Income Tax Appellate Tribunal - Jabalpur
Meera Engineering & Commercial Co. (P) ... vs Assistant Commissioner Of Income Tax on 3 March, 1997
ORDER
P. Mohanarajan, J.M.
1. This is an appeal by the assessee directed against the order of the learned CIT(A), Jabalpur, dt. 20th October, 1994.
2. We have heard the learned counsel for the assessee and the learned Departmental Representative and perused the records of this case. The appellant is a private limited company engaged in the business of running a hotel in the name and style of 'Maruti'. The company is registered under the Companies Act. This company was incorporated on 23rd June, 1967. The shareholders of the company consists of the family members, relatives and friends. The assessee filed return of income for the asst. yr. 1991-92 on 30th January, 1992 showing a net loss of Rs. 4,13,160. It is seen from records that during the course of assessment proceedings the AO examined the following issues :
(a) Investment in the cost of construction of hotel building.
(b) Receipts and expenditure reflected in the books of accounts of the company.
(c) Genuineness of the shareholders and the investment in the shape of shares with the assessee-company.
(d) Investment made by Smt. Meera Devi, Managing Director in the form of credit balance appearing in the balance sheet.
(e) Unpaid liability of luxury tax.
(f) Rickshaw commission.
(g) Donations
(h) Miscellaneous expenses.
2.1 After completion of enquiries, the AO added the following as additions to the net loss returned by the assessee :
(i) Addition of Rs. 8,49,000 on account of unproved share application money received from 48 shareholders during the year for allotment of share.
(ii) Addition of Rs. 18,575 on account of unexplained cash credit in current account of Smt. Meera Devi Lokera of the assessee.
(iii) Disallowance of Auto Rickshaw commission by adding back Rs. 2,000.
(iv) Donation of Rs. 139.
(v) Miscellaneous expenses of Rs. 200.
(vi) Disallowance of unpaid luxury tax Rs. 11,622.
(a) As far as the first addition is concerned the AO made/such addition because name of the shareholders, except Smt. Ketki Devi is income-tax assessee.
(b) They are all engaged in small business like stitching, contract business, agriculture, service, etc.
(c) All of them have deposited money in cash.
(d) One Smt. Usha Khare stated that she has income from personal savings and she has invested Rs. 13,000 during March-June, 1990.
(e) 5 of the share applicants cannot read or write.
(f) Smt. Ketki Devi cannot read and write but she invested Rs. 25,000 during April-July, 1990.
(g) The correctness of information given in replies to notice under s. 133(6) was not believed.
2.2 As far as second addition of Rs. 18,575 is concerned, according to the AO, there was no proof for any personal savings as claimed by Smt. Meera Devi.
3. The next addition of Rs. 2,000 was disallowed on the ground because they were paid from petty cash book and these payments were not open for verification. So also Rs. 139 is concerned, the AO's view was that this addition was not for business purposes and also he made the addition of Rs. 200.
4. Against the said order the assessee was in appeal before the first appellate authority, who confirmed the order of the AO. Hence, the assessee is now before us.
5. The learned counsel for the assessee contended that the company had complied with all the statutory requirements as also necessary material evidence in respect of share application money. The orders of the authorities below show a strong biased attitude against the company for its honest efforts to work within the ambit of the enforcing laws. Even at the time of inspection of final accounts the queries were properly replied to the satisfaction of the AO along with documentary evidence. The learned counsel also filed a paper-book containing brief facts of the case, submissions and pleadings narrating several facts and materials of this case. We have had the benefit of going through each and every document. He also filed several documents in the same paper-book certifying the same as filed before the AO.
6. On the other hand, the learned Departmental Representative vehemently contended that the assessee had not established the genuineness of cash credits deposited by the shareholders. They have just lent their names so that company may show credit in their names. All the shareholders have very low level of earnings and so they are not expected to invest money in a new private limited company. The learned Departmental Representative supported the orders of the authorities below in every aspect.
7. From pp. 36 to 42 of the paper-book filed by the learned counsel for the assessee, it is found that the details of the shareholders such as names of the shareholders, details of the documents already produced before the AO. On a careful reading of all these particulars we find that the assessee had brought before the AO almost every details which are necessary to establish the case of the assessee. The list also contains the investment made by such persons during 1990-91. Apart from that on a perusal of this list it shows that all the 51 shareholders had filed their affidavit and confirmatory letters and 24 of them filed their replies also to the notice under s. 133(6) of the IT Act. These particulars also reveal the financial status of the shareholders. It is seen from the paper-book that affidavits, confirmation letters and replies which were placed before the authorities below, especially before the AO during the assessment proceedings. Therefore, there is no substance in contending that the source of credit amounting to Rs. 8,24,000 remains unexplained. The fact that the assessee is incorporated under the Companies Act is not disputed. The shares of the company were fully subscribed. The names of the parties purchasing the shares with the amount subscribed were furnished before the AO and the same is reproduced in the paper-book. The particulars contained relevant details for such investments. However, the AO expected the assessee to produce more evidence. Of course, the AO would be entitled to enquire and it would be his duty to do so, whether the alleged shareholders did, in fact, exist or not. It is seen from record that the confirmation letters, affidavits of all the shareholders and replies of 24 shareholders had been filed. The affidavits were duly executed before the authority empowered to attest such documents. All these documents clearly show that the shareholders do exist. The assessee made efforts and produced whatever evidence test were available. In our opinion, the assessee had discharged his onus of establishing their contention and explaining the cash credits as required under law.
8. A Full Bench decision of the Hon'ble Delhi High Court in the case of CIT vs. Sophia Finance Ltd. (1994) 205 ITR 98 (Del) renders support to the view taken by us. In the said decision, it has been held as under :
"Where, therefore, an assessee-company represents that it had issued shares on the receipt of share application money then the amount so received would be credited in the books of account of the company. The ITO would be entitled, and it would be his duty, to enquire whether the alleged shareholders do in fact exist or not. If the shareholders exist then, possibly, no further enquiry need be made. But if the ITO finds that the alleged shareholders do not exist then, in effect, it would mean that there is no valid issuance of share capital. Shares cannot be issued in the name of non-existing persons. The use of the words "may be charged" in s. 68 clearly indicates that the ITO would then have the jurisdiction, if the facts so warrant, to treat such a credit to be the income of the assessee. If the shareholders are identified and it is established that they have invested money in the purchase of shares, then the amount received by the company would be regarded as a capital receipt and to that extent the observations in CIT vs. Stellar Investment Ltd. (1991) 192 ITR 287 (Del), are correct."
The ratio of this decision is clearly applicable to the facts of this case. As already discussed, the assessee had produced replies, confirmation letters and affidavits from the shareholders to explain the credits appearing in the books of assessee-company as share capital. From the above decision it is evident that in respect of share capital, main thing is to be examined is whether shareholders existed ? If assessee is able to establish that shareholders existed and they have invested money for purchase of shares, burden of assessee to prove the credit is discharged. In this case identity of shareholders was not in dispute. All the shareholders have affirmed on oath that they have invested money. The only dispute by the Revenue was that creditworthiness of shareholders was not established. As is clear from the decision of Hon'ble Delhi High Court, unlike cash credit, for investment in share capital, assessee is not required to prove creditworthiness of shareholders. The assessee is required to prove only existence of shareholders and money, having been received from them. Both these points, i.e., existence of shareholders and receipt of money from them are established by the assessee.
9. The aforesaid decision of the Delhi High Court was followed by the Delhi Bench of Tribunal in the case of Rishi Electronics Ltd. vs. Asstt. CIT (1995) 53 ITD 10 (Del). In that view of the matter we hold that the assessee had established and satisfactorily explained the credits in share capital under s. 68 of the IT Act. The addition of Rs. 8,49,000 is, accordingly, deleted.
10. The next ground relates to the addition of Rs. 18,575. The AO found that there was a credit balance of Rs. 21,088 in the books of company in account of M/s Maruti restaurant. Out of this, Rs. 2,513 is from bill of the restaurant. The remaining amount of Rs. 18,575 was explained by the assessee as that of the personal savings of Smt. Meera Devi and from restaurant business. The AO did not accept this on the ground that the restaurant was running in loss as stated by Smt. Meera Devi and her personal savings are not explained from her sources. Therefore, the AO added this sum back to the assessee's income under s. 68 as unexplained cash credit. We find that Smt. Meera Devi is assessed to income-tax. She has income from business. She affirmed having advanced money to the assessee by filing affidavit. She reiterated all these facts in her statement recorded by AO. Therefore, we hold that assessee has discharged the burden of proving credit in her account. Addition of Rs. 18,575 is deleted.
11. The next ground of appeal is against the disallowance of Rs. 2,000 being Rickshaw commission, donation Rs. 139 and miscellaneous expenses Rs. 200.
12. We have heard both the parties and have perused the material placed before us. The AO has stated that the assessee has claimed the Rickshaw commission amounting to Rs. 20,454. The same is not verifiable and, therefore, a sum of Rs. 2,000 is disallowed on estimated basis. We do not find any infirmity in the order of the AO in this respect. Similarly, the disallowance of Rs. 139 being donation and Rs. 200 out of miscellaneous expenses are upheld. Accordingly, Ground No. 5 of the assessee's appeal is rejected.
13. The assessee had filed an application under r. 11 of Income-tax Appellate Tribunal Rules, 1963, for pleading additional ground in this appeal by application, dt. 9th December, 1996 which was filed on 10th December, 1996. The substance of this application is that the depreciation on hotel building should have been allowed at 33.1/3% as against 15% allowed, as the hotel building is the 'plant' (within the meaning of s. 32 of the IT Act).
14. Notice was served on the learned Departmental Representative and the learned Departmental Representative objected any such additional ground being taken at this stage. The learned Departmental Representative submitted that this ground was neither taken before the AO nor before the learned CIT(A) nor even at the time of filing this appeal before the Tribunal. Hence, according to him, such additional ground cannot be entertained at this stage. On the other hand, the learned counsel for the assessee submitted that there is no investigation of any kind or to find out any new fact is not at all required as the entire facts relating to this ground is already present as the same is evident from the records of this case. There is no new fact required to decide the issue raised in the additional ground. It was also further contended by the learned counsel for the assessee that apex Court in the case of East India Hotels vs. CIT (1997) 223 ITR 1 (SC) held that : "The hotel building is a tool of the assessee's trading activity and is to be treated as plant for the purpose of depreciation under s. 32 of the IT Act".
15. We have considered the submissions made before us by both the sides. The facts of this case are not in dispute. The assessee is running a business in the name and style of M/s Hotel Maruti for the relevant assessment year. All the relevant facts to decide the new ground based on the materials are already available in this case. Further, it is also to be seen whether the ground raised by the assessee is a legal ground ? By taking that ground, the assessee claims his right of entitlement under law, namely, depreciation under s. 32 of the Act, of course, at an enhanced depreciation at 33.1/3%. Considering the submissions and considering the facts and material placed before us we find force in the stand taken by the assessee. The factual premises are already on record and a legal ground is urged. Notice also had been served on the other side. We, therefore, deem it fit to entertain this additional ground as raised by the assessee. We receive support, for such a conclusion, from the decision of Hon'ble Madhya Pradesh High Court in the case of National News Print and Paper Mills Ltd. vs. CIT (1997) 223 ITR 688 (MP) wherein it has been held that "if the factual premises are already on record and legal grounds are alone urged, no application for condonation of delay is required. All that is required is permission to raise additional grounds and proper notice to the other side. The Tribunal had treated it as if an appeal was sought to be filed and there was no justification to have denied this additional grounds". In that view of the matter, we entertain the additional ground as prayed for.
16. It has been contended by the learned counsel for the assessee that the Hon'ble Calcutta High Court in the case of S. P. Jaiswal Estates (P) Ltd. vs. CIT (1995) 216 ITR 145 (Cal), and the Hon'ble Supreme Court in the case of East India Hotels Ltd. vs. CIT (supra) have held the hotel building to be the "plant" and, therefore, entitled to the depreciation at the rate of plant. On the other hand, the learned Departmental Representative has submitted that the assessee has claimed the depreciation on the hotel building as a building and the AO had allowed the depreciation as claimed by the assessee. The AO never had the opportunity to examine the assessee's contention that the hotel building was a plant and, therefore, at this stage this contention of the assessee cannot be considered.
17. We have carefully considered the argument of both the sides and have perused the material placed before us and we deem it proper and in the interest of justice to set aside this matter back to the file of the AO with the direction that he shall examine the claim of the assessee whether the hotel building owned by the assessee can be treated as 'plant'. While examining, he shall take into account the decision of Hon'ble Calcutta High Court in the case of S. P. Jaiswal Estates (P) Ltd. vs. CIT (supra) and of the Hon'ble Supreme Court in the case of East India Hotels Ltd. vs. CIT (supra), and also any other decision which may be brought to his knowledge at the time of passing fresh order. He shall decide the issue afresh in accordance with law after allowing adequate opportunity of being heard to the assessee.
18. In the result, the assessee's appeal is partly allowed.