TMI Blog2014 (1) TMI 1224X X X X Extracts X X X X X X X X Extracts X X X X ..... less there is a provision under the Income-tax Act, 1961 - The AO having examined the parties (creditors) u/s. 133(6) of the Act and found nothing adverse against the assessee to show that the assessee's own money flew back to the assessee to these three creditors as a conduit, the AO cannot question the raising of funds by the assessee-company - having cash/fund flow is important rather than having depreciable assets - even the provisions of section 56 are not applicable to the assessment year under consideration which came into effect only from 1.10.2009 i.e., relevant to the A.Y. 2010-11 – thus, the CIT(A) has rightly deleted the addition made by the AO u/s. 68 of the Act – Decided against Revenue. Nature of activity and expenditure – Necessary for the purpose of carrying out business or not – Held that:- The assessee filed returns of income for A.Ys. 2007-08 and 2008-09 - The loss returned by the assessee for these assessment years was accepted in summary assessment - Being so, after accepting the return of income for A.Ys. 2007-08 and 2008-09, the AO cannot dispute the same figure in subsequent assessment year - Had the AO has any doubt regarding allowability of loss, first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Churamani Housing Private Limited is also being used by 25 other non-descriptive companies, that it smacked of being a suitcase company or a name-lender for channelling the unaccounted moneys of the assessee company. 5. The CIT (A) erred in facts and in law in ignoring the low financial capacity of M/s PNC Capital Markets Ltd., as evidenced by its profit and Loss Account for A.Y. 08-09 with net profit of just Rs. 1,02,476/- and by its Profit and Loss Account for AY 09-10 with a net profit of just Rs. 12,019/- and by its Balance Sheet showing absolutely no depreciable assets and the fresh capital inflow being meagre when compared to the investment of Rs. 1,28,25,000/- made by the company. 6. The CIT(A) erred in facts and in law in ignoring the fact that no telephone number was given by M/s. PNC Capital Markets Ltd., in its putative reply to the Assessing Officer's preliminary enquiry to make further enquiries, that it smacked of being a suitcase company or a name-lender for channelling the unaccounted moneys of the assessee company. 7. The CIT(A) ought to have appreciated the fact that the assessee has not carried out any activity necessary for the purpose of its main ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The shares were allotted to the promoters group and the company in which they have interest and associate companies. 4. The fact is shares are only offered to the promoters and their associates including companies in which they have interest. 5. The AO observed that M/s. Vally Distributers Pvt. Ltd., M/s. PNC Capital Market Pvt. Ltd. and M/s. Churamani Housing Pvt. Ltd. will not fit into related parties. Further during the course of scrutiny proceedings the AR stated that the land was sold during the F.Y 2010. 11. Hence it is clear that the company has exploited the shareholders funds for purchase of land and thereafter selling the same. The AR did not furnish the details of utilization of these sale proceeds. Also, the contention that book value is Rs. 99/-, cannot be acceptable because the entire land is purchased with shareholders' funds only (mostly premium). It is not clear how an outsider will pay such huge premium for repaying the loans. Further, there is no written promise of any future benefit or likelihood of any dividend. Hence, the premium paid to the company by outsiders may be treated as income accrued to the assessee company as it not required to repay the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to public to subscribes for any shares of the company. 2. There is no restriction with regard to issues of shares at a premium by the private limited company. 3. The shares were allotted to the promoters group and the company in which they have interest and their associate companies. 4. The fact is shares are only offered to the promoters and their associates including companies in which they have interest. 8. The CIT(A) further observed that the Assessing Officer in his order stated that the assessee's explanation was considered but it is that the company purchased a land with shareholders funds only. The AR, before appellate proceedings stated that the shares with premium were issued only to the promoters and their associates. From the assessment order, it is clear that the AO is in confusion stage and without proper enquiry, evidence or basis added the share premium from the three parties only as unexplained cash credit u/s 68 of the Act, and accepted the other parties. The AO failed to mention valid reason or logic, why he is accepting others and adding these 3 parties only and not adding other 12 parties. The Assessing Officer simply mentioned that "However on verif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the unaccounted moneys of the assessee company. The CIT(A) erred in facts in law in ignoring the low financial capacity of M/s. Churamani Housing Pvt. Ltd., as evidenced by its Balance Sheet for the A.Y. 2009-10 showing absolutely no depreciable assets and there being no fresh capital inflow during the year under consideration and artificially contrived profit being shown in the P L a/c from apparently dubious and un-evidenced sources. Further it is to mention that the main source of income of the company is interest income. Such being the case it is not clear why the company has invested so much amounts with huge premium with no promise of any returns. The CIT(A) was not correct in ignoring the fact that the telephone number given by M/s. Churamani Housing Private Limited is also being used by 25 other non-descriptive companies, that it smacked of being a suitcase company or a name-lender for channelling the unaccounted moneys of the assessee company. The CIT(A) erred in facts and in law in ignoring the low financial capacity of M/s PNC Capital Markets Ltd., as evidenced by its profit and Loss Account for A.Y. 08-09 with net profit of just Rs. 1,02,476/- and by its Profit and L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment Ltd., 254 ITR 263 (SC) 10. CIT vs. K. Mahim Udma, 242 ITR 133 (Ker) 11. Dhakeswari Cotton Mills Ltd. vs. CIT, 26 ITR 775 (SC) 12. Omar Salay Mohamed Sait vs. CIT, 37 ITR 151 (SC) 13. CIT vs. Creative World Telefilms Ltd., 333 ITR 100 (Bom) 14. CIT vs. ASK Brothers Ltd., 333 ITR 111 (Kar) 15. CIT vs. Arunananda Textiles (P) Ltd., 333 ITR 116 (Kar) 16. CIT vs. Oasis Hospitalities (P) Ltd., 333 ITR 119 (Del) 12. The AR submitted that the crux of the above judgements is that the conclusion arrived at by the appellate authority could not be said to be without evidence or unreasonable and its ultimate conclusion accepting the genuineness of the share capital of the assessee-company could not be faulted and appeal of the Revenue is to be dismissed. Further he submitted that once the assessee filed details of the creditors like PAN, copies of Income-tax returns of income, share application copy, detailed bank account through which the assessee received money, the primary onus cast upon the assessee is discharged. Therefore, no addition could be made in the hands of the assessee-company on account of certain discrepancies found by the AO which are immaterial or irrelev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 56 are not applicable to the assessment year under consideration which came into effect only from 1.10.2009 i.e., relevant to the A.Y. 2010-11. 15. Being so, we are of the considered opinion that the CIT(A) has rightly deleted the addition made by the AO u/s. 68 of the Act. We confirm the order of the CIT(A) on this issue. Ground Nos. 1 to 6 raised by the Revenue are rejected. 16. Coming to the other grounds, the learned DR submitted that the business of the assessee was not set up and there was no business activity by the assessee in the assessment year under consideration. 17. On the other hand, the learned AR relied on the order of the CIT(A) while placing reliance on the decision of Mumbai Bench of this Tribunal in the case of Deccan Goldmines Ltd. vs. ACIT, 89 DTR (Mum) (Trib) 330. 18. We have heard both the parties and perused the material on record. The assessee filed returns of income for A.Ys. 2007-08 and 2008-09. The loss returned by the assessee for these assessment years was accepted in summary assessment. Being so, after accepting the return of income for A.Ys. 2007-08 and 2008-09, the AO cannot dispute the same figure in subsequent a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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