ACIT, CHENNAI V. Mallika Battery Company Limited, CHENNAI

ITA 1012/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8865 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 22-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 18-04-2016
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Keywords: Share purchase agreement

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , . !' , # $ % [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO.1012/MDS/2016 / ASSESSMENT YEAR : 2008-09 THE ASSTT. COMMISSIONER OF INCOME-TAX CORPORATE CIRCLE 4(1) CHENNAI VS. M/S MALLIKA BATTERY COMPA NY LTD NO.5, 4 TH STREET, DR RADHAKRISHNAN SALAI MYLAPORE, CHENNAI 600 004 [PAN AAACM 2378 L ] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI SUPRIYO PAL, JCIT /RESPONDENT BY : SHRI Y. SRIDHAR, CA / DATE OF HEARING : 22 - 06 - 2016 ! / DATE OF PRONOUNCEMENT : 15 - 07 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-8, CHENNA I, DATED 29.1.2016 AND PERTAINS TO ASSESSMENT YEAR 2008-08 . 2. SHRI SUPRIYO PAL, LD. DEPARTMENTAL REPRESENTATIVE S UBMITTED THAT THE ASSESSING OFFICER FOUND THAT THE ASSESSEE SOLD SHARES OF M/S NUMERIC POWER SYSTEMS LTD., HOWEVER, THE PROFIT & L OSS ACCOUNT DOES ITA NO.1012/16 :- 2 -: NOT DISCLOSE THE SALE PROCEEDS OF ` 3,61,35,957/-. EVEN THOUGH THE INCOME ON SALE OF SHARES IS EXEMPTED U/S 10(38) OF THE ACT, THE SAME HAS TO BE ADDED WHILE COMPUTING THE BOOK PROFIT U/ S 115JAA OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER INCREASED THE BOOK PROFIT BY ADDING A SUM OF ` 3,61,40,549/-. ON APPEAL BY THE ASSESSEE, THE CIT(A) FOUND THAT ONE OF THE DIRECTOR OF THE ASSES SEE-COMPANY, SHRI T. RANGANATHAN MADE INVESTMENT IN THE SHARES OF M/ S NUMERIC POWER SYSTEMS LTD. DURING THE ASSESSMENT YEAR 197-98 AND THE SAME WAS ADMITTED IN THE BALANCE SHEET FILED BEFORE THE AUTH ORITIES BELOW. FOR THE ASSESSMENT YEAR 2008-09, THE PROFIT ON SALE OF THE SHARES WAS TAKEN AS CAPITAL GAIN IN THE HANDS OF SHRI T. RANGA NATHAN. ACCORDINGLY, THE CIT(A) FOUND THAT THERE CANNOT BE ANY ADDITION IN THE HANDS OF THE ASSESSEE-COMPANY. 3. ACCORDING TO THE LD. DR, THE SHARES WERE ALLOTTED I N THE NAME OF THE ASSESSEE-COMPANY AND NOT IN THE NAME OF THE DIRECTOR, SHRI T. RANGANATHAN. THE COMPANY HAS NOT DEMONSTRATED BEFO RE THE AUTHORITIES BELOW THAT THE INVESTMENT WAS MADE BY S HRI T. RANGANATHAN. REFERRING TO THE OBSERVATION MADE BY THE CIT(A), THE LD. DR POINTED OUT THAT THE COMPANIES ACT DOES NOT RECOGNIZE HOLDING OF SHARES IN FIDUCIARY CAPACITY. SINCE THE SHARES W ERE ALLOTTED IN THE NAME OF THE COMPANY, ACCORDING TO THE LD. DR, THE C APITAL GAIN ON SALE ITA NO.1012/16 :- 3 -: OF SUCH SHARES HAS TO BE ASSESSED IN THE HANDS OF T HE ASSESSEE- COMPANY. THEREFORE, THE CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. 