TMI Blog2015 (10) TMI 2494X X X X Extracts X X X X X X X X Extracts X X X X ..... credit worthiness of the shareholder company, therefore, authorities below were not justified in making the huge addition against the assessee. We are of the view that assessee has been able to prove the identity of the creditor which is not in dispute, credit worthiness of the shareholder company and genuineness of the transaction in the matter. Therefore, addition under section 68 of the Act is wholly unjustified. - Decided in favour of assessee Disallowance of amount paid for up- gradation of Power Station required for supply of power to the assessee company - Held that:- Assessee has explained the scheme formulated by Ministry of Textiles, Government of India, the aim of the scheme of Integrated Textile Parks was to encourage group of entrepreneurs to come together and establish Integrated Textile Parks with world class infrastructure under a public private partnership frame work. Therefore, the scheme in the case of the assessee was intended to encourage the group of entrepreneurs to come together and establish Integrated Textile Parks with world class infrastructure under a public private partnership frame work and the grant-in-aid was given for setting up of the industrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for assessment year 2010-11 and dated 21.11.2014 for assessment year 2011-12. 2. We have heard ld. Representatives of both the parties, perused findings of authorities below and considered the material available on record. Both the appeals are decided as under. ITA 1138/2014 3. On ground No. 1 assessee challenged the order of ld. CIT(Appeals) in upholding the addition of ₹ 3,70,00,000/- received by the assessee as share capital and share premium from non-resident company M/s Glacis Investment Limited. The facts are that the assessee has allocated 740000 shares to M/s Glacis Investment Limited at premium. The Assessing Officer asked for the Income Tax Return, assessee's PAN number, mode of acceptance of money with date, bank account of M/s Glacis Investment Limited to prove identity, credit worthiness and genuineness of the transactions. The assessee contended that M/s Glacis Investment Limited is non resident company at Mauritius. It was also submitted that amount was received through bank and Reserve Bank of India has confirmed the inflow of the amount invested. The Assessing Officer thereafter contended that these documents does not prove the credit worthi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not justify the credit worthiness of the party. This ground was, accordingly, dismissed. 5. The ld. counsel for the assessee reiterated the submissions made before authorities below. He has filed application for admission of the additional evidence under Rule 29 of the Income Tax Appellate Tribunal Rules and submitted that during the proceedings before the authorities below, assessee was not able to obtain copy of the balance sheet of M/s Glacis Investment Limited, a non resident company incorporated in Mauritius. Now the assessee has been able to obtain copy of the same. The ld. counsel for the assessee, by referring to the balance sheet of the subscriber submitted that the principal activity of the company is that of investment holding and has sufficient assets to make investment in the assessee company and also submitted that the balance sheet of M/s Glacis Investment Limited shows that subscriber company has made investment in assessee company M/s Lotus Integrated Taxpark ltd.(PB-21). On the other hand, ld. DR objected to the admission of additional evidence and submitted that the subscriber company was not having any income in assessment year under reference and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficate of Reserve Bank of India taking note of transactions between assessee and M/s Glacis Investment Limited, Mauritius, PB-30 is share certificates issued by the assessee to M/s Glacis Investment Limited, PB-38 is confirmation of M/s Glacis Investment Limited of making investment in assessee company in a sum of ₹ 3.70 Cr on allotment of 740000 equity shares, PB-47 is certificate of Mauritius Government granting Global Business License to M/s Glacis Investment Limited under the Financial Services Act. The ld. counsel for the assessee submitted that the identity of the subscriber company is not in dispute. He has also filed copy of bank account of assessee showing the receipt of money in question i.e. ₹ 3,70,00,000/- through transfer in the account of the assessee (PB-2 - 1). He has also filed balance sheet of the assessee ending March, 2010. The ld. counsel for the assessee, therefore, submitted that the initial onus upon assessee to prove genuine transaction in the matter has been discharged. The credit worthiness of the subscriber is proved being the amount received through banking channel with approval of the Reserve Bank of India. No evidence has been brought on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of the assessee company. iv) Decision of Hon'ble Punjab Haryana High Court in the case of CIT V GP International Ltd. 325 ITR 25 in which it was held as under: Held , dismissing the appeal, (i) that during the proceedings under section 143(3) read with section 250 of the Act, the assessee furnished a confirmation certificate from A along with PAN number, The assessee had confirmed that the liability was still outstanding. Hence Section 41(1) was not applicable.(ii) That at the time of the original assessment, the assessee had had supplied the list of the persons to whom the shares were sold along with their addresses. The Assessing Officer did not doubt the identity of the persons from whom the assessee had shown receipt of application money. Merely because some of the persons did not respond to the notice issued by the Assessing Officer under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of CIT V Dwarkadhish Investment (P) Ltd. 330 ITR 298 in which it was held as under : In any matter, the onus of proof is not a static one. Though in section 68 proceedings, the initial burden of proof lies on the assessee, yet once he proves the identity of the creditors/share applicants by either furnishing their PAN numbers or income-tax assessment numbers and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the revenue the right to invoke section 68. One must not lose sight of the fact that it is the revenue which has all the powers and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the 'source of source. ix) Decision of Delhi High Court in the case of CIT V Winstral Petrochemicals (P) Ltd. 330 ITR 603 in which it was held as under : Undisputedly the share application money was received by the assessee by way of account payee cheques, through normal banking channels. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02.2009. There is no full signature on the confirmation. The entire money have been given by the creditor, therefore, it was not a genuine transaction in the matter. 10. We have considered the rival submissions. It is not in dispute that the assessee has allocated 740000 shares to M/s Glacis Investment Limited at premium. The Assessing Officer has not disputed the shares issued to this company at premium value. No investments have been made in this regard. The ld. DR also admitted that the reasons for issuing the shares to the subscriber company at paid up value and at premium have not been investigated by the Assessing Officer at assessment stage. The assessee has filed copy of the certificate of incorporation of M/s Glacis Investment Limited which is a registered company in Republic of Mauritius. The ld. CIT(Appeals) considering the subscriber company to be a company being legal entity held that the identity of the shareholder is proved. The assessee also filed copy of the Tax Residence Certificate issued by Mauritius Revenue authorities, certifying that M/s Glacis Investment Limited incorporated in Mauritius is a company resident in Mauritius for income tax purposes under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny in 740000 equity shares by investing ₹ 3,70,00,000/-. The shareholder company also filed confirmation to that effect which is supported by Tax Residence Certificate, allotment of share certificates and Global Business License granted by Republic of Mauritius and the bank statement of the assessee. 10 (i) In the case of Lovely Exports Pvt. Ltd. (supra), Hon'ble Supreme Court held that if share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of the Act of the assessee company. The other decisions relied upon by ld. counsel for the assessee support the fact that assessee has received genuine share application money from the shareholder company. 10(ii) The ITAT Indore Bench in the case of Peoples General Hospital Ltd. in ITA 57/2007 vide order dated 28.09.2007 considering the identical issue held in para 11 to 12.2 as under : 11. We have considered rival submissions and material on record. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could the amount of share capital be regarded as undisclosed income of the [company] are not. M.P. High Court in the case of CIT vs. Dhar Ispat (P) Ltd., 134 Tax Man 747 (180 CTR 491), held Sec. 68 is applicable in respect of share application money; however, the question of genuineness of the entries regarding share application money is a question of fact to be decided by the assessee authority on the basis of evidence available on record. Delhi High Court in the case of CIT vs. Stellar Investment Ltd., 192 ITR 287, held that, even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances could the amount of share capital be regarded as undisclosed income of the company. No question of law arose out of the Tribunal s order. Hon'ble Supreme Court in the case of CIT vs. Stellar Investment Ltd., 251 ITR 263, held We have read the question which the High Court answered against the Revenue. We are in agreement with the High Court. Plainly, the Tribunal came to a conclusion on facts and no interference is called for. The appeal is dismissed. No order as to costs. Delhi High Court in the case of CIT vs. Dolphin C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the assessee-company itself. Delhi High Court in the case of CIT vs. Dwarkadhish Financial Services,148 Taxman 54, held The assessee had produced all relevant evidence to establish that the share application money received by the assessee was a result of genuine transaction. It had been noticed even in the impugned order that evidence was produced by the assessee including affidavits, copies of the share application forms, copies of the confirmation from the applicant-companies, copies of board of directors resolution approving such transactions as well as cheque number, branch and address of the bank through which the investment was made. It was also noticed that the Assessing Officer himself had noticed in his order that the applicant-share holders were income-tax payees. In such circumstances, it could not be presumed that the share holder who was assessed to tax was not in existence. That would tantamount to contradiction in the stand of the department itself. ITAT, Jodhpur Bench (TM) in the case of Uma Polymers (P) Ltd. vs. DCIT, 124 TTJ 124, held In respect of share capital money, the assessee-company has to prove only the existence of the person in whose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the share holder was a genuine person and also creditworthy and that she had the requisite amount for making the investment in question, no addition could be made under s. 68 in the hands of the assessee-company ; Revenue could not go further to find out whether the person from whom the share holder had received money through cheque was also a genuine party and creditworthy. Hon'ble Gauhati High Court in the case of Nemichand Kothari vs. CIT 264, ITR 254, held that the assessee had established the identity of the creditors. The assessee had also shown, in accordance with the burden, which rested on him under section 106 o f the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors which was not in dispute. Once the assessee had established these, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter, the burden had shifted to the Assessing Officer to prove the contrary. The failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, could not, under the law be treated as the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer have been deleted. So far as the present case is concerned, the learned Commissioner of Income-Tax (Appeals) has considered the facts and circumstances in detail and has recorded findings of fact. He has also placed reliance on the decision in the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 (Delhi) [FB]. The learned Commissioner of Income-tax (Appeals) has also considered the provisions of sections 72,75 and 77 of the Companies Act and has also taken into consideration the details furnished by the assessee before the Assessing Officer including the certificate of incorporation of subscribers, copies of their bank statements and copies of their assessment orders as well as the copies of their audited accounts. The findings recorded by the learned Commissioner of Income-tax (Appeals) are based on a proper appraisal of the material and we do not find any scope to interfere with the same. Consequently, the order of the learned Commissioner of Income-tax (Appeals) is upheld. 12. It is admitted fact that the assessee filed the confirmation letter from M/s. Alliance Industries Ltd. confirming that it has transferred foreign currency from their bank to the accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount with them and the account is conducted to their satisfaction. The AO neither at the assessment stage nor at the appellate stage disputed the genuineness of these documentary evidences and also did not make any meaningful inquiry on such evidences. State Bank of India, Bhopal confirmed the name of M/s. Alliance Industries Ltd. in the certificates who has transferred the USD to the assessee. The entries in the confirmation are therefore confirmed by the State Bank of India, Bhopal also. From the above it is clearly proved by the assessee that the amount in question have come to the assessee company from the bank account of M/s. Alliance Industries Ltd. through proper banking channel and it is the money of M/s. Alliance Industries Ltd. that has come to the assessee and that M/s. Alliance Industries Ltd. had the capacity to invest this much of the amount during the FY relevant to the AY in question. The transfer of foreign currency from the bank account of M/s. Alliance Industries Ltd. clearly proved the creditworthiness of M/s. Alliance Industries Ltd. It is a settled law that the income-tax authority cannot ask the assessee to prove source of the source. All the issue of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is year as genuine. Ld. DR submitted that principle of res-judicata is not applicable and AO is competent to make inquiry on the same facts in the subsequent year. Hon ble M.P. High Court in the case of CIT vs. Godawari Corpn. Ltd., 156 ITR 835 held With regard to the third point, we would like to say that the question posed before us is not whether the Tribunal has committed an error of law in applying the principles of res-judicate. However, though it is true that the principles of res-judicata do not apply, the rule of consistency does apply. In the instant case, the Department has failed to point out that the circumstances for treating the gain in the transactions for the assessment year 1972-73 as a capital gain were different from those in the assessment years 1962-63 and 1963-64 and, as such, the finding has to be consistent. The Tribunal has, therefore, not committed any error. In this respect, we would like to set out hereinbelow an excerpt from the decision of the Orissa High Court in CIT vs. Belpahar Refractories Ltd. [1981] 128 ITR 610 at pp. 613-614 . Hon ble Punjab Haryana High Court in the case of CIT vs. Vikas Chemi Gum India, 276 ITR 32 held That since the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before making the huge investment. It appears that ld. DR forgot to note that the same NRI Company had made investment in the assessee company in the earlier years which is not disputed by the AO therefore contentions of the ld. DR have no merits and are rejected. The reliance of ld. DR on the order of ITAT, Delhi Bench in the case of A-One Housing Complex Ltd.(supra) is misplaced because ultimately in this case it was held whether onus of assessee in the case of share capital by public issue is lighter one and therefore such onus would stand discharged if identity of share applicant is established-held-Yes. This case is not applicable in favour of the revenue because the amount is not received from close relative or friend. 