TMI Blog2023 (10) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... see either under Section 28(iv) or Section 41(1). Since, the assessee had not credited forfeited amount in its P L account on the contrary credited the same in the capital reserve account, the same is to be treated as capital receipt and not to be taxed. In this particular case, after several reminders for payment of final call money, Mewad Tradelink Pvt. Ltd. and Jai Jeen Mata Marketing Pvt. Ltd. since not paid the final call money and the assessee company decided to forfeit the shares of Mewad Tradelink Pvt. Ltd. and Jai Jeen Mata Marketing Pvt. Ltd. which was decided by the Group of Members of assessee company mutually as the group of those investor group was not able to honour their commitment for funds. We further find from the observation made by the Ld. AO that the transaction entered into by the assessee company with those parties appears to be legally permissible but when seen in its entirety it becomes clear that the said transaction is merely a device to reduce its tax liability. Such observation, however, not found to be established by corroborative cogent evidence on the part of the Revenue. Source of documents as relied and furnished by the assessee before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reunder addition to the tune of Rs. 5,25,00,000/- under Section 68 of the Act has been confirmed. The disallowance of interest of Rs. 2,19,170/- on late payment of TDS under Section 37 of the Act as confirmed by the Ld. CIT(A) is also under challenge for Assessment Year 2011-12. 2. There is delay of 111 days in preferring the instant appeal before us. 3. The order passed by the Ld. CIT(A) for the year under consideration was received by the assessee on 09.03.2018 and thus, the appeal was supposed to be filed on 07.05.2018 but the same was filed only on 27.08.2018. Hence, the delay. 4. An affidavit explaining such delay has been filed by the Director of the assessee company, namely, Zubin Jinofer Bhujwala before us. The contents of the affidavit is as follows: 1. I am the Director of Aatash Dredging and Constructions Pvt. Ltd., The order passed by the learned Commissioner of Income-tax (Appeals) for the Assessment Year 2011-12 was received by the assessee on 09.03.18 and therefore, appeal before Your Honors was required to be filed on or before 07.05.18. However, appeal came to be filed on 27.08.18 and thus, there is a delay of 111 days in filing the appeal before Yo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective parties and we have also perused the relevant materials available on record. 8. The assessee, engaged in the business of Civil Contractor, filed its return of income on 28.09.2011 declaring total income at Rs. 45,48,430/-, which was processed under Section 143(1) of the Act. Upon selection of this case for scrutiny notice under Section 143(2) of the Act dated 18.09.2012 followed by subsequent notice in terms of the statutory provisions was issued and served upon the assessee. The issue relates to the addition of forfeited amount of share capital to the tune of Rs. 5.25 Crores by the appellant company, for which, the appellant was directed to furnish details of a number of occasions commencing from 29.08.2013 by the Ld. AO but without result. Ultimately, show cause dated 18.10.2013 under Section 271(1)(c) r.w.s. 274 of the Act was issued whereupon partial details were furnished. The resolution dated 04.10.2010, copy of return of income, bank statement and agreement with the party, if any, though were directed to be furnished by the assessee, since nothing was forthcoming, penalty notice under Section 271(1)(b) of the Act was issued and order thereupon dated 13.11.2013 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om one Mahima Clothing Pvt. LTd. and Akash Palace Developer Pvt. Ltd. to the tune of Rs. 2,74,00,000/- and Rs. 66,00,000/-. 11. It was further found that amount of Rs. 2,77,25,000/- and Rs. 1,49,51,030/- was received by the other company, namely, Jai Jeen Mata Marketing Pvt. Ltd. from A. A. Brother A.A. Brothers, respectively. 12. Upon invocation of Section 133(6) of the Act on A.A. Brothers, it was found that it is one of the linked parties from the fact that money received from swipe card was transferred to another account of A.A. Brothers or Jai Jeen Mata Marketing Pvt. Ltd. and Mahima Clothing Pvt. Ltd. and also few others too. The total payment made by A.A. Brothers to Mahima Clothing Pvt. Ltd. was of Rs. 1,53,50,000/- and Mewad Tradelink Pvt. Ltd. obtained Rs. 66,00,000/- from Mahima Clothing Pvt. Ltd. It further appears that major payments made from the account of Jai Jeen Mata Marketing Pvt. Ltd. to Shree Balaji Impex Pvt. Ltd., Neha Exim Pvt. Ltd., Niku Enterprise Pvt. Ltd. apart from the payment made to the appellant company. In that view of the matter, the Ld. AO found the link between the companies, namely, Jai Jeen Mata Marketing Pvt. Ltd., Mewad Tradelin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion: a. The companies whose shares have been claimed to be forfeited are not existing in reality and are mere paper companies. b. The companies address is a pure residential tenement. c. Even the person staying there does not know about business of concern. d. The concerns who gave loans also have non-verifiable address. 15. Thereafter, the Director of these two companies, namely, Jai Jeen Mata Marketing Pvt. Ltd. Mewad Tradelink Pvt. Ltd. was directed to be produced by the appellant but without any result whereupon show cause dated 19.03.2014 was issued with a prima facie view of addition in respect of share application of Rs. 5,25,00,000/- under Section 68 of the Act as unexplained cash credit, as the assessee failed to prove the identity, genuineness and creditworthiness and further failed to produce Directors of the Company. Therefore, the Director, namely, Shri S. Sharma of Mewad Tradelink Pvt. Ltd. Jai Jeen Mata Marketing Pvt. Ltd. was produced. The statement was recorded on 23.02.2014 of the common Director, namely, Shri S. Sharma who confessed of doing the entire work for commission of Rs. 25,000/- to Rs. 50,000/-. Considering the statement r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of this fact is enclosed herewith. 3. After several reminders for payment of final call money Mewad Tradelink Pvt Ltd, and Jai Jeen Mata Marketing Pvt. Ltd. had not paid final call money and accordingly assessee company decided to forfeit the shares of Mewad Tradelink Pvt. Ltd and Jai Jen Mata Marketing Pvt. Ltd on 11/11/2010 of Rs. 3.24 cr and Rs 2.01 cr respectively which was decided by the group of members of assessee company mutually as it seems that the investor group in those companies were not able to honour their commitment for funds. 4 We would like to draw your honour's attention to the various provisions, definition and accounting entries related to the matter. Definition A share has been defined by the Indian Companies Act, under sec. 2(40) as A share is the share in the Capital of the Company a. Why Do Companies Issue Shares ? Companies need to raise money to support the ongoing growth of the company -to do this they need to either borrow money, or sell part of the company. As each share is a small part of the company, the latter option is issuing shares Debt financing is the first option - borrowing money to expand Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the distinctive numbers. Then Letters of Allotment are sent to the concerned applicants Letters of Regret are sent to those who are not allotted any shares application money is refunded to them. Partial Allotment :- In partial allotment the company rejects some application totally refunds their application money allots the shares to the remaining applicants. Pro-rata Allotment :- When a company makes a pro-rata allotment, it allots shares to all applicants but allots lesser shares then applied for Eg. If a person has applied for three hundred shares he may get two hundred shares. (d) Calls on Shares : The remaining amount of shares may be collected in installments as laid down in the prospectus. Such installments are called calls on Shares They may be termed as Allotment amount, First Call, Second Call, etc. (e) Calls-in-Arrears:- Some shareholders may not pay the money due from them. The outstanding amounts are transferred to an account called up as Calls-in- Arrears account. The Balance of calls-in-arrears account is deducted from the Called-up capital in the Balance Sheet (f) Calls-in-Advance :- According to sec. 92 of the Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s shares may be forfeiture by the directors it authorized by the Articles of Association of the company The Forfeiture can be only for non-payment of calls on shares and not for any other reasons. When the Company forfeits the shares, the person loses his membership in the company as well as the amount already paid by him towards the share capital and premium. His name is removed from the register of members. The directors must observe strictly all the legal formalities required by the Articles of Association before forfeiting the shares ACCOUNTING ENTRIES FOR FORFEITURE OF SHARES: Share Capital A/c Dr. (no of forfeited shares amount called up per shares) Security Premium A/c (to the extent premium not received) To Calls in Arrears A/c To Share Forfeiture A/c (amount received towards share received) Note: Once the security premium is collected cannot be cancelled later on. Therefore Forfeited shares were issued at a premium and the premium money is already received on those Forfeited shares, security premium A/c will not be cancelled of debited. Forfeiture of Share Issued at a Discount- If the Forfeite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut that both the companies are having same address Le. 48, Jai Mitra Society, Opp. Ranchhodnagar Vinzol Crossing Road, Vinzol Ahmedabad We would like to bring to your honour's notice that both the companies are formed by group of directors. Assessee has never denied with the fact that those companies are group companies. The learned Assessing Officer has not seen the fact that registered officer of the companies is same as per MCA site but address is 302. Pratibha -1, B/h Sakar-1, Nr. Gandhigram Railway Station, Ashram Road, Ahmedabad. It shows that learned Assessing Officer has not done proper work due to predetermined mind and hurry to pass order. Further, we would like to add that merely same address doesn't make both the companies bogus companies. There are number of group companies having the same address. Even number of group companies which are listed and having the same address, hence merely same address does not make both the companies bogus companies. d. The learned officer also laid out that both the companies are having same director S. Sharma There are number of group companies having the same directors. Even number of group companies which are list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g various factors like future growth of the company, orders on hand, tenders filed by the company and its status etc. Companies must have considered the same things while making final call payment of Rs. 4.23 cr with stat details available. A clever investor reviews the salon every time while making the payment. Hence, those companies must have lot that it's better not to lose further money then what amount is already been lost Accordingly investor group has taken clever decision in their opinion by again reviewing the situation and by saving final cal payment. There may be several factors for this action like loss of order by the assessee company, may be over valuation, etc which is their internal matter and not relevant for the assessee. g. The learned Assessing Officer has mentioned on page no 12 of the order that the transaction entered into by the assessee company resulting is merely an article or a device employed so as to introduce capital which is unexplained. Though each in the said transaction appears to be legally permissible but when seen in its entirely becomes clear that the said transaction is merely a device to reduce tax liability It is beyond the un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as copy of Form 18A for your ready reference. The assessee company has paid outstanding portion of this amount during the year, hence question of doubting this transaction does not arise. Further, we would like to draw your honour's attention that the assessee company's case has been selected for scrutiny for FY 2008-09 and nothing been added /disallowed for the expenses related to Aakash Palace Developers Pvt. Ltd. Accordingly, its proved that the point raised by the learned Assessing Officer is baseless and shows the intention of the learned Assessing Officer to make something out of nothing. 5. We would like to draw your honour's attention to the fact that Aakash Palace Developers Pvt. Ltd seeing the good work and the worthiness of the assessee company decided to bring investors for the assessee company. The leaned assessing officer in quest of proving the assessee company wrong has inappropriately tried to prove the nexus. The learned Assessing Officer had laid down that Assessee Company had given 1.50 cr to Aakash Palace Developers Ltd. which in turn has given 274 cr to Mewad Tradelink Pvt. Ltd. which in turn has given 3.24 to Assessee Company. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Niku Enterprise Pvt. Ltd. 64,00,196 Total 3,25,51,456 8. The learned assessing officer has haphazardly tried to prove that Jain Jeen Mata Marketing Pvt Ltd had made payment of 3.2 cr to these party which in turn had made payments to AA Brothers and AA Brothers and in turn AA Brothers and AA Brothers has made payments to Jai Jeen Mata Marketing Pvt. Ltd. We would like to bring to your honour's notice that Jai Jeen Mata Marketing Pvt. Ltd has made payment to the above mentioned party of 32 cr while AA Brothers and AA Brothers have given Rs 4.20 cr which is more by Rs 1.06 cr than what payment have been made by Jain Jeen Mata Marketing Pvt. Ltd to Shree Balaji Impex Pvt. Ltd. Neha Exim Pvt Ltd Niku Enterprise Pvt. Ltd Further, we would like to add that Jain Jeen Mata Marketing Pvt Ltd had made investment in assessee company of 2.01 cr out of 4 26cr received from AA Brothers and AA Brothers The credit worthiness of Jain Jeen Mata Marketing Pvt Ltd can't be questioned as AA Brothers and AA Brothers have given Rs 4 26 cr Moreover we would like to bring to your note that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n he might have concluded that these companies are shifted from current address to other address or has stopped working, etc. 11.1 Moreover, we would like to add that there are many companies whose registered address is director's premises. So there is no issue in having the address of companies as director's premises. Further, it has been stated earlier also that these are investment company and hence location, address, registered office is not important like any trading or manufacturing company Inspector has also visited the premises of Aakash Palace Developer Pvt. Ltd. at 302, Pratibha 1, B/H Sakar -1, Opp Gandhigram Railway Station, Ahmedabad. He reported that no such company was there on the above mentioned address. We would like to bring to your honour's notice that the company may have shifted on the other place. 11.2 On visit to the premises of M/s AA Brothers, at B-113. Orchid Green, Nr. Girdhamagar Bus Stop. Ahmedabad Inspector stated in the report that it was a residential complex and that the flat was closed since last 2-3 months and no signboard of M/s A A Brothers was found. Your honour kindly note that he has mentioned that sign board of Shri An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Dredging Construction Company Private Limited. He has replied that I know about MR. Jinofer Bhujwala but I have neither met him in person nor spoken to him and contradictonly stating that he does not know the gender of Mr. Jinofer Bhujwala Your honour he was NEVER asked to specify the gender of Mr Jinofer Bhujwala, also he has stated MR. Jinofer Bhujwala in the answer and later doubted the gender which shows the mind of the person and the tremendous pressure exerted on him. -In question No 5 he was asked to tell the name of the investor who gave him Rs 5 crores. On this he replied that he did not remember. This question was totally irrelevant as it is obvious that he will not remember any name and addresses of investors orally -In question No 8,9,10,11 he was asked by that did he know Aakash Palace Developers, Mahima Clothing Pvt Ltd AA Brothers, Niku Enterprise, Neha Exim Pvt Ltd and Balaji Impex On this he denied We would like to bring to your honor's notice that your learned assessing officer has already proved the link that all these transaction are done between those companies but from his answer we can see his state of mind. -In question No. 12 he was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loans to his companies We would like to bring to your honour's notice that he was borrowing funds from the investee who were interested in investing in other potential companies. He borrowed funds from other companies for investing in other companies. So that amount can't be treated as loan. -He doesn't know who the shareholders of the companies are. Kindly note that the investments in the investee company made by various parties have never been in the doubt; neither has the investments made in Aatash Dredging Constructions Private Limited made in doubt. HENCE, NEITHER THE SOURCES OF FUNDS NOR THE INVESTMENT IS IN DOUBT. -He was merely a dummy to serve aim of Aatash Dredging Construction Pvt. Ltd. We would like to inform you that he was working as an investee group who himself was borrowing fund from other professional. So he can't be considered as merely a dummy person. -He worked for meagre commission of 25000-50000 We didn't disagree with this As stated above ho was acting as a middle man for commission A person has a night to work in the capacity as a director his personal creditworthiness is not important but The creditworthiness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have asked assessee to collect the notice from their office. It is beyond the understanding of the assessee that when learned Assessing Officer has taken 3 days to reach notice to assessee then what went wrong in delay of 30 minutes. The delay was due to the fact that the Representative of the assessee company was busy with another Income Tax Authority only. Any mach can also understand that 30 minute delay can be due to traffic also. 20. Further, it was not 31/03/2014 and being last day of getting it time barred. The learned Assessing Officer could easily give date of hearing after few days to give sufficient time to assessee for preparation. Hence, it's not being last day the reaction of the learned Assessing Officer for not accepting reply is not appropriate and full of injustice. 21. Moreover the learned assessing officer in order of proving assessee wrong has informed authorized representative to collect the order at 3.00 pm whereas before few minutes was told that order is ready. When authorized representative reached there the order was handed at 4.00 pm. The representative of the assessee company seen the drama during the time gap of 3:00 pm to 4.00 p.m . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant in assessee's case: -Commissioner of Incometax, Central Circle, Salem v. Victory Spinning Mills Ltd[2014] 50 taxmann.com 416 (Madras) Section 68, read with section 133, of the Income tax Act, 1961 Cash Credit (Share application money) A survey conducted in premises of assessee unearthed certain irregularities regarding investments in shares Assessing Officer concluded that transactions in shares were not genuine and creditworthiness of shareholders was doubtful and made addition under section 65 Most of share applicants had appeared when summons were issued and they had accepted their investments Whether share application money could not be treated as cash credit in hands of assessee. Deputy Commissioner of Income tax v. GDA Finvest Trade (P.) Ltd. [2015] 57 taxmann.com 62 (Delhi Trib.) Section 68 of the Incometax Act, 1961 Cash credit (Share capital) Assessment year 2005-06 Assessee company received share capital from investor company Assessing Officer