4. ON THE CONTRARY, SHRI Y. SRIDHAR, LD. REPRESENTATIV E FOR THE ASSESSEE SUBMITTED THAT THE INVESTMENT IN THE SHARE S OF M/S NUMERIC POWER SYSTEMS LTD. WAS MADE BY THE DIRECTOR OF THE ASSESSEE- COMPANY SHRI T. RANGANATHAN. REFERRING TO THE ALLO TMENT LETTER SAID TO BE RECEIVED FROM M/S NUMERIC POWER SYSTEMS LTD., THE COPY OF WHICH IS AVAILABLE AT PAGE 69 OF THE PAPER BOOK, TH E LD. REPRESENTATIVE SUBMITTED THAT THIS LETTER WAS ADDRESSED TO SHRI T. RANGANATHAN AND NOT TO THE ASSESSEE-COMPANY. THIS LETTER ALSO ACKN OWLEDGES RECEIPT OF SHARE APPLICATION MONEY AND PREMIUM. REFERRING TO ANOTHER LETTER SAID TO BE RECEIVED FROM M/S NUMERIC POWER SYSTEMS LTD., THE LD. REPRESENTATIVE SUBMITTED THAT THIS LETTER WAS ALSO ADDRESSED TO SHRI T. RANGANATHAN AND NOT TO THE ASSESSEE-COMPANY WITH RE GARD TO ALLOTMENT OF SHARES. THE PAYMENT WAS ALSO ADMITTEDL Y MADE BY SHRI T. RANGANATHAN AND NOT BY THE ASSESSEE-COMPANY. ACCOR DING TO THE LD. REPRESENTATIVE, THE SHARE CERTIFICATE ALONE STANDS IN THE NAME OF THE ASSESSEE-COMPANY. WHEN THE INVESTMENT WAS MADE BY SHRI T. RANGANATHAN IN THE SHARES OF M/S NUMERIC POWER SYST EMS LTD. AND THE ALLOTMENT WAS ALSO MADE IN FAVOUR OF SHRI T. RA NGANATHAN AS PER ITA NO.1012/16 :- 4 -: THE COMMUNICATION RECEIVED FROM THE COMPANY VIZ. M/ S NUMERIC POWER SYSTEMS LTD., ACCORDING TO THE LD. REPRESENTATIVE, SHRI T. RANGANATHAN IS THE OWNER OF SHARES OF M/S NUMERIC POWER SYSTEMS LTD. AND NOT THE ASSESSEE-COMPANY. ACCORDING TO THE LD. REPRESENTAT IVE, THE ASSESSEE- COMPANY HAS NOT INVESTED ANY MONEY IN THE SHARES OF M/S NUMERIC POWER SYSTEMS LTD. IT IS ALSO NOT IN DISPUTE THAT THE CAPITAL GAIN ON SALE OF THE SHARES OF M/S NUMERIC POWER SYSTEMS LTD . REFLECTED IN THE SCHEDULES/AUDITED BALANCE SHEET OF SHRI T. RANGANAT HAN. THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, MERELY BECAUSE THE SHARE CERTIFICATE STANDS IN THE NAME OF THE ASSESSEE-COMP ANY, IT CANNOT BE TREATED AS IF THE ASSESSEE-COMPANY IS HOLDING THE S HARES OF M/S NUMERIC POWER SYSTEMS LTD.. SINCE NO INVESTMENT WA S MADE BY THE ASSESSEE-COMPANY, ACCORDING TO THE LD. REPRESENTATI VE, THE ASSESSEE- COMPANY CANNOT BE THE OWNER OF THE SHARES OF M/S NU MERIC POWER SYSTEMS LTD. THEREFORE, THE CIT(A) HAS RIGHTLY DEL ETED THE ADDITION MADE BY THE ASSESSING OFFICER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. AD MITTEDLY, THE SHARE CERTIFICATE OF M/S NUMERIC POWER SYSTEMS LTD. STAND S IN THE NAME OF THE ASSESSEE-COMPANY. THE CONTENTION OF THE LD. DR BEFORE THIS TRIBUNAL IS THAT THE ASSESSEE COULD NOT DEMONSTRAT E WITH APPROPRIATE ITA NO.1012/16 :- 5 -: EVIDENCE THAT THE INVESTMENT IN SHARES WAS MADE BY SHRI T. RANGANATHAN, DIRECTOR OF THE ASSESSEE-COMPANY. IT I S NOT THE CASE OF THE REVENUE THAT THE ASSESSEE-COMPANY INVESTED IN S HARES OF M/S NUMERIC POWER SYSTEMS LTD. THE COMMUNICATION RECEI VED FROM M/S NUMERIC POWER SYSTEMS LTD., THE COPY OF WHICH