Income Tax Appellate Tribunal - Ahmedabad
Praful(Agarwal) Art Prints Pvt. Ltd.,, ... vs Assessee on 9 February, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " D " (CAMP AT SURAT )
Before Shri DEEPAK R. SHAH, ACCOUNTANAT MEMBER and
Shri D.T. GARASIA, JUDICIAL MEMBER
Date of hearing : 15/01/2010 Drafted on: 09/ 02 /2010
ITA No.3568/AHD/2007
Assessment Year : 1998-99
The Income Tax Officer Vs. Praful (Agarwal) Art Prints
Ward-1(4), Surat P.Ltd.
127-A, Gajjar Chamber
Falsawadi
Begumpura, Surat
PAN/GIR No. : AACCP 3634 N
(APPELLANT) .. (RESPONDENT)
And
CO No.355/Ahd/2007
(Arising out of ITA No.3568/Ahd/2007)
Assessment Year 1998-99
Praful (Agarwal) Art Prints Pvt.Ltd. vs. ITO
Surat Ward-1(4),Surat
(Cross Objector) .. (Respondent)
Assessee by : Shri Ramesh Malpani
Revenue by : Kumar Hrishikesh Sr.DR
ORDER
PER SHRI DEEPAK R.SHAH, AM:
This appeal is filed by the Revenue against the order of the Learned CIT(Appeals)-I, Surat dated 21/06/2007 passed for Assessment Year 1998-99 and assessee is in cross objection on the assessment framed u/s.143(3) r.w.s. 254 of the I.T. Act, 1961.
ITA No.3568 /Ahd/2007& CO No.355/Ahd/2007(By Assessee) ITO vs. Praful (Agarwal) Art Prints P.Ltd.
Asst.Year - 1998-99 -2-
2. The brief facts of the case are that the assessee-company was in the process of establishing its production facilities during the relevant previous year. The return of income was filed on 03/12/1998 declaring total loss at Rs.4,665/-. The original assessment was completed on total income of Rs.33,47,790/- by making addition u/s.68 of the I.T. Act, 1961 of share application money of Rs.31,36,000/- and by disallowing interest expenditure on share application money of Rs.2,14,456/-. The assessee went in appeal before the Learned CIT(Appeals) who vide order No.CAS.1/160/01-02 dated 11/02/2002 dismissed the appeal of the assessee. In further appeal, the Hon'ble ITAT Ahmedabad Bench set aside the case to the file of the Assessing Officer with direction to re- adjudicate the matter in accordance with law. Accordingly, the Assessing Officer passed fresh assessment order on 29/12/2006 and made addition u/s.68 of Rs.14,71,000/- being unexplained share application money and disallowed interest expenditure thereupon amounting to Rs.99,143/-. The Ld. Learned CIT(Appeals)-I, Surat upheld the disallowance of Rs.99,143/- but deleted the addition of Rs.14,71,000/- holding that the cash credits were most likely capital receipts in the hands of the assessee-company procured by the directors through their own money or from relatives or friends. The Learned CIT(Appeals) has relied upon the judgment of Gujarat High Court in the case of Mitesh Rolling Mills Pvt.Ltd. vs. CIT 258 ITR 278 (Guj.) and decisions of Hon'ble Supreme Court in the cases of Bharat Engineering Construction Co. (1972) 83 ITR 187 (SC), Smt.P.K.Noorjahan (1999) 237 ITR 570 (SC) and Roshan di Hatti vs. CIT (1977) 107 ITR 938(SC). The import of these judgements was that in ITA No.3568 /Ahd/2007 & CO No.355/Ahd/2007(By Assessee) ITO vs. Praful (Agarwal) Art Prints P.Ltd.
Asst.Year - 1998-99 -3- the case of any company, if cash credit is introduced before the commencement of business and if the company fails to explain the cash credit then addition u/s.68 of the I.T. Act, 1961 can be made only if there exists something on record to show that the entity could have earned the money through some or the other sources, otherwise in the hands of the company it will be a capital receipt and the Assessing Officer can look for taxing the same in the hands of the promoters of the company but not in the hands of the company.
3. The Revenue challenges deletion of addition of rs.14,71,000/- being treated as unexplained cash credit u/s.68 of the I.T. Act, 1961, whereas assessee challenges disallowance of Rs.99,143/- being interest payable on the outstanding share application money being treated as unexplained cash credit.
4. The Learned Departmental Representative, Shri Kumar Harishikesh Sr.DR submitted that in the instant case, it is crystal clear that the assessee-company failed to prove the genuineness of share application money amounting to Rs.14,71,100/- in respect of 17 parties. During the course of set aside assessment proceedings, the Assessing Officer had granted adequate opportunity to prove the genuineness of these cash credits. However, the assessee-company could produce sufficient evidences in respect of cash credits of Rs.16,42,000/- only out of total share application money of Rs.31,36,000/-. The genuineness of remaining cash credits of Rs.14,71,000/- in respect of 17 parties could not be proved by the assessee. The Assessing Officer also tried to make ITA No.3568 /Ahd/2007 & CO No.355/Ahd/2007(By Assessee) ITO vs. Praful (Agarwal) Art Prints P.Ltd.
Asst.Year - 1998-99 -4- inquiries about these 17 parties by deputing an Inspector and through the summons. But, no summons could be served, because on the addresses given by the assessee, no such persons could be found. The Learned Authorised Representative of the assessee of the assessee also failed to furnish complete details to prove the genuineness of these cash credits of Rs.14,71,000/- in the form of share application money. In absence of the assessee's liability to supply proper addresses despite adequate opportunity, the onus is squarely on the assessee to establish the genuineness of the funds. Thus, the onus cast on the assessee has not been discharged. There, the Assessing Officer has rightly made addition on account of cash credit of Rs.14,71,000/-.
5. The ld. counsel for the assessee, on the other hand, submitted that as noted by the Assessing Officer in paragraph No.6 on page 4 it had filed confirmation in respect of all these parties before the Assessing Officer. All these parties were assessed to tax. GIR Number was written on all these confirmations of share application money. It has been stated that in view of the lapse of 8 years as well as dispute among the directors, these details are not available any more and these people are not traceable any more. The assessee filed a copy of the ITAT order to show that the Hon'ble ITAT has also observed that there was dispute amongst the directors and some of the directors were expelled by the other directors. The ld. counsel for the assessee further submitted that since this is pre- operative year in which no business activity was commenced, as decided in the following cases, no addition can be made in its hands as the amount of cash credit represents capital receipt:
ITA No.3568 /Ahd/2007& CO No.355/Ahd/2007(By Assessee) ITO vs. Praful (Agarwal) Art Prints P.Ltd.
Asst.Year - 1998-99
-5-
Sl.No(s) In the case of .... Reported in...
1. CIT vs. Bharat Engg. & Construction 83 ITR 187 (SC)
Co.
2. CIT vs. Smt. P.K. Noorjahan 237 ITR 570 (SC)
3. Mitesh Rolling Mills (P) Ltd. vs. CIT 258 ITR 278 (Guj.)
4. India Rice Mills vs. CIT 218 ITR 508 (All)
5.1. In order to prove that no business activity was started, the assessee has given several evidences, such as, copy of balance-sheet and Profit & Loss account for Assessment Years 1997-98, 1998-99 and 1999-2000 and Certificate of incorporation from Registrar of Companies to show that the assessee-company came into being on 23/09/1996.
6. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. The assessee-
company was incorporated on 23/09/1996. As per balance-sheet as on 31/03/1997 (relevant to assessment year 1997-98) out of the paid up capital of Rs.2,000/- and share application money of Rs.2 lacs, an amount of Rs.2 lacs has been advanced to Pooja Tex Prints Pvt.Ltd. Thereafter, no business activities was carried on. Even as per balance-sheet for the year under appeal, the assessee is stated to have received only share application money, but the assessee has neither carried on any manufacturing activity nor carried on business of export/import of any goods or services. As per the balance-sheet, no income earning activity was carried on by the assessee. Only interest income was received which has been accounted as income. In such a situation, as observed by Hon'ble Gujarat High Court in the case of Mitesh Rolling Mills (P) Ltd. vs. CIT 258 ITR 278 (Guj.), the presumption would lead to believe that since no income earning ITA No.3568 /Ahd/2007 & CO No.355/Ahd/2007(By Assessee) ITO vs. Praful (Agarwal) Art Prints P.Ltd.
Asst.Year - 1998-99 -6- activity was carried on, the amount of share application money stated to have received by the assessee was not in the nature of unexplained income belonging to the assessee. The assessee originally filed confirmation letters. However, due to dispute between the then and the present Directors, the whereabouts of the earlier share applicants could not be located. However, this does not call for any addition u/s.68 of the I.T. Act, 1961 as the possibility revealed that the amount received by the assessee was towards share application only and not from any income earning activity. The share applications were received from the persons who were in acquaintance with the then Directors. The assessee being Private Limited Company, the share applicants will the friends or relatives of the Directors only and, hence, it can be held that the amount received by the assessee is not the undisclosed income in the form of unexplained share capital. Therefore, the addition was rightly deleted by the Learned CIT(Appeals).
7. As regards, interest payable on the share application, since the amount was not borrowed for the purpose of business but only by way of raising share capital, interest payable thereon is not allowable.
8. In the result, the appeal and the cross objection are dismissed.
Order signed, dated and pronounced in the Court on 12 /02 /2010
Sd/- Sd/-
( D.T.GARASIA ) ( DEEPAK R.SHAH )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 12 / 02 /2010
ITA No.3568 /Ahd/2007
& CO No.355/Ahd/2007(By Assessee)
ITO vs. Praful (Agarwal) Art Prints P.Ltd.
Asst.Year - 1998-99
-7-
T.C. NAIR
Copy of the Order forwarded to :
1. The Appellant.
2. The Respondent
3. The CIT Concerned.
4. The ld. CIT(Appeals)-I, Surat
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER,
स×याǒपत ूित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad