.03.2011 INVESTMENT IN EQUITY INSTRUMENT QUOTED (NON-TRADE) AT COST 407,400.00 254900 Equity Shares of ₹ 10/- each fully paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o six companies as stated above. As per the AO, the parties to whom shares were sold did not respond to the notices issued under section 133(6) of the Act, therefore, the same was treated as unexplained cash credit under section 68 of the Act. The view taken by the AO was subsequently confirmed by the learned CIT(A). 26. On perusal of the above discussion and records, we observe that the assessee was holding shares of RRPL as shown in the audited financial statements. These investments undoubtedly were coming from the earlier years therefore, an inference can be drawn that the investment shown by the assessee in RRPL was duly accepted in the earlier years. Now the issue arises whether the impugned sale made by the assessee to the aforesaid six companies represents genuine sales of the investments. In this regard, we observe that the confirmations from all the parties were duly filed by the assessee and accordingly, the AO in its remand report accepted the genuineness of the transaction in respect of four parties. The relevant extract of the remand report is reproduced below:- Sub:- Examination of additional evidences in the case of M/s Kesha Appl. Pvt. Ltd. [AABCK8089R] in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional loans / advances given: ₹ 1.75 Crore. Remaining balance: ₹ 0.02 Crore. On perusal of Balance Sheet and P L Account it is crystal clear that there is no change in reserve surplus, in liabilities and there is no sufficient income in the year under consideration then from where investor has invested ₹ 30,00,000/- (Rs. 50,00,000/- - ₹ 20,00,000/-) for purchasing shares from assessee company and there is no explanation filed by the investor on this issue. 3. M/s Vedant Commodeal Pvt. Ltd. 114, Rabinra Sarani, 1st Floor, Room No. 39/1, Kolkata, West Bengal- 700007 Reply dated 14.02.2017 received on 20.02.2017 As per notice u/s 133(6) of the Act dated 27.01.2017 in point no. 4, it was asked to provide copy of bank account along with source of income through which transaction has been made with the assessee. In response to this M/s Vedant Commodeal Pvt. Ltd., has filed copy of bank account where in amount of ₹ 50,00,000/- has been debited on 4.5.2011 and this amount of ₹ 50,00,000/- was credited to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestor seems to be proved. 27. After perusal of the remand report as discussed above, we are of the view the conditions specified under Section 68 of the Act has been duly satisfied in respect of four companies namely Intime Dealers Private Limited, Vedant Commodeal Private Limited, Jackpot Vintrade Private Limited and Newedge Vinimay Private Limited. Now the issue remains to be answered in respect of Sh. Shrishti Developers Private Limited and Snowdrop Tradecom Private Limited which was also added to the total income of the assessee on account of unexplained cash credit due to the fact that these parties did not respond to the notices issued under Section 133(6) of the Act. 28. The investment in RRPL was sold by the assessee to the aforesaid six companies which has been shown in the Annual Return of RRPL as evident from the copy of the annual return filed by the RRPL to ROC. The same is placed on page 127 of the paper and reproduced as under : Regent Realtech Limited (Formerly Modi Hoover International Ltd.) Mezzanine Floor, Modi Tower, 98 Nehru Place, New Delhi-110019 Part VI, List of Share Transfers (Equity), Value per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 194 Kesha Appl. P. Ltd. 3263 Intime Dealers Pvt. Ltd. 20.7.2011 500,000 2194 Kesha Appl. P. Ltd. 3264 Newedge Vinimay Pvt. Ltd. In view above we hold that the ownership of the investment shown by the assessee in its audited financial statement in RRPL cannot be doubted. The lower authorities have not brought any iota of evidence suggesting that the transactions were not made offline. Thus there is no question of involvement of DP arises in the given facts circumstances. The transactions for the sale of shares were taken place on 20-7-2011 in off line market whereas the ld. CIT-A held that the shares were listed on the stock exchange. The view of the CIT-A was based on the master data from the ROC website as on 31-3-2015. As there is a time gap between the date of transaction and the information relied by the ld. CIT-A thus the information on the basis which the opinion was formed by the ld. CIT-A cannot be relied. There was no information brought on record by the lower authorities whether the shares were listed in the year when the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst Appellate Authority and the documentary finding by the assessee before us. We are of the considered view that Ld. First Appellate Authority has deleted the addition in dispute on the basis of various documentary evidence filed by the assessee before the Assessing Officer as well as before him. Hon'ble Supreme Court of India in the case of CIT v. Lovely Export 299 MANU/SC/8539/2008 : ITR 261 (SC) which has confirmed the order of Hon'ble Delhi High Court has held that once the identity of the share holder have been established, even if there is a case of bogus share capital, it cannot be added in the hands of company unless any adverse evidence is not on record. Ld. First Appellate Authority has examined the documentary evidence filed by the assessee before the Assessing Officer as well as before him and held that the assessee has provided confirmations from all the parties as well as various evidences to establish the genuineness of the transaction, assessee has also relied upon the judgment of Nemi Chand Kothari v. CIT MANU/GH/0171/2003 : 264 ITR 254 (Gauhati) wherein it has held that it is a certain law that the assessee is to prove the genuineness of transaction as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the assessee should be entitled for such expenses. However, learned CIT(A) disregarded the contention of the assessee and confirmed the order of the AO by observing as under:- I have given careful considerations to the submissions. It is noted that the appellant company had been engaged in the business of manufacturing of Modi Brand Appliances, but such operations had been stopped in the year 1993. It is also noted that vide the submissions dated 04.02.2015 made before the AO, it was stated that this company CIN had been deactivated and hence has been struck off the ROC Website due to non-filing of the statutory documents with the ROC. The expenses in question have not been proved to be genuine as even the statutory audit report has not been filed with the ROC. The bank statement does not clearly demonstrate that any activity has at all been carried on except the liquidation of share in Modi Hoover Internationai Ltd. Consequently, the AO has correctly come to the conclusion that it is a case of no business activity and there is also no possibility of the business being revived. The Chandigarh Third Member Bench of ITAT in the case of Royal Beverages Pvt. Ltd. (158 ITD 125) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale consideration of the fixed assets in Pakistan in cash or in kind. The expenditure related directed to fixed assets and was capital in nature. Hence, the amounts claimed were not allowable. The Hon'ble Allahabad High Court in the case of Inderchand Hari Ram v. CIT [1953] 23 ITR 437 held as under: In order that an expenditure can be deducted as business expenditure under Section 10(2)(xv) of the Indian Income-tax Act, 1922, the expenditure must be incurred for the purpose of the business which was in existence in the accounting year and the profits of which are under assessment. If, during the relevant period there was, in fact, no business either because it was discontinued or for some other reason it had ceased to exist, the question of computation of its income after deducting the expenses cannot arise. The assessee firm was the managing agent of a sugar mill and was also carrying on business as sole selling agents. By reason of the Sugar Control Order and a notification issued thereunder the assessee could not work as setting agents of the mill from .30th April, 1942, but the company continued to pay the assessee brokerage up to 30th September, 1944, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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