IS AV AILABLE AT PAGE 69 OF THE PAPER BOOK INDICATES THAT THE BALANCE AMOUNT OF ` 27,07,500/- TOWARDS ALLOTMENT OF 73,600 SHARES OF ` 10/- EACH AT A PREMIUM OF ` 65/- PER SHARE WAS RECEIVED BY M/S NUMERIC POWER SY STEMS LTD. FROM SHRI T. RANGANATHAN. SIMILARLY, THE ALLOTMENT OF SH ARES OF M/S NUMERIC POWER SYSTEMS LTD. WAS COMMUNICATED TO SHRI T. RANG ANATHAN AND NOT TO THE ASSESSEE-COMPANY. THE COPY OF THE COMMU NICATION IS AVAILABLE AT PAGE 70 OF THE PAPER BOOK. FROM THE O RDER OF THE LOWER AUTHORITIES IT APPEARS THAT FOR ASSESSMENT YEAR 200 3-04, M/S NUMERIC POWER SYSTEMS LTD. DECLARED A DIVIDEND OF ` 1,46,744/- WHICH WAS IN FACT RECEIVED BY THE ASSESSEE-COMPANY ON 24.1.2003. SUBSEQUENTLY, THE ASSESSEE-COMPANY TRANSFERRED THE DIVIDEND TO SH RI T. RANGANATHAN BY WAY OF A CHEQUE DRAWN ON STATE BANK OF INDIA, SA NTHOME BRANCH. SIMILARLY, FOR THE ASSESSMENT YEAR 2004-05, THE DIV IDEND RECEIVED BY M/S NUMERIC POWER SYSTEMS LTD. TO THE EXTENT OF ` 2,20,800/- WAS ALSO TRANSFERRED BY THE ASSESSEE TO SHRI T. RANGAN ATHAN ON THE SAME DAY. FOR SUBSEQUENT ASSESSMENT YEARS 2005-06 AND 2 007-08, THE DIVIDEND INCOME RECEIVED BY THE ASSESSEE-COMPANY WA S TRANSFERRED TO ITA NO.1012/16 :- 6 -: SHRI T. RANGANATHAN. THE FACT REMAINS THAT THE ASS ESSEE-COMPANY HAS NOT INVESTED ANY FUNDS IN THE SHARES OF M/S NUM ERIC POWER SYSTEMS LTD., THEREFORE, THE INVESTMENT HAS TO BE T REATED AS MADE ONLY BY SHRI T. RANGANATHAN AND NOT ANYBODY ELSE. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT MERELY BECAUSE THE SHAR E CERTIFICATE STANDS IN THE NAME F THE ASSESSEE-COMPANY THAT WOUL D NOT CREATE ANY OWNERSHIP OF SHARES IN THE HANDS OF THE ASSESSEE-CO MPANY. THE INVESTMENT IN THE COMPANY WAS MADE BY SHRI T. RANGA NATHAN. THE ASSESSEE-COMPANY ITSELF RECOGNIZED THE INVESTMENT M ADE BY SHRI T. RANGANATHAN AND TRANSFERRED ALL THE DIVIDENDS RECEI VED FROM M/S NUMERIC POWER SYSTEMS LTD. THEREFORE, THE ASSESSE E-COMPANY RIGHT FROM ASSESSMENT YEAR 2003-04 RECOGNIZED THE OWNERSH IP OF SHRI T. RANGANATHAN IN RESPECT OF THE SHARES IN THE NAME OF M/S NUMERIC POWER SYSTEMS LTD. MOREOVER, AFTER SALE OF THE SHAR ES, SHRI T. RANGANATHAN DISCLOSED THE SAME IN THE AUDITED BALAN CE SHEET AND SCHEDULE THEREUNDER FOR THE ASSESSMENT YEAR 2008-09 . IN VIEW OF THE ABOVE FACTUAL SITUATION, THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE B Y THE ASSESSING OFFICER. THIS TRIBUNAL DO NOT FIND ANY REASON TO I NTERFERE WITH THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE SAM E IS CONFIRMED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DI SMISSED. ITA NO.1012/16 :- 7 -: ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JULY, 2016, AT CHENNAI. SD/- SD/- ( . !' ) (A. MOHAN ALANKAMONY) # / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 15 TH JULY, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF