Income Tax Appellate Tribunal - Chandigarh
Dcit, Ludhiana vs M/S Incite Homecare Pvt. Ltd., Ludhiana on 6 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCHES 'A', CHANDIGARH
BEFORE MS. DIVA SINGH, JUDICIAL MEMBER
AND Dr. B.R.R.KUMAR, ACCOUNTANT MEMBER
ITA No. 896/CHD/2017
Assessment Year: 2011-12
The DCIT, Vs M/s Incite Homecare P.Ltd.,
Circle-6, 171-R, Model Town,
Ludhiana. Ludhiana.
PAN : AABCI5544D
(Appellant) (Respondent)
Appellant By : Dr.Gulshan Raj, CIT-DR
Respondent By : Shri Sudhir Sehgal
Date of hearing : 07.02.2018
Date of Pronouncement : 06.04.2018
ORDER
PER DIVA SINGH,JM The present appeal has been filed by the Revenue assailing the correctness of the order dated 31/03/2017 of CIT(A)-3 Ludhiana pertaining to 2011-12 assessment year on the following grounds :
i) Whether on the facts and circumstances of the cases the Ld. CIT(A) has erred in facts and law in deleting the addition of Rs. 51,07,273/-made by AO u/s 36(l)(iii) on account of interest capitalised on advance made for purchase of land and interest capitalization by ignoring the proviso to section 36(i)(iii) r.w.
Explanation 8 to section 43(1) and also ignoring the fact that once assessee is having mixed funds and the assessee has taken loan, it cannot be presumed that the assessee has utilized these funds only for the purpose for which the bank have sanction a loan.
ii) Whether on the facts and circumstances of the cases the Ld. CIT(A) has erred in facts and law in deleting the addition of Rs. 13,87,50,000/- by ignoring the fact that the companies from where the share application money had been received had only meagre income and also had failed to prove their credit worthiness and genuineness of the transaction during remand proceeding and thus proved to be only paper company involved in providing accommodation entries.
2. The relevant facts of the case are that the assessee was engaged in the business of trading of mosquito coils, phenyl and glass cleaner detergent toilet cleaner etc. In the scrutiny proceedings, the AO required the assessee to justify the loans and advances given by it to 4 persons namely Sh. Rajendra Aggarwal, Sh. Praveen Aggarwal, Sh. Baljinder Aggarwal and Sh. Sunil Aggarwal. No convinced with the explanation offered, the AO for the reasons set out in paragraph 4 to paragraph 4.4 of the assessment order, made an addition of Rs. 33,65,589/-.
ITA 896/CHD/2017.
A.Y. 2011-12 Page 2 of 19 2.1 Apart from that, the AO also made an addition of Rs.
17,41,684/- as interest to be capitalised on capital work in progress for the reasons set out in paragraph 4.5 to 4.7 of the assessment order.
3. These additions were challenged in appeal before the CIT(A). The CIT(A) relying upon the view taken by the First Appellate Authority on same set of facts in the case of the assessee itself in the immediately preceding and subsequent assessment years deleted the addition. The said addition is challenged by the Revenue in ground No. 1.
4. The facts relatable to the second issue raised by the Revenue are found discussed by the assessing officer at pages 8 to 14 of his order. The explanation of the assessee was not accepted by the AO qua the claim of share application money for the reasons set out in paragraph 5 to 5.5 of his order. Addition was made by the AO u/s 69 after considering the position of law in para 5.6 to para 6.
5. The issue was also carried in appeal before the CIT(A) who considering the facts and the position of law obtained a Remand Report from the assessing officer and thereafter deleted the addition. The said action is also challenged by the Revenue in the present proceedings.
6. In the said background the Ld. CITDR inviting attention to the issue raised by the revenue in Ground No. 1 stated that he would rely upon the findings of the assessing officer. Nothing was placed before us to controvert the reasoning on facts and law taking by the CIT(A)
7. The Ld. AR inviting attention to the assessment order and the impugned order submitted that the point at issue is fully covered in favour of the assessee. Accordingly, heavy reliance was placed on the impugned order. Referring to the order, it was submitted by the ld. AR that the CIT(A) has followed the view taken by the CIT(A) in the immediately preceding assessment year and also the view which had been taken in the subsequent assessment year also. It was submitted that the issue has also been examined by the ITAT wherein the view of the CIT(A) has been affirmed. Thus, accordingly it was his submission that the issue is fully covered in favour of the assessee. Reliance was also placed upon the brief synopsis filed in the court wherein reference has been made to the order of the ITAT dated 24/10/2017 in ITA 1444/CHD/2016 for 2013-14 assessment year wherein identical facts and circumstances have been considered by the ITAT Chandigarh Bench in the case of assessee itself at length.
ITA 896/CHD/2017.
A.Y. 2011-12 Page 3 of 19
8. The Ld. CIT-DR in reply did not controvert the submissions of the assessee though placed reliance upon the assessment order.
9. We have heard the submissions and perused the material available on record. It is seen the addition was made by the AO taking into consideration the following facts set out in paragraph 4 to para-4.7 of his order. These are reproduced hereunder for ready reference :
4. Disallowance u/s 36(l)(iii) of the I.T. Act;
4.1 During the course of assessment proceedings, it is observed that the loans and advances have been given out to the extent of Rs.8,23,59,476/-. The assessee was asked to submit details of such advances and furnish whether the interest has been charged on such loans and advances. The assessee's representative attended and submitted the details. From the details furnished it is observed that the sum of Rs.3,14,00,000/- has been given to four persons namely Sh. Rajender Aggarwal, Sh. Parveen Aggarwal, Sh. Baljinder Aggarwal and Sh. Anil Aggarwal for purchase of land. The assessee has not capitalized interest on the advances for purchase of land. The assessee therefore asked to furnish why the interest on advances for land should not be capitalized, The assessee's representative attended and submitted as below:-
"(a) Regarding disallowance of interest on advance for land u/s 36(l)(iii) of Income Tax Act, 1961 it is submitted that out of advances amounting Rs.47,38,510/- against property, the assessee capitalized interest amounting Rs.9,85,103/- against advances amounting Rs.150 lacs.
(b) Regarding the reason for non capitalizing the interest on balance amount of advance for land amount to Rs.314 lacs, it is submitted, that out of Rs.314 lacs, Rs.40 lacs were given on 31.07.2008, Rs.30 lacs on 19.10.2009, Rs.4 lacs on 15.02.2010 and Rs.240 lacs on 21."05.2010.
The said advance is given for purchase of plot of land on which the assessee is constructing godown building which is in progress during the year. The assessee already acquired, the possession of the land and the same is already put to use as the godowns are under, construction thereon.
It is further submitted that the company received interest free funds in the form of share application money amounting to Rs. 1387.50 lacs during the year and the company made interest free advances amounting to Rs.240 lacs only during the year under consideration. Moreover, the company has reserves and surplus amounting Rs.126.29 lacs at the end of the year. Accordingly, no interest was capitalized. 4.2 The assessee's arguments are considered but the same are not acceptable for the reasons discussed below:
i.) The assessee's argument that the plot of land for which the advance has been given has been used for the purpose of business because construction of godown building is in progress during the year. As per proviso to section 36(l)(iii) of the I.T. Act interest is to be capitalized till the date of actual user for the purpose of business. The construction of godown building may be under construction but the same has not been put to use for the purpose of business. Hence, the interest on advance given for the purchase of land is required to be disallowed u/s 36(l)(iii) of the I.T. Act. It is also pertinent to note that the land has not even been transferred in the name of company.
ii) Though the assessee has claimed that the payments were made out of its own funds but the same is not tenable as the assessee has raised various loans during the year for running his business. The payments for the expenditure on building were done through the same bank accounts where the profits of the business and the loan money received are being credited.
ITA 896/CHD/2017.
A.Y. 2011-12 Page 4 of 19 Hence a clear cut distinction as to whether the loan funds or the profits of business were used for purchase of land cannot be made. Accordingly, contention of the assessee company that it has not incurred any interest is not acceptable in view of the clear provision of explanation 8 of section 43(1) of the I.T. Act. As per the provision of Explanation to Section 43(1) which was inserted by the Finance Act, 1986, with retrospective effect from April 1, 1974 where any amount is paid or is payable as interest in connection with acquisition of an asset, so much of such amount as is relatable to any period after such assets is first put to use is not to be included and is deemed never to have been included in the actual cost of such asset. The explanation intends to clarify the position of law as regards the capitalization of the interest paid in connection with acquisition of an asset after it has been put to use. Had it been the intention of the legislature to exclude interest from the actual cost, prior to the period the assets was first put to use the language of the explanation would certainly have been different. The explanation lays stress on the non inclusion of interest after the assets has been put to use. No doubt that this explanation was inserted with the viewpoint to reduce the misuse of investment allowance being made by various assesses, but it also clarifies the position in regard to the assessee. The intention of the legislature has further been explained vide circular No.461 dated 09.07.1986. Para 2 of this circular are reproduced here under: -
"It is an accepted accounting principle that where an asset is acquired out cost of borrowing and not the cost of the assets acquired with those funds. It is for this reason that as per the clear guidelines issued by the institute of chartered accountant of India, the interest on moneys which are specifically borrowed for the purchase of the fixed assets may be capitalized only relating to the period prior to the assets coming in to production i.e. relating to the erection stage of the assets. However, once the production starts no interest on borrowing for the purchase of the assets should be capitalized."
4.3 It is also to be noted that the Finance Act 2003 has amended Section 36(1) (iii) by inserting a proviso to the existing provision w.e.f. 01.04.2004 relevant to assessment year 2004-2005. The proviso inserted to existing provision of section 36(1) (iii) is reproduced as under:
"Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalized in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition-of the asset till the date on which such asset was first put to use. shall not be allowed as deduction"
4.4 The assessee's argument that the plot of land for which the advance has been given has been used for the purpose of business because construction of godown building is in progress during the year. As per proviso to section 36(l)(iii) of the I.T. Act interest is to be capitalized till the date of actual user for the purpose of business. The construction of godown building may be under construction but the same has not been put to use for the purpose of business. Hence, the interest on advance given for the purchase of land is required to be disallowed u/s 36(1)(iii) of the I.T. Act. The disallowance is worked out as under:-
Sr. Date of Amount (In No. of Interest worked out
No. payment Rs.) Days @12%(Rs.)
1. 31.07.08 40, 00, 000/- 365 4,80,000/-
2. 19.10.09 30, 00, 000/- 365 3,60,000/-
3. 15.02.10 4,00,000/- 365 48,000/-
4. 21.05.10 2,40,00,000/- 314 24,77,589/-
T O T A L 3 , 1 4 , 0 0 0 0 0/ - 33,65,589/-
/j^H
Disallowance of interest onJ Uland
' conies to Rs. 33,65,589/-.
ITA 896/CHD/2017.
A.Y. 2011-12
Page 5 of 19
4.5 Secondly, it has been observed that the assessee has shown capital work in progress to the extent of Rs.2,78,32,498/-. The assessee was asked to furnish why interest on capital work in progress should not be capitalized. The assessee's representative attended and submitted as below:
"Regarding interest on building under construction not capitalized, it is submitted that assessee raised term loan for the building under construction and had outstanding balance ofRs.1,69,67,553/- as on 31.03.2011. The assessee had capitalized entire interest amounting Rs.13,36,935/- charged by Allahabad Bank on term loan. Copy of account of building under construction and Allahabad Bank (MTL Account) are enclosed for your ready reference."
4.6 The submissions made by the assessee are considered. The assessee has capitalized interest on term loan taken for construction of the building but it has not capitalized the interest on labour payments made in cash as well as on the opening balance of work in progress which is Rs. 1,22,98,678/-. The assessee has not given any reason as to why the interest on opening capital work in progress has not been capitalized. The assessee has submitted working of interest on cash payments in building under construction which comes to Rs.2,65,843/-. Secondly, the interest @ 12% on opening capital work in progress of Rs.1,22,98,678/- comes out to Rs.14,75,841/- (Rs. 12298678 x 12%). Total interest to be capitalized on capital work in progress in view of the relevant provisions i.e. r 36(l)(iii) and 43(1) of the I.T. Act as discussed above comes to Rs.17,41,684/-.
4.7 Total disallowance of interest u/s 36(l)(iii) of the I.T. Act on account of capitalization attributable to advance for land and capital work in progress is as below:
SR. No. Description 1 Amount (Rs.)
1. Interest to be capitalized on advance for land as 33,65,589 worked out in para 4.4 II. Interest to be capitalized on capital work in 17,41,684 progress as worked out in para 4.5 Total 5107273 Total disallowance of interest u/s 36(l)(iii) of the I.T. Act on account of capitalization attributable to advance for land and capital work in progress comes to Rs.51,07,273/-. Penalty proceedings u/s 271(l)(c) are initiated on this point for furnishing inaccurate particular income.
9.1. A perusal of the impugned order shows that considering the written submissions of the assessee and the arguments advanced, the CIT(A) deleted the addition holding as under :
14. I have carefully considered the appellant's various submission. I have also gone through the assessment order and two remand reports of the Assessing Officer on the enquiries conducted by him. As regards the 2nd ground of appeal with regard to disallowance of interest u/s 36 (1)(iii), it has two limbs, one with regard to the amount advanced for purchase of land on which, the interest has been disallowed and the 2nd is on account of amount spent on the construction of Godown building. The appellant in various submissions has stated that no borrowed funds have been used for making the payment for purchase of land and the payments were made, beginning from July, 2008 to May 2010.
The appellant had filed balance sheets for the year ending 31.03.2009 and 31.03.2010 of the appellant to substantiate the fact that in some of the earlier years, the appellant did not have ITA 896/CHD/2017.
A.Y. 2011-12 Page 6 of 19 'Term Loan' or even 'working capital loan' or any kind of 'Cash credit limit'. The appellant has also demonstrated that even the loans which were taken during the year under consideration, they have specifically been obtained and utilized for the construction of godown building and certain loans are for repayment to creditors and car loans has specifically been utilized for that specific purpose. It is not a case of diversion of borrowed amount used for the purposes of advances for the purchase of land or for construction of building.
14.1. Further, the appellant has been able to prove that the appellant had sufficient 'share capital and Reserves' and interest free share application money, on which, no interest was being paid. These funds were available for the amount spent on the building and for making advances for land. In his written submissions, the appellant has relied on number of case laws including that of Jurisdictional Bench of IT AT, in the case of "Upper India Steel Manufacturing and Engg. Company" and of "M/s Amartex Industries" cited 'supra' and the Assessing Officer in the two remand reports has not been able to distinguish any of such contentions as raised before me. Even the same issue of disallowance of interest was there in the case of the appellant for Asstt. Year 2012-13, wherein, the Assessing Officer had made similar disallowance and which was challenged before the CIT(A)-4 as per ground No. 3 in that case as under :
i). Interest to be capitalized on advance of land.
ii). Interest to be capitalized on capital work in progress
14.2. The basis of disallowance in Asstt. Year 2012-13 was on the basis of same reasoning by the Assessing Officer and the appellant has also put forth same arguments before the CIT(A)-4 as raised before me and the Ld. CIT(A)-4, has examined in depth the submissions of the appellant and yearwise availability of interest free funds with the appellant, starting from Asstt. Year 2009-10, 2010-11 2011-12 & 2012-13 have been analyzed and in para 7.2 to para 7.3 of the said order, the factual finding has been given by the CIT(A) and it has been held that in Asstt. Year 2009-10, a sum of Rs. 40 lacs had been found to be utilized out of borrowed funds and, thus, as held in that order that the interest of Rs 4,80,000 ( i.e. 12 % of Rs. 40 lacs) was capitalized and the balance addition was deleted to the tune of Rs. 47,05,000/-.
14.3. I have gone through the order of the CIT(A)-4 for Asstt. Year 2012-13 bearing No.09/ROT(08)/IT/CIT(A)-4/Ldh/2015-2016 and find that the facts and circumstances of making the addition by the Assessing Officer and the submissions of the appellant are same and following that order, dated 26.08.2016, I am in agreement with the finding of the Ld. CIT (A)-4, and hold that for the Asstt.Year 2011-12, the disallowance should be restricted to Rs. 4,80,000/- only and balance addition of Rs. 46,27,273/- deserves be deleted."
9.2 We have heard the rival submissions and perused the material available on record. We have also taken into consideration the order of the coordinate Bench dated 24/10/2017 in ITA/1444/CHD/2016 which has been passed in 2013-14 assessment year wherein the detailed conclusion of the CIT(A) on similar set of facts has been upheld by the coordinate Bench. For ready reference, we extract the finding of the CIT(A) which have been considered by the coordinate Bench :
"6.2 I have considered the observations of the Assessing Officer as made by her in the assessment order while making impugned addition/disallowance. I have also considered written submissions filed by the assessee company vide letter dated 28.09.2016 on the issue under reference. I have also considered various judicial pronouncements relied upon by the assessee as well as other material placed by the assessee company on record. On careful consideration of the assessment order, it has been noticed that the Assessing Officer has made the impugned addition as in her opinion the assessee company has purchased land and made construction of godown thereon by utilizing borrowed funds and as the asset has not ITA 896/CHD/2017.
A.Y. 2011-12 Page 7 of 19 been put to use, the interest cost pertaining to the borrowed funds utilized for the purchase of land and construction of godown thereon which has not been put to use should have been capitalized in view of proviso to section 36(l)(iii) of the Act. On the other hand, the assessee company through its Ld. ARs has submitted that the interest cost of borrowed funds which have been utilized specifically for the purposes of construction of godown on the land has already been capitalized. It has further been submitted that the assessee company has also used its own interest free funds in the form of share capital, unsecured loans and reserves and surplus for the purchase of land and construction of godown thereon and no interest cost has been incurred by the assessee company on the amount which has been utilized out of its own interest free funds and as such capitalization of interest cost does not arise. It has again been submitted that the advance for the purchase of land has also been given in earlier years out of own interest free funds and as such no disallowance on account of capitalization of interest can be made during the year under consideration. On careful consideration of the rival contentions,*! am of the opinion that there is prima facie some force in the contentions of the assessee company as it was having interest free funds available with it which can be used for the purchase of land and construction of godown thereon. Let us examine this into detail. On the perusal of audited profit & loss account and audited balance sheet for the Assessment Years 2009-10, 2010-11, 2011-12 and 2012-13, the following position emerge :
A.Y. 2009-10 Advance given for the purchase of land to directors Rs.40,00,000/-
Amount spent on construction of godown Rs. Nil
Amount stated to be spent on construction out of
Borrowed and own funds Rs. Nil
Interest free funds available with the assessee company Share Capital Rs. 1,00,000/-
Reserve and surplus Rs.4,56,250/-
Loan from directors Rs.41,319/- Rs. 5,97,579/-
Interest bearing funds available with assessee company Rs. 34,02,000/-
As the net current assets with the assessee company were to the extent of Rs.3 9,36,7217- and net investment in fixed assets was Rs.64,5797-, it cannot be said that the assessee company was having any amount with it out of current liabilities which include sundry creditors, provisions for tax and advances from customers which can be said to be given for the purchase of land. In view of these facts, it is clear that the majority of the advance t paid for the purchase of land has been given out of borrowed funds. A.Y.2010-11 Advance given for the purchase of land to directors Rs. Nil Amount spent on construction of godown Rs. 1,22,98,678/- Amount stated to be spent on construction out of borrowed funds Rs.48,66,625/- Amount stated to be spent on construction out of own funds till end of the year Rs. 74,32,053/-
Interest free funds available with the assessee company Share Capital Rs.3,01,00,000/-
Reserve and surplus Rs.65,46,949/-
Share application money Rs. 1,00,00,000/-
Loan from directors Rs. 41,319/- Rs. 4,66,88,268/-
In view of these facts, it can be said that the assessee company was having sufficient interest free funds to make advance of Rs.34,00,0007- for the purchase of land and spend Rs.74,32,0537- to make investment in the construction of godown.
"A. Y. 2011-12 Advance given for the purchase of land to directors Rs.2,40,00,000/- Amount spent on construction of godown Rs. 2,38,72,498/- Amount stated to be spent on construction out of borrowed funds Rs. 1,69,67,553/- Amount stated to be spent on construction out of own funds till end of the year Rs.69,04,945/-
Interest free funds available with the assessee company Share Capital Rs. 3,01,00,000/-
Reserve and surplus Rs. 1,26,29,398/-
Share application money Rs. 14,87,50,000/-
Loan from directors Rs. 41,319/- Rs. 19,15,20,717/-
ITA 896/CHD/2017.
A.Y. 2011-12
Page 8 of 19
In view of these facts, it can be said that the assessee was having sufficient interest free funds to make advance of Rs.2,40,00,000/- for the purchase of land and spend Rs.69,04,9457- to make investment in the construction of godown.
A.Y. 2012-13 Advance given for the purchase of land to directors Rs. Nil Amount spent on construction of godown Rs. 3,29,24,7707-
Amount stated to be spent on construction out of borrowed funds Rs. 1,90,00,000/-
Amount stated to be spent on construction out of own funds till end of the year Rs. 1.39,24,770/ Interest free funds available with the assessee company Share Capital Rs.4,51,00,000/-
Reserve and surplus Rs.4,98,85,429/-
Share application money Rs.Nil Rs.9,49,85,429/-
In view of these facts, it can be said that the assessee company was having sufficient interest free funds to make investment in earlier years on construction and further investment of Rs.29,69,000/- in the construction of godown during the assessment year under consideration.
