TMI Blog2012 (2) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010 - - - Dated:- 6-1-2012 - SHRI N.K.SAINI, SMT. P. MADHAVI DEVI, JJ. Appellant By : Smt. Sheethal Borkar. Respondent By : Smt. Susan Thomas Jose. O R D E R Per N.K. Saini, A.M. : This is an appeal by the assessee and is directed against the order dt.28.06.2010 of the learned Commissioner of Income Tax (Appeals)-I, Bangalore for the Assessment Year 2006-07. 2. The grounds of appeal raised by the assessee in this appeal reads as under : 1. The learned Commissioner of Income-tax (Appeals) erred in upholding the disallowance of Rs.62,500/ - without appreciating that the expenditure was incidental to raising further capital for business purpose.. 2. The learned Commissioner (A) erred in upholding the disallowance of Rs.1,01,391/- representing the employees' contribution to the Provident Fund without appreciating that the same had to be remitted to the Government Account only by the appellant and accordingly the ratio of the jurisdictional High Court as upheld by the Supreme Court in the case of CIT Others vs. Shabari Enterprises reported in 298 ITR 141 (Kar) would squarely apply and the appellant is entitled to the deduction as claimed even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) and the submission made by the assessee as mentioned in para 6.1 of the impugned order reads as under : It is submitted that during the relevant assessment year, the Appellant company has increased the authorized capital from RS.50 lakhs to RS.1,25,00,000/- by issue of 75,000 equity shares of RS.100/- each which is evident from the special resolution passed on 30-03-2006. It is submitted that the Appellant remitted Rs.62,500/- as fees to the Registrar in connection with the raising further capital for the company. The appellant company claimed this payment as revenue expenditure. However, the assessing officer was of the opinion that this expenditure is of capital in nature and not revenue expenditure. It was submitted before the assessing officer that merely because the expenses related to raising of authorized capital, it cannot be classified as capital expenditure. In fact, increase in authorized capital had been done with an object of raising more finance towards its working capital requirement which is evident from the statement of fund flow for the period 01-04-2005 to 31-03-2006. Further, it was submitted that without working capital, the company could not carryo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the assessee observed that the following decisions are in favour of the revenue and against the assessee : i) Brooke Bond India Ltd. Vs. CIT (1997) 225 ITR 798 (SC) ii) CIT Vs. Kodak India Co. Ltd. (2002) 253 ITR 445 (SWC) iii) PSIDC Ltd Vs. CIT (1997) 225 ITR 792 (SC) iv) CIT Vs. Thungabhadra Industries Ltd. (1994) 207 ITR 553 (Cal) v) CIT Vs. Adity Mills (1990) 181 ITR 195 (Raj) 7. The learned CIT(A) observed that in all the cases especially, in the case of Brook Bond India Ltd. (supra), it was held that the expenditure incurred by a company in connection with issue of share with a view to increase its share capital directly related to the expansion of the capital base of the company and was capital expenditure, even though it may incidentally help in the business of the company and in profit making. The learned CIT(A) pointed out that the assessee had referred the aforesaid decision and stated that there was no argument that the increase in share capital was undertaken by the assessee for the purpose of meeting the need for working funds for the assessee to carry on its business which was the case of assessee now. The learned CIT(A) pointed out that this obiter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexure to the 3CD report noticed that there was a delay in remittance of employees contribution to the provident fund for the months of April, October and November 2005 and Feb. 2006. He, therefore, treated the remittances to the employees contribution to the provident fund after the due date as income of the assessee by invoking the provisions of section 2(24)(x) r.w.s. 36(i)(va) of the Act and accordingly made the addition of Rs.1,01,391. The assessee carried the matter to the learned CIT(A) and the submissions made before him as mentioned in para 7.1 of the impugned order read as under : It is submitted that all payments with regard to PF for the month of April, 2005, October, 2005, November, 2005 February, 2006 were made much before the due date for filing the return. The details regarding the payment is enclosed as Annexure C herein. Further, clause (va) of section 36 of the Act makes it clear that amount actually paid by the assessee on or before the due date for filing the return is an allowable deduction. The jurisdictional High Court in the case of CIT Others Vs. Shabari Enterprises, 298 ITR 141 (Kar) has that no part of expenditure is required to be disallowed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003 with retrospective effect. Reliance was placed on the following case laws : i) CIT Vs. Desh Rakshak Aushdhalaya Ltd. (2009) 313 ITR 140 (Uttarakhand). ii) CIT Vs. P.M. Electronics Ltd. (2009) 313 ITR 161 (Del) 17. In her rival submissions, the learned Departmental Representative strongly supported the orders of authorities below. 