12.1 On going through the above documentary evidences on records and the judicial pronouncements referred to above, it is clear neither the AO nor the ld. DR appearing for the revenue have disputed the documentary evidences filed by the assessee before the authorities below. The only point agitated by the AO was creditworthiness of M/s. Alliance Industries Ltd. which is also satisfactorily proved by the assessee. The decision of the full Bench of Delhi Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 68 of the IT Act. The assessee did not contend that even if there explanation was not satisfactory, the amount were not of the nature of income. The ld. CIT(A) confirmed the order and the Tribunal through majority view confirmed the orders of the authorities below. On an appeal, the High Court re-appreciated the evidence and substituted its own finding and came to the conclusion that the reasons assigned by the Tribunal were in the realm of surmises, conjecture and suspicion. Hon ble Supreme Court on such facts held, reversing the decision of the High Court, that the findings of the AO, the Commissioner (Appeals) and the Tribunal were based on the material on record and not on any conjectures and surmises. That the money came by way of bank cheques and was paid through the process of banking transaction was not by itself of any consequence. The High Court misdirected itself and erred in disturbing the concurrent findings of fact. However, the facts and circumstances of the appeal before us are clearly distinguishable as noted above. The reliance of ld. DR on the cases referred to above are therefore misplaced. 12.2 Considering the above discussion, we do not find any infi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he identity of the shareholder company and that transaction was genuine. The assessee has also proved the credit worthiness of the shareholder company, therefore, authorities below were not justified in making the huge addition against the assessee. 13. Considering the totality of the facts and circumstances on the basis of the evidences on record and in the light of the judicial pronouncements noted above, we are of the view that assessee has been able to prove the identity of the creditor which is not in dispute, credit worthiness of the shareholder company and genuineness of the transaction in the matter. Therefore, addition of ₹ 3.70 Cr under section 68 of the Act is wholly unjustified. We, accordingly, set aside the orders of authorities below and delete addition of ₹ 3.70 Cr. In the result, ground No. 1 of appeal of the assessee is allowed. 14. On ground No. 2, assessee challenged the order of the ld. CIT(Appeals) in upholding the disallowance of a sum of ₹ 3 Cr paid to M/s Abhishek Industries Ltd. for up- gradation of Power Station required for supply of power to the assessee company. Briefly the facts are that assessee in the Schedule of Fixed Assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held as under : Held, (i) that setting up of a system/plant and creation of other infrastructure in an industrial unit is always a capital expenditure and the right acquired by the assessee for creation of channel to discharge effluents was capital in nature. The expenditure in question enabled the assessee to use the drain fora/I times to come and even to transfer such a right. It was further relevant that for use of the right to transport its effluent through forest land, the assessee had transferred its own land. During subsequent years on the maintenance thereof, the expense was around ₹ 8 to 10 lakhs, which was being allowed as revenue expenditure. Therefore, the expense made by the assessee during the first year when the drain was dug out was capital in nature. The expenditure was not deductible. 15 (i) He has further submitted that the matter is remanded back to the High Court in the matter reported in 314 ITR 302. He has, however, submitted that depreciation on the capital expenditure is liable to be allowed by the authorities below. He has submitted that the grant-in-aid as is noted by the ld. CIT(Appeals) on this issue for denying depreciation in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the reference. iii) Order of ITAT Vishakhapatnam Bench in the case of Sasisri Extractions Ltd. V ACIT 122 ITD 428 (307 ITR (AT) 127 in which it was held as under Held allowing the appeal, that the scheme was intended to accelerate industrial development of the State and the incentive was given for setting up of industries in Andhra Pradesh. The amount of subsidy to be given was determined by taking the cost of eligible investment as the basis. The incentive in the form of subsidy could not be considered as a payment directly or indirectly to meet any portion of the Actual cost and thus it fell outside the ken of Explanation 10 to section 43(1) of the Income-tax Act 1961. The subsidy amount could not be reduced from the actual cost of the capital asset. iv) Order of ITAT Hyderabad Bench in the case of Inventaa Chemical Ltd. V ACIT 42 SOT 249 in which it was held as under : II. Section 43(1) of the Income-tax Act, 1961 - Actual cost - Assessment year 2003-04 - Assessee had received ₹ 20 lakhs on account of State subsidy - Revenue held that said subsidy had to be reduced from cost of fixed assets for purpose of arriving at depreciation - Whether if payment of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al expenditure which is shown in the Schedule of Fixed Assets, assessee would be entitled for depreciation on ₹ 3 