6.3 From the above stated facts, I am of the opinion that the advance for the purchase of land in the A.Y. 2010-11 and 2011-12 to the extent of Rs.2,74,00,000/- and part of the amount spent on construction during A.Ys. 2010-11, 2011-12 and 2012-13 have been spent out of interest free funds available with the assessee company and the question with regard to capitalization of interest on the amount used out of own funds including opening balance does not arise. However, the amount given as advance for the purchase of land in the A.Y. 2009-10 to the extent of Rs.40,00,000/- is out of borrowed funds as is clear from the preceding paragraphs. It means, the interest to the extent payable on Rs.40,00,000/- which was paid in A.Y. 2009-10 out of interest bearing funds was certainly required to be capitalized which has not been done by the assessee company.
The interest amount which was required to be capitalized comes to Rs.4,80,000/- (12% of Rs.40,00,000/-) and not Rs. 63,16,618/- as arrived at by the Assessing Officer. Under such circumstances, the addition made by the Assessing Officer on account of capitalization of interest is restricted to Rs.4,80,000/- as against made by the Assessing Officer at Rs.63,16,618/-.
6.4 In view of the above stated facts and in the circumstances of the case, the addition made by the Assessing Officer on account of capitalization of interest is restricted to Rs.4,80,000/- and balance addition of Rs.58,36,618/- is directed to be deleted. The assessee will thus get a relief of Rs.58,36,618/- out of addition of Rs.63,16,618/-. In the result, grounds No. 2 of appeal taken by the assessee company is partly allowed."
9.3. We note that the appeal of the Revenue on identical set of facts and circumstances was dismissed by the coordinate Bench holding as under :
5. We have heard submissions and perused the material available on record. We find that the arguments of the ld. Sr.DR that in 2012-13 assessment year, there was a negative income, is contrary to record. The year-wise availability of funds has specifically been considered by the CIT(A) at pages 13 to 15 of his order and none of the amounts mentioned therein, it has been shown to be contrary to record even when considered alongwith the respective pages referred to by the ld. Sr. DR in her arguments.
The arguments of the ld. Sr.DR that it was a case of mixed funds as the assessee had also obtained loans, we find in the facts as they stand, nothing turns thereon. For the said purposes, we deem it appropriate to refer to the decision of the Apex Court in the case of Bright Enterprises Pvt. Ltd. V CIT 381 ITR 107 (P&H) wherein considering the principle of law as laid down by the Bombay High Court in the case of CIT Vs Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom) the view taken by the Hon'ble Bombay High Court was followed. Thus the legal position that if there are interest free funds available, presumption would be that investment would be made out of the interest free funds available or generated in the business by the company is no longer res-integra. Reference may also be made to another decision of the Apex Court in the case of Hero Cycles Pvt. Ltd. Vs CIT (2015) 379 ITR 347 (S.C) wherein taking cognizance of the decision of the Delhi High Court in the case of CIT Vs Dalmia Cement (P) Ltd. (2002) 254 ITR 377 their Lordships held that once it was established that there was a nexus between expenditure ITA 896/CHD/2017.
A.Y. 2011-12 Page 9 of 19 and purpose of business, Revenue could not justifiably claim to put itself in the armchair of businessman or in position of Board of Directors and assume the role to decide how much was reasonable expenditure having regard to circumstances of the case. Affirming the well settled legal principle, it was held by the Court that no businessman could be compelled to maximize his profit and Income Tax authorities must put themselves in the shoes of assessee and see how a prudent businessman would act. The Court deprecated the attitude of the tax authorities in looking at the matter from their own view point instead of looking at it from the point of view of a prudent businessman. The Court was seized of the facts in the said case where an advance of Rs. 1.16 Crores odd had been advanced by the assessee to its subsidiary and deduction of interest paid on borrowed funds from bank was disallowed u/s 36(1)(iii) of the Act to the extent of Rs. 16,39,010/- out of the total claim of Rs. 20,53,120/-. Apart from that, the assessee had also advanced loans of Rs. 34 lacs to its Directors at the rate of 10% interest whereas on the bank loans, the assessee was paying interest @ 18%. The addition, by way of disallowance was sustained in appeal by the jurisdictional High Court following its own judgement in the case of CIT-I, Ludhiana Vs M/s Abhishek Industries Ltd, Ludhiana (ITA 110/2005) dated 04.08.2006 affirming the principle that when loans were taken from the banks on which interest was paid for the purposes of business, the interest thereon could not be claimed as business expenditure. Their Lordships of the Apex Court in the aforesaid decision in the case of Hero Cycles held the approach to be faulty in law and concluded that it cannot be countenanced. In the facts as available before the Apex Court, commercial expediency stood demonstrated on facts for the interest free loans advanced to the subsidiary. Their Lordships further considering the loans advanced to the Directors at a lesser rate of interest, relying upon the conclusion of the CIT(A) that the company had reserves/surplus to the tune of almost Rs. 15 crores affirmed the finding that the assessee company in any case, could utilize those funds for giving advance to its Directors. The said conclusion when considered in the light of the aforesaid decision of the Apex Court in the case of Hero Cycles, it is noted that the Court after referring to the position of law as stood recapitulated on commercial expediency in the case of S.A. Builders Vs CIT & another (2007) 288 ITR 1 (S.C) the legal position was summed up by the Court noting that the expression 'commercial expediency' is an expression of wide import and"
includes such expenditure as a prudent businessman incurs for the purpose of business. The Court held that the expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. Similarly considering the principle of law as laid down in another decision of the Apex Court itself namely in the case of Madhav Prasad Jatia Vs CIT (1979) 118 ITR 200 (S.C) their Lordship took into consideration the fact that the position would be different if the borrowed amount was donated for some sentimental or personal reason and not on the grounds of commercial expediency. In such a situation, it has been held that the claim of interest could not have been allowed u/s 36(1)(iii) of the Act. In the facts of Madhav Prasad's case, the borrowed amount was donated to a college with a view to commemorate the memory of assessee's deceased husband after whom the college was to be named. It was in those circumstances that the Court held that such an expenditure may not be said to be for commercial expediency. The Court in the latest decision took note of the fact that the principle enunciated in S.A.Builders case was that borrowed fund advanced to a third party should be for commercial expediency if it is sought to be allowed u/s 36(1)(iii) of the Act etc. The Court further took into consideration the distinction of the expression "for the purpose of business" which, it was noted is wide in scope than the expression "for the purpose of earning profits" as held in CIT Vs Malayalam Plantations Ltd. (1964) 53 ITR 140 (S.C) and CIT Vs Birla Cotton Spinning and Weaving Mills Ltd. (1971) 82 ITR 166 (S.C). Thus, as far as the legal and factual position as considered by the CIT(A), we find there is no infirmity pointed out by the Revenue on record. The fact that to the extent relief has been granted, the conclusion has been drawn on the basis of facts that the purchase and construction was from the interest free funds available to the assessee which finding of fact we note remains un-assailed on record. Arguments to the contrary advanced by the ld. Sr. DR are found to be ex facie contrary to facts on record. The facts on record that entire interest expenditure on term loan from Allahabad Bank has duly been capitalized is an accepted fact which remains unassailed and has constantly been argued even before the AO. Thus, in the aforementioned peculiar facts and circumstances, finding ourselves in agreement with the conclusions drawn in para 6.2 to 6.4 of the impugned order on the ITA 896/CHD/2017.
A.Y. 2011-12 Page 10 of 19 facts as they stand which has been extracted in the earlier part of this order, the departmental appeal is dismissed.
9.4 Addressing the next issue, the Ld. CIT-DR inviting attention to the Ground raised submitted that the addition was made on the basis of detailed reasons and findings of the assessing officer wherein the assessee was required to justify the share application money received at a premium from two concerns namely M/s New Star Information Systems (India) Ltd. and M/s Rapid Packaging Ltd. Relying upon the assessment order, it was his submission that the impugned order may be set aside as the CIT(A) has deleted the same ignoring the observations of the AO. Accordingly, it was his submission that apart from relying upon the assessment order which is a very detailed order he would have nothing further to state.
11. The Ld. AR on the other hand drew specific attention to the assessment order and carrying us through the finding in para 5 of the same, it was his submission that the assessee was required to justify the share application money received from M/s New Star Information Systems (I) Ltd and M/s Rapid Packaging Private Limited. Referring to the assessment order itself, it was submitted that the details sought for by the assessing officer were made available by the assessee and have been extracted at page 9 of the assessment order itself. Referring to the record, it was submitted that the AO did not rebut any of the evidence made available and instead at the last moment, required the assessee to produce the parties who had subscribed/paid the share application money. It was his submission that within a short time of one and a half months in the specific period the assessee was unable to produce the Directors. This fact, it was submitted, has been noted by the assessing officer in para 5.3.3 to 5.3.5 of his order. It was submitted that since by the time, the appeal came up for hearing before the First Appellate Authority, the other details were made available. These were remanded to the AO and is evident from para-5.4.1 of the order wherein the AO after seeking the information, discarded it by saying that it does not prove genuineness. Apart from this arbitrary reason, it was submitted, no contrary rebutting evidence is relied upon. It was submitted that the explanation offered before the AO was reiterated before the CIT(A) also. In regard to the availability of funds from M/s BBF industries Ltd. which was discarded by the assessing officer, it was submitted that the ITA 896/CHD/2017.
A.Y. 2011-12 Page 11 of 19 assessing officer has held because of non-production of the party and treated the evidence as meaningless. Carrying us through the submissions and the arguments inviting attention to para-5.52 it was submitted the AO did not rebut any evidence. The decisions and various case laws, it was submitted, were incorrectly considered to make the addition. It was submitted that each of the decision relied upon by the AO has been distinguished by the assessee before the CIT(A) in the detailed written submissions extracted in the order itself which have not been upset by the CIT-DR or the AO. Inviting attention to the impugned order it was his submission that on facts the source of the source and genuineness of the transaction and the existence as well as the identity were the requisites of section 68 have also been addressed and all go to prove the genuineness of the transactions. The evidences, it was submitted, stands unassailed by the Revenue. Inviting attention to the 3 volume of paper books filed, it was submitted, that the details and documents on the basis of which the conclusion has been arrived at by the CIT(A) has been placed therein. Carrying us through the paper books filed, the impugned order, the reasoning and the arguments advanced therein which have been summed up in the synopsis it was his submission that the impugned order deserves to be upheld and the department grounds dismissed. For the sake of completeness, the submissions set out in paragraph 4 of the synopsis filed on behalf of the assessee are extracted hereunder :
"4. This issue has been discussed by the Assessing Officer in para 5, at page 8 and the issue is with regard to share application money from two concerns namely, M/s New Star Information System (India) Pvt. Ltd., and M/s Rapid Packaging Pvt. Ltd., who have contributed a sum of Rs. 11,56,00,000/- and Rs. 2,31,50,000/- respectively during the year under consideration.
5. Actually, a sum of Rs. 1 crore was invested in the form of share application money by M/s Rapid Packaging Pvt. Ltd.,in Asstt. Year 2010-11 for which, there is no dispute. The detail of such investment of Rs. 13,87,50,000/- is there at page 9 of the order of the Assessing Officer. The assessee furnished the following documents before the Assessing Officer:-
a). Copy of the Balance Sheet of the company, wherein, the amount received have been reflected and copies of such balance sheet of M/s Rapid Packaging Pvt. Ltd, is placed at pages 85 to 93 of paper book and relevant page is 90, where such investment have been reflected in their balance sheet as on 31.03.2011 and also there is share capital, reserves and surplus to the tune of Rs. 5,31,53,481/- in that company.
b). Further, the Balance Sheet of M/s New Star Information System (India) Pvt. Ltd., has been placed at pages 94 to 107 of Paper Book and at page 104, the said investment of Rs. 11,56,00,000/- has been reflected in their balance sheet and at page 99, there are funds available with the said company to the tune of Rs. 33,72,17,172/-.
ITA 896/CHD/2017.
A.Y. 2011-12 Page 12 of 19
c). The confirmations from above two companies were filed before the Assessing Officer and which are placed at pages 126 to 127A of the paper book.
d). Further, documents were filed before the Assessing Officer, which are placed at pages 79, 80 to 81, 82 and 83 of the paper book.
e). Copy of the bank statement of M/s Rapid Packaging Pvt. Ltd., is placed at pages 108 to 112 and the relevant pages are 110 and 111 read with pages 79 and 127A of the paper book and which proves that all transactions are by way of cheques.
f). Further, in respect of M/s New Star Information System (India) Pvt. Ltd., copy of the bank statement is there at pages 113 to 121 and relevant pages are 116 to 119, read with pages 80 to 81 and 126 to 127 of paper book and which proves that all the transactions are by way of cheques.
g) The reply, dated 9.1.2014 was submitted to the Assessing Officer, which is placed at pages 122 to 125 of the paper book and the relevant page is 123. Then, it was further submitted in para 4 at page 124, that these amounts have been invested earlier by both the concerns as share application money in M/s BBF Industries Ltd. In financial year 2009-10 and 2010-11 and that amount was received back from those concerns and invested in M/s Incite Homecare Products Pvt. Ltd. , which is sister concern of M/s BB Industries Ltd.. and copy of account of M/s BBF Industries was also enclosed to substantiate such contention and not doubted by the Assessing Officer.
h). The said copy of account in the books of M/s BBF Industries Ltd., is there at pages 130 to 131 read with bank accounts of both the concerns, which have been placed at pages 108 to 112 of M/s Rapid Packaging Pvt. Ltd., and from pages 113 to 121 of M/s New Star Information System (India) Pvt. Ltd., and the relevant entries have been numbered and highlighted.
i). There is another reply, dated 7.2.2014 to the Assessing Officer explaining the source of share application money, which reply is there at pages 132 to 133 of paper book.
j). Further, another reply, dated 13.02.2014 to the Assessing Officer was given where it was stated about the share capital and reserves of both the companies and they had good net worth and further their sources were explained at pages 134 to 135 of paper book.
k). Copy of the assessment order of M/s New Star Information System (India) Pvt. Ltd.,and M/s Rapid Packaging Pvt. Ltd.,for various years as passed u/s 143(3) were filed and which are placed at pages 136 to 141 of the paper book.
l). Further, the copies of accounts are there at pages 142 to 144 alongwith summary, which proves that the shares were allotted to M/s Rapid Packaging Pvt. Ltd. , of the entire amount invested by the said company and, whereas, in respect of M/s New Star Information System (India) Pvt. Ltd., substantial amount of Rs. 5,39,10,OOP/- was refunded by cheques and the shares worth Rs. 6,16,90,000/- were issued, to them as per summary placed at page 131A of the paper book.
m). Also, in order to further substantiate that amount, which was lying invested with M/s BBF Industries Ltd., a reply,, dated 22.01.2014, addressed to ACIT, Circle-1, was filed, which is placed at pages 145 to 146 of paper book and, wherein, there is discussion about the share application money as received from M/s New Star Information System (India) Pvt. Ltd. and M/s Rapid Packaging Pvt. Ltd. by BBF Industries Ltd. in earlier years.
n). Further, another reply was referred, which is dated 26.02.103 addressed to DCIT,Circle-1, Ludhiana in the case of M/s BBF Industries Ltd., which have been placed at pages 147 to 150 of paper book, wherein the said investment in share application money by M/s New Star Information System (India) Pvt. Ltd., was there in M/s BBF Industries Ltd., in earlier years.
o). Further, the order u/s 143(3) of M/s BBF Industries Ltd., for Asstt. Year 2010-11 was also submitted, which is placed at pages 151 to 167 of the paper book to substantiate the fact that no addition on account of share application money as made by M/s Rapid Packaging Pvt. Ltd., and M/s New Star Information System (India) Pvt. Ltd., was made in BBF Industries Ltd.
ITA 896/CHD/2017.
A.Y. 2011-12 Page 13 of 19
p). Similarly, assessment order of M/s BBF Industries Ltd. Passed u/s 143(3) ,for Asstt. Year 2011-12 was filed, copy placed at pages 168 to 216, wherein, the amount as contributed by M/s Rapid Packaging Pvt. Ltd., and by M/s New Star Information System (India) Pvt. Ltd., have been accepted.
q). The submissions to the CIT (A) are placed at pages 217 to 240 and another submissions is at pages 241 to 242 of the paper book.
6. The Assessing Officer in para 15.5 has stated that the subscriber companies have huge sum of share capital and security premium, but the identity of the subscribers and their credit worthiness has not been proved and the income of those concerns were not much to have invested in the shares of the company. This is totally a contradictory finding.
Issue in CIT(A) order
7. Before the CIT (A), this issue has been discussed in para 6 and 6.1 at page 3 6t 4 of the order and then our submissions on this issue have been reproduced at page 14 onwards and with particular reference to para 4.2, our contention in detail has been given at pages 18 to 21 of the order.
8. The Assessee could not produce the respective persons of the two companies i.e. M/s Rapid Packaging Pvt. Ltd.,and M/s New Star Information System (India) Pvt. Ltd., before the Assessing Officer and for which, we had stated that reasonable opportunity have not been afforded. Further, the Assessing Officer could have summoned both the persons concerned of the companies for verification and no attempt was made to summon them and we relied upon different case laws that even the non-appearance of the directors, wherein other information was there with the Assessing Officer, no addition could have been made as per page 21 of the order and other judgments on the issue of genuineness of share capital are there from pages 21 to 24 of the order of CIT (A).
9. The case was remanded back to the Assessing Officer, which is clear from para 10 and para 11 of the order of CIT (A), wherein the directors of the companies were produced before the Assessing Officer and all the documents on the basis of summons issued u/s 131 were filed by such companies and which are placed in the paper book Vol.II of M/s New Star Information System (India) Pvt. Ltd., consisting of 140 pages and in the paper book Vol. Ill of M/s Rapid Packaging Pvt. Ltd, consisting of Rs. 72 pages.
10. The finding of CIT (A) on this issue has been given at page 50 in para 15 and which is being relied upon and in various paragraphs, both on the basis of factual facts and circumstances and identity, credit worthiness and genuineness of transaction is proved and even the source of amount invested as share application money have amply been proved. This amount was also accepted in the case of M/s BBF Industries Ltd, for which, the documentary evidence was placed on record and substantial amount was returned back to M/s New Star Information System (India) Pvt. Ltd, and all such transactions are by way of account payee cheques and that source of source have already been explained.
11. Further, even it has been stated that by the Assessing Officer that there are huge reserves at page 14 of the order of both the companies and then the assessment in the case of M/s BBF Industries Ltd. have been made u/s 143(3). It has also been held by the CIT(A) that in the remand proceedings, the directors of the company had appeared before the concerned Assessing Officer and produced the relevant records and further on the basis of enquires made by the Assessing Officer, a detailed information was filed by the said companies, which have been enclosed in Paper Book-ll & III and such are companies are being assessed to tax and the such investment have been recorded in their balance sheets and they are requisite funds.
12. The assessee relies upon the judgment from Serial No. 6 to 21 of judgment Set and relevant portions have been highlighted and specially of Bombay High Court at Serial No. 15, wherein, it has been held that the judgment of 'Lovely Export' shall be ITA 896/CHD/2017.
A.Y. 2011-12 Page 14 of 19 fully applicable till Asstt. Year 2012-13 i.e. before the amendment by Finance Act 2012 w.e.f. 1.4.2013, where the proviso to section 68 was added and which has been deliberated upon by the Ld. CIT (A) in para 15.7 to 15.9 onwards and also the judgments quoted by the Assessing Officer have been distinguished from pages 29 to 41 of the order of CIT (A) and in para 15.7, the Ld. CIT (A) has agreed that the judgments cited by the Assessing Officer are distinguishable and, thus, the reliance is being placed on the order of the CIT (A) and, thus,, the appeal of the department be dismissed."
12. We have heard the submissions and perused the material available on record. The specific finding of the CIT(A) under challenge in the present proceedings is extracted hereunder :
15. As regards the addition of share capital to the tune of Rs. 13,87,50,000/- u/s 68, The facts, in brief, as brought out from the assessment order are that two parties, namely "New Star Information System India Pvt.Ltd." and "Rapid Packaging Pvt. Ltd." had contributed towards the share capital/premium during the year under consideration, through normal banking channels to the appellate. During the course of assessment proceedings, the appellant filed the confirmations from the said companies and further submitted that the amount as invested by the two subscriber companies had earlier been lying with M/s BBF Industries Ltd., and which had been returned back by M/s BBF Industries Ltd., to both the above said subscriber companies and for that the copy of two subscriber companies in the books of M/s BBF Industries Ltd., was filed to substantiate that the amount had already been accepted in the hands of M/s BBF Industries Ltd. In fact, during the course of hearing, the appellant alongwith his submissions filed the copy of the letter, dated 26.02.2013 as addressed to the DCIT, Circle I, Ludhiana in the course of assessment proceedings of M/s BBF Industries Ltd., in which, in para 5, the confirmation of sources and the bank statements and the assessment order u/s 143(3) for Asstt. Year 2010-2011 of "M/s New Star Information System India Pvt.Ltd.", have been filed and for ready reference, the para-5, of letter. dated26.02.2013/as addressed to the DCIT, Circle-l, Ludhiana during the course of assessment proceedings of M/s BBF Industries Ltd. for Asstt.Year 2010-11 is being reproduced as under:-
'Regarding the share application money received during the year, the Appellant had earlier filed the party-wise details of Share Application Money along with confirmations vide reply dated August 24, 2012. Further regarding the sourcing of Share Application Money received, we are enclosing herewith the documents as under:
Sl Name of party Documents enclosed Annexure No.
1 M/s New Star Information Copy of Audit Report alongwith 4
System India Ltd. Audited Balance Sheet
2 Rajinder Kumar Copy of bank statement 5
3 Baljinder Kumar Copy of bank statement 6
4 Parveen Kumar Copy of bank statement 7
15.1 Similarly in respect of M/s Rapid Packaging Pvt. Ltd., the confirmed copy of account from the books of M/s BBF Industries Pvt.Ltd. where earlier the amount was invested by the said subscriber in M/s BBF Industries Ltd. and after withdrawing the amount from M/s BBF Industries Ltd., the amount was invested in the appellant company and copy of that letter, dated January 22,2014 as filed during the course of proceedings before the ACIT, C-l, Ludhiana and the relevant reply is being reproduced as under :
Regarding the reduction in share application money as received by the Appellant Company in the previous years it is submitted that, during the year, there is net reduction in the share application money of Rs.11,44,25,000/-. The complete detail of the share application money in the books of the Appellant Company along with party-wise ITA 896/CHD/2017.
A.Y. 2011-12 Page 15 of 19 details as on 31.3.2011 is enclosed herewith as Annexure-1 for your goodself's reference. During the year under consideration, the Appellant company has received share application money from M/s New Stat Information System India Ltd., M/s Rapid Packaging P. Ltd., Mr Baljinder Kumar, Mr. Parveen Kumar and Mr Anil Kumar during the year and partly repaid in the same Assessment Year 2011-2012 and in nut shell there is a net reduction in share application money on year on year basis. Further, regarding the sourcing of credit entry in the share application money account, we are enclosing herewith documents in case of each party as under :
Sl Name of party Documents enclosed Ann
No.
1 M/s New Star Information Confirmation, copy of 2
System India Ltd. acknowledgement of ITR,
copy of assessment order for
the assessment year 2010-
2011, copy of audit report
alongwith audited balance
sheet, copy of bank statement
2 M/s Rapid Packaging Confirmation, copy of 3
Pvt.Ltd. acknowledgement of ITR,
copy of assessment order for
the assessment year 2010-
2011, copy of audit report
alongwith audited balance
sheet, copy of bank statement
3 Anil Kumar Confirmation, copy of 5
acknowledgement of ITR and
bank statement. Party already
assessed u/s 143(3) for the
assessment year 2011-2012
with your office vide order
dated 29.08.2013
4 Baljinder Kumar Confirmation, copy of 6
acknowledgement of ITR and
bank statement. Party already
assessed u/s 143(3) for the
assessment year 2011-2012
with your office vide order
dated 29.08.2013
5 Parveen Kumar Confirmation, copy of
acknowledgement of ITR and
bank statement. Party already
assessed u/s 143(3) for the
assessment year 2011-2012
with your office vide order
dated 29.08.2013
The appellant has also filed the copies of assessment orders of M/s BBF Industries for Asstt.Year 2010-11 and 2011-12 as passed by the concerned Assessing Officer, vide order, dated 28.02.2013 for Asstt. Year 2010-11 and order, dated 07.03.2014 for Asstt. Year 2011-2012 u/s 143(3) and has stated that the share capital as contributed by two subscribers companies stand accepted by the Assessing Officer in the case of M/s BBF Industries Ltd. and the same amount after having been repaid to the said subscriber companies and invested as share application money/premium in the appellant company. I have gone through the said evidences and on the basis of above said factual facts, the contention of the appellant deserves to be accepted, because once, the share application has been accepted by the Assessing Officer of the same companies in M/s BBF Industries Ltd., therefore, the identity, genuineness and credit worthiness stands proved and the onus which lay on the appellant stood discharged. Thus, in view of the above said facts, the finding of the Assessing Officer that the amount having come from M/s BBF Industries Ltd. does not in any way proves the genuineness of the parties or their credit worthiness, cannot accepted. 15.3 Further, before me, the appellant filed various submissions and which were forwarded to the Assessing Officer and the appellant had submitted that sufficient opportunity had not been provided to produce such subscribers of share capital and, as ITA 896/CHD/2017.
A.Y. 2011-12 Page 16 of 19 such, the permission was given to the Assessing Officer to make necessary enquiries as he may deem fit with regard to the contribution of share capital by the said two companies, In his submissions, dated 3rd July, 2014, the appellant has submitted that the confirmation and balance sheets of the subscriber companies have been filed along with bank statement of such companies, their income tax returns and source of share application money of the subscribers, which was out of the funds already lying with M/s BBF Industries Ltd., alongwith assessment orders of the subscribers companies and, thus, the movement of the funds is through M/s BBF Industries Ltd., whose assessments have been framed u/s 143(3) clearly establishes the source of source and, thus, the identity, genuineness and credit worthiness of the subscribers to the share capital has been proved. It was further submitted that the assessment of both the subscribers companies have been completed u/s 143(3) and the shares have been allowed to such subscribers in Asstt. Year 2012-13 & 2013-14 and since the shares have been allotted to such subscriber companies and, thus, it could not be treated as unexplained money of the appellant. It was the contention of the appellant that in view of overwhelming documentary evidence, the onus which lay upon the appellant stood discharged and the appellant even volunteered to produce such parties before the Assessing Officer, but the sufficient time had not been afforded to the appellant during the course of assessment proceedings and such opportunity to produce the subscribers was given to the appellant and issue was remanded to the Assessing Officer.
15.4. The appellant also relied upon on number of judgments to substantiate his argument that the addition could not be made on the basis of such circumstances as mentioned by the Assessing Officer and also distinguished the various case laws as cited by the Assessing Officer. The Assessing Officer in the remand proceedings summoned such parties, who appeared before the Assessing Officer, besides they had also filed detailed replies about the identity, genuineness and capacity of such companies to the Assessing Officer and filed numerous other information as desired by the Assessing Officer in response to notice u/s 131. The directors of the company appeared before the Assessing Officer with the books of accounts, which were examined and the statement of such directors were recorded and in the remand report submitted by the Assessing Officer, the factum of issue of summons to such parties have been brought on record and the Assessing Officer has only stated that the appellant company failed to prove the genuineness and credit worthiness of the subscribers companies. The appellant on the other hand has stated that how the observation of the Assessing Officer that the money routed through M/s BBF Industries Ltd., does not prove the genuineness and credit worthiness of the parties concerned, since the source of source of investment made by these companies have been proved beyond any doubt. 15.5. It is admitted fact that the identity, credit worthiness and genuineness of share capital/ premium stands proved, since the statements of the directors have been recorded and they have produced the relevant books of accounts, balance sheets, replied to the summons u/s 131 to the Assessing Officer and such investment as made by these companies have been duly recorded in their balance sheets and they were allotted shares in Asstt. Year 2012- 13 & 2013-14. The Ld. Assessing Officer has not made any adverse comments on the statement of the directors of the companies.
15.6 It has further been observed by me from the submissions and which has not been disputed by the Assessing Officer that the amounts of two companies had been lying as share application money in the BBF Industries Ltd. and the amount, which has been invested in the appellant's company has come from M/s BBF Industries Ltd., and the assessment of M/s BBF Industries Ltd. stands completed u/s 143(3) and no iota of doubt has been raised by the Assessing Officer in this regard. The confirmed copies of accounts of such companies in M/s BBF Industries Ltd. have been placed on record and the amount has been remitted from M/s BBF Industries Ltd., through normal banking channels. It is also a fact on record that in respect of one of the subscribers M/s Rapid Packaging (P) Ltd., the share application in the immediately preceding year is the appellant's own case has been accepted by the department in assessment framed u/s 143(3) of the Act and thus, the same also goes in favour of the appellant.
15.7 The Assessing Officer has relied upon various judgments and the Ld. Counsel of the appellant in a chart reproduced in the written submissions have been able to distinguish said judgments since in those cases, the facts were not identical and also that ingredients of section 68 had not been complied in those cases. In the case of the appellant, all the three ingredients of section 68 regarding, identity, credit worthiness and genuineness of transaction have been proved and the reliance by the appellant on the various judgments is ITA 896/CHD/2017.
A.Y. 2011-12 Page 17 of 19 quite apt, particularly of the Jurisdictional Bench of Chandigarh ITAT in the case of ACIT vs Kissco Castings, Mandi Alloys Pvt. Ltd. and of 'Radhe Sham Jain Diamond Jewellers' as cited supra and, thus, the addition as made by the Assessing Officer deserves to be deleted. As regards the share premium of Rs. 507- per share is concerned, I am of the view that the source of amount as given by two companies, who are subscribers to the share capital proves beyond any iota of doubt that the amount had been lying already assessed with M/s BBF Industries Ltd. and from their through normal banking channels, the amount has come to the appellant and, therefore, no addition of the share premium could have been made. 15.8 I have also gone through the judgment of Mumbai Bench of the ITAT in the case of "Green Infra Ltd." in ITA No. 7762/Mum/2012, wherein, there was share premium of Rs. 4907- per share of the book value of Rs. 107- each and it was held by the ITAT, Mumbai Bench that the Assessing Officer confirmed the transaction from subscriber by issuing notice u/s 133(6) of the Act in that case and in this case also, necessary enquiries u/s 131 have been made by the Assessing Officer and, thus, no adverse view could be taken. Further, once the source of investment in the share capital/share premium is not doubted and also that the share premium realized from the issue of share is of capital in nature and forms part of the share capital of the company and, therefore, cannot be taxed as revenue receipt u/s 56(1) of the Income Tax Act. The appellant has further drawn my attention on the recent decision of Mumbai High Court where the decision of Mumbai Bench of the ITAT in the case of "Green Infra Ltd.," has recently been confirmed by the Hon'ble Mumbai High Court vide its decision dated 16/01/2017. The same view has been held by the Hon'ble Mumbai Bench in the case of Topsgrup Electronics, System vs ITO in ITA No,2115/Mum/2015 and by the Hon'ble Bombay High Court in the case of Vodafone India Services Limited.' I have considered the judgment of Mumbai High Court in the case of "Green Infra Ltd." , which have confirmed the decision of Hon'ble Bench of the ITAT, Mumbai Bench in the case of M/s Green Infra Ltd. As cited supra and the decision of Hon'ble Hyderabad Bench of the ITAT in the case of M/s Hariom Concast & Steel Pvt. Ltd. Vs ITO in ITA No. 1775/Hyd/2014 and of M/s Radhe Sham Jain Diamond Jewellers (P) Ltd.,as cited supra and reliance by the appellant on all these judgments is quite apt. 15.9 The above judgment of Mumbai Bench of the ITAT have been followed by the Hon'ble Hyderabad Bench in the case of 'M/s Hariom Concast & Steel Pvt. Ltd. vs ITO in ITA No.1775/Hyd/2014' and has been relied upon by the appellant in his written submissions. The appellant has also relied upon the recent judgment of the Jurisdictional Bench of the ITA T in the case of M/s Radhe Sham Jain Diamond Jewellers (P) Ltd., in ITA No. 846-847/Chd/2014, in which, there was a share capital and share premium of Rs.11,70,80,000/- and since the genuineness of contribution of share capital and share. premium had been held to be explained by way of documentary evidence, the appeal of the department challenging the order of Worthy CIT(A) was dismissed.
15.10 In view of detailed facts as discussed in above paragraphs, apparently in this case in particular there has been no doubt with respect to identity, genuineness and credit worthiness of the subscribers of share capita! and, therefore, I have no hesitation in deleting the addition u/s 68 as made by the Assessing Officer. Therefore, ground No. 4 & 5 are allowed.
12.1. We find on going through the findings of the assessing officer and on going through the relevant findings of the CIT(A) extracted hereinabove from the impugned order that admittedly the reasons which prevailed with the assessing officer to make the addition in the facts and circumstances of the present case do not justify the upsetting of the finding arrived at by the CIT(A) in the present proceedings. The said conclusion has been arrived at on considering the documents, position of law and the rival submissions of the parties and the respective orders of the tax authorities which have been carefully considered. We find that ITA 896/CHD/2017.
A.Y. 2011-12 Page 18 of 19 the assessee before the assessing officer as well as the CIT(A) has placed evidence in support of its claims not only of the source of the source but also the credit worthiness and produced the Directors whose statements etc. have been recorded by the AO. We find that the supporting documents have been placed in the relevant paper books available on record. We note that the Ld. CIT-DR though has relied upon the assessment order heavily, however has not upset the evidence relied upon by the assessee before the CIT(A) and before us on the basis of which the conclusions drawn is challenged by the Revenue in the present proceedings. We find that nothing has been placed on record either assailing the evidences filed or leading any fresh evidence rebutting the material relied upon and available on record. On the contrary we find on going through the relevant findings of the CIT(A) which is under challenge in the present proceedings that the two firms who have subscribed for shares namely M/s New Star Information System India Private Limited and M/s Rapid Packaging Private Limited in the remand proceedings had not only filed confirmed copies of M/s BBF Industries Ltd. But had also filed copies of the assessment orders of M/s BBF Industries for 2010-11 and 2011-12 assessment years passed under Section 143(3) dated 28.02.2013 and 07/03/2014 respectively. These facts and evidences have been made available not only to the assessing officer but also the CIT(A) who has remanded these to the AO and considering which fact the conclusion has been drawn that the identity of M/s BBF Industries Ltd along with genuineness as well as creditworthiness of the said firm has been held to be established. These facts, submissions and evidences have been forwarded by the CIT(A) to the assessing officer and sufficient opportunity has been provided to him to carry out any investigation or impliedly. We note that in the course of the present proceedings the evidences have not been assailed. It is seen that the source and movement of funds stands addressed and established on record. The assessment of both the subscribers have been completed under section 143 (3). The shares have been allotted to the subscriber companies in assessment in 2012-13 or 2013-14 assessment years. It is seen that the parties have been summoned by the assessing officer in the remand proceedings. The statements of the Directors have been recorded by the assessing officer, the books of accounts have been examined. Thus, where in the remand proceedings, the assessing officer ITA 896/CHD/2017.
A.Y. 2011-12 Page 19 of 19 having recorded the statements of the Directors etc. and considering the material and evidences placed before him has brought nothing on record to rebut the evidences, in these peculiar facts and circumstances, we find in the face of this overwhelming evidence the assertions of the assessing officer that the assessee has failed to prove genuineness and creditworthiness of the subscribers becomes a meaningless observation as no evidence to the contrary has been made available either by the assessing officer in the remand proceedings or by the CIT-DR in the present proceedings. The record shows that the statements of the Directors have been recorded and they have also produced the relevant books of accounts; balance sheets etc. and responded to the summons issued under section 131 by the assessing officer by being present and available for examination in the remand proceedings. In the absence of any evidence to the contrary we find that in the peculiar facts and circumstances of the present case the departmental ground is devoid of merit. Accordingly, being satisfied on facts qua the conclusions drawn by the CIT(A), we find no good reason to vary the conclusion drawn.
13. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 6th April, 2018.
Sd/- Sd/-
( Dr.B.R.KUMAR) ( DIVA SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
'P o o na m'
Co p y to :
1. T he Ap p el la nt
2. T he Re sp o nd e n t
3. T he CI T
4. T he CI T ( A)
5. T he D R
Asstt. Registrar
ITAT,Chandigarh.