18. We have considered the submissions of both the parties and gone through the material available on the record. It is noticed that a similar issue having identical facts has been decided in favour of the assessee by the Hon'ble Uttarakhand High Court in the case of CIT Vs. Desh Rakshak Aushdhalya Ltd. (2009) 313 ITR 140 (supra), wherein it has been held as under : that an amendment which simply removes an ambiguity and is curative in nature, impliedly has retrospective effect. The deletion of the second proviso to section 43B in 2003 is retrospective in nature. Therefore the Tribunal was justified in deleting the addition of Rs.2,98,924 made by the Assessing Officer which was the amount deposited to the credit of the Central Government account by the assessee by way of contribution to the provident fund of its employees. 19. The simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fomark Marketing Pvt. Ltd. Percentage share holding Priya Menon 19.85 Vijaya Menon 10.01 L.K. Menon 70.13 M/s. Primetex Apparels India Pvt. Ltd. Priya Menon 7 Sheel K.S. 14 U.K. Menon 79 The Assessing Officer discovered that one of the shareholders viz. Mr. U.K. Menon of the assessee-company (having 79%) owned also 70.13% of share holding in M/s. Primetex Apparels India Pvt. Ltd. The Assessing Officer pointed out that the provisions of section 2(22)(e) of the Act had undergone modification by the Finance Act, 1987 and two important changes had been made. He further observed that the section was widened to include advances or loans made after 31.5.1987 to a share holder who is beneficial owner of shares holding 10% or more of the voting power of the company, it also includes payments made by the company on behalf of or for the individual benefit of the share holder, more importantly it also includes advances or loans made to any concern in which such share holder is a member or partner and in which he has a substantial interest i.e. the share holder is entitled to 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the assessee to substantiate as to why the sum of Rs.66 lakhs should not be treated as deemed dividend in the hands of the assessee-company. In reply, the assessee submitted that the loan was given for specific purpose for providing facilities for carrying on the business operations of M/s. Primetex Apparels India Pvt. Ltd. The Assessing Officer observed that the assessee could not explain the reason for not availing loan from financial institutions and was unable to explain as to why M/s. Primetex Apparels India Pvt. Ltd. did not declare dividend during the year and the details of facilities provided for carrying on the business of M/s. Primetex Apparels India Pvt. Ltd. were also not submitted. The Assessing Officer taxed a sum of Rs.66 lakhs in the hands of the assessee as deemed dividend. On being aggrieved the assessee carried the matter to the learned CIT(A) and the submissions made before him as mentioned in para 8.1 of the impugned order are reproduced verbatim as under : It was submitted before the Assessing Officer that this amount was neither a loan nor an advance to attract the provisions of section 2(22)(e) of the Act. In fact, this amount has been received by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25. The learned CIT(A) after considering the submissions of the assessee observed that it was highly improbable that M/s. Primetex Apparels India Pvt. Ltd. could have given such huge sum to the assessee on different dates only through MOU on plain paper for so called renting the office space unless it could be seen as loan or advance. He further observed that the amount had been shown as unsecured loan in books and the assessee might be in the same line of business of garment exports but it had not shown with evidence that they were having any business relation earlier to this transaction. The learned CIT(A) pointed out that two of the share holders of the assessee-company viz. Mr. U.K. Menon and Ms. Priya Menon were also share holders in the creditor M/s. Primetex Apparels India Pvt. Ltd. and it was a case of fund diversion for the benefit of these two share holders. The learned CIT(A) observed that it was a case of loan or even if not loan, payments for the individual benefit of the substantial share holder Sri U. K. Menon and therefore deserves to be taxed as income in the shape of deemed dividend of the assessee. 26. On being aggrieved by the decision of learned CIT(A), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h stated that the details produced by the assessee revealed that as on 1.4.2005, M/s. Primetex Apparels India Pvt. Ltd. had enough accumulated profits but he did not point out how much profit was there to substantiate that it was sufficient to cover the loan, if any, amounting to Rs.66 lakhs. The Assessing Officer also admitted that no details were provided to explain the reason for not availing loan from financial institution, in contrary to that the contention of the assessee was that a deposit was taken against the space to be provided to M/s. Primetex Apparels India Pvt. Ltd. In the present case, the nature of transaction is not clear in other words it is not clear as to whether it was a loan or a deposit for specific purpose particularly when the aforesaid submission of the assessee had not been rebutted by cogent reason either by the Assessing Officer or by the learned CIT(A). It is also noticed from the observations of the learned CIT(A) in para 8.3 of the impugned order that he was not sure as to whether the assessee and the creditor were in the line of the same business of garment export and as to whether there was any business relation earlier to this transaction. From th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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