suspected genuineness of entries as all investors were Kolkata based companies Assessing Officer carried out investigation and based on inspector's report made addition in income of assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer has not proved how the assessee company has reduced tax liability by doing this transaction. -The learned Assessing officer has ignored the Assessment of the assessee company by his predecessor as the learned Assessing Officer has mentioned reference of Rs. 1.50 cr which is part of the payment made out of transaction of Rs. 9 10 cr done during AY 2009-10 -The learned Assessing Officer has merely concentrated on less important information like common director, office address, date of formation of the company, Return of income not filed, etc -The learned Assessing Officer stated that both companies have NIL fixed assets which is not relevant for the transactions and fixed assets is not required being investment company. - The learned Assessing Officer made references and details of more of other companies and less of the assessee company In the chart the learned Assessing Officer has shown how the amount is routed in between other companies to prove transaction covered us 68 that the cash of the assessee company is being used is missing. -The learned Assessing Officer mentioned that the company has made investment from loan taken which is not important ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sr. No. Particulars Applicability of Section 68 Assessee case 1 assessee offers no explanation about the nature and source thereof Yes No 2 identity of the investors proved No Yes 3 Creditworthiness of investor proved No Yes 4 genuineness of the transaction Proved No Yes 5 Presentation of Lender/ Investor No Yes 6 Involvement of Cash Yes No 7 Involvement of Accommodation entry Yes No 8 Rotation of Assessee's Money Yes No 9 Initially amount has been paid from as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No 7 Case related to Income Tax Act No Yes McDowell co. ltd. vs. commercial tax officer 154 ITR 148 Sr,No. Particulars Mcdowell co. ltd Assessee's case 1 Matter related to tax evasion / avoidance Yes No 2 Effect on the Excise Duty payment Yes No 3 Case related to Income Tax Act No Yes 4 Resulting into lower tax payment Yes No 5 Concealment of legal relation by a device Yes No 18. We have gone through the documents relied upon by the assessee annexed to the paper book filed before us as stated to have been filed before the authorities below by the assessee which has neither controverted by the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s at the documentary evidences as mentioned in the foregoing paragraphs, the further onus of proving the assessee wrong shifts on the Revenue. Further that, in the present case, the receipt of share capital and identity of the share applicants was directed to be proved and once it is proved the assessee can be said to have been duly discharged the burden. On this aspect, the assessee relied upon the following judgments: i. CIT v. Lovely Exports (P.) Ltd. 216 CTR 195 (SC) ii. PCIT vs Chartered Speed P Ltd - Tax Appeal 126 126 of 2015; iii. CIT vs. Peoples General Hospital Ltd. - (2013) 356 ITR 65 (MP); iv. CIT vs. Steller Investment Ltd. -251 ITR 263 (SC); 21. Following judgments have been considered and the contention made by the assessee on this aspect found to be acceptable. 22. So far as the Source of source is concerned, which was directed to be proved by the assessee, the assessee relied upon the judgments placed in the following maners: i. DCIT vs. Rohini Builders 256 ITR 360 (Guj.) ii. Murlidhar Lahorimal vs. CIT 280 ITR 512 (Guj.) iii. CIT vs. Pragati Co. Op. Bank Ltd. 278 ITR 170 (Guj.) iv. CIT vs. Orissa Corporation Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the transaction entered into by the assessee company with those parties appears to be legally permissible but when seen in its entirety it becomes clear that the said transaction is merely a device to reduce its tax liability. Such observation, however, not found to be established by corroborative cogent evidence on the part of the Revenue. On the contrary, the source of documents as relied and furnished by the assessee before the authorities below are sufficient enough to come to a conclusion that the assessee has been able to prove the identity, creditworthiness and genuineness of the cash creditors. The three ingredients since being fulfilled, the addition under Section 68 of the Act is not found to be sustainable. Hence, with the above observation, we delete the addition made by the authorities below. 25. Ground No.2 relates to disallowance of interest of Rs. 2,19,170/- on late payment of TDS under Section 37 of the Act is under challenge before us. 26. We have heard the rival contentions made by the respective parties and we have also perused the relevant materials available on record. 27. The assessee claimed interest on late payment of TDS amounting to Rs. 2,19,17 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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