Cr which is not in dispute that the assessee in the Schedule of Fixed Assets has shown the addition of ₹ 3 Cr on up-gradation of the Sub-Station owned by the assessee company. Therefore, it would increase the value of the fixed assets by an amount of ₹ 3 Cr and same was capital in nature. The ld. CIT(Appeals), however, confirmed the addition holding that since this amount was made through the grant-in-aid, therefore, no depreciation is allowable on ₹ 3 Cr addition. Explanation 10 to Section 43 (1) of the Income Tax Act reads as under : Explanation 10. - Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee: Provided that where such subsidy or grant or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the State, therefore, the grant-in-aid could not be considered as a payment directly or indirectly to meet any portion of actual cost and thus, it would fall outside the purview of Explanation 10 to Section 43(1) of the Act. All the decisions relied upon by ld. counsel for the assessee are on identical point and support the contention of the assessee that assessee is entitled for depreciation on the same amount. 20. Considering the above discussion in the light of the scheme formulated by the Government of India and in the light of the judicial pronouncements referred to above, we set aside the orders of authorities below and direct them to grant depreciation to assessee on the amount of ₹ 3 Cr being the capital expenditure. In the result, part of this ground of appeal of assessee is allowed. 21. On ground No. 3, assessee challenged the order of ld. CIT(Appeals) in upholding the disallowance of depreciation amounting to ₹ 3,04,63,791/-. The facts are that in this case, the assessee has received grant-in-aid of ₹ 40 Cr from the Ministry of Textiles, New Delhi under the scheme of Integrated Taxpark (SITP). Out of total grant of ₹ 40 Cr., ₹ 36 Cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme of the Government was to encourage group of entrepreneurs to come together and establish integrated textile parks with worth class infrastructure under a Public Private partnership frame work. The grant-in-aid was granted to the entrepreneurs to develop textile parks under the scheme. Following the reasons for decision on ground No. 2 above, we set aside the orders of authorities below and direct the authorities below to grant depreciation to the assessee without reducing the grant received from Ministry of Textiles. This ground of appeal of the assessee is accordingly, allowed. 24. In the result, this appeal of the assessee is partly allowed, as indicated above. ITA 1139/CHD/2014 ( A.Y. 2011-12) 25. The assessee has raised the following grounds of appeal: 1. That order passed by the Ld. CIT (Appeals), Patiala u/s 250(6) is against law and facts on the file in as much as he was not justified to disallow depreciation amounting to ₹ 2,95,97,2121- due to reduction in brought forward balances from the last year. He was not justified to uphold the action of the Ld. Assessing Officer in reducing the amount of ₹ 36.00 crores from the value of total block of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowed proportionate interest of ₹ 81,62,546. The Assessing Officer further noticed that assessee has shown capital work in progress at ₹ 4.93 Cr as per details given in the assessment order. The Assessing Officer held that as per provisions of Section 36 (1) (iii) of the Act , the interest paid on the capital work in progress is to be disallowed and capitalized till the assets could be used. Since the assets were not put to use during the financial year, therefore, ₹ 30,68,339/- was disallowed. During assessment proceedings, the assessee submitted that the payments were made out of interest free grant-in-aid and from operating income. The Assessing Officer, however, did not accept the contention as no such corroborative evidences were filed. 28. The assessee challenged both the additions before ld. CIT(Appeals) and as regards addition of ₹ 81,62,546/-, it was submitted that capital advance was made against work orders which was complete in the financial year 2010-11 and 2012-13. However, the Assessing Officer, on the basis of assessment records has submitted that no details of such work orders were filed. Regarding addition of ₹ 30,68,339/- asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of borrowed funds. He has filed details of capital advances with accounts of the four parties namely Lotus Infra Build Ltd. (Advance Landscaping ), Lotus Infra Build Ltd. ( Advance Pack IV) Lotus Infra Build Ltd. (Advance Pack V) and Lotus Infra Build Ltd. (Advance Pack VII) for a sum of ₹ 5.93 Cr. He has referred to source of the funds out of share capital, reserve and surplus, equity share warrants and secured loans for a sum of ₹ 80.84 Cr. He has referred to Schedule V of Fixed Assets to show that in preceding assessment year 2010- 11, the net block was of ₹ 54.81 Cr and in assessment year under appeal, it is ₹ 68.08 Cr. He has, therefore, submitted that investments have been made out of own funds and no borrowed funds have been used. 30. On the other hand, ld. DR relied upon orders of the authorities below and submitted that no details were filed before the authorities below, therefore, addition is justified. 31. We have considered rival submissions. The assessee pleaded before the authorities below that the investments were made out of interest free grant-in-aid received from Government of India and from operating income. The Assessing Officer, h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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