Bharathi Cement Corporation Private Limited, Hyderabad V. ACIT, Circle 2(3), Hyderabad

ITA 1050/HYD/2014

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3551 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-B
• Next Hearing Date: 26-11-2018
• Assessment Year: 2009-2010
• Appeal Filed On: 27-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M KIRANMAYEE SR STANDING COUN
• Assessee Lawyers: K KALYANA SUNDHARAM
• Keywords: Assessment record; Capital receipt
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER I.T.A. NO. 1050/HYD/2014 ASSESSMENT YEAR: 2009-10 BHARATHI CEMENT CORPORATION PRIVATE LIMITED, HYDERABAD [PAN: AADCR3079G] VS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(3) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K. KALYANA SUNDHARAM, AR FOR REVENUE : SMT. M. KIRANMAYEE, ADVOCATE SR. STANDING COUNSEL FOR REVENUE DATE OF HEARING : 26-11-2018 DATE OF PRONOUNCEMENT : 20-02-2019 O R D E R PER SMT. P. MADHAVI DEVI, J.M. : THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX-II, HYDERABAD, DATED 24- 03-2014 U/S. 263 OF THE INCOME TAX ACT [ACT]. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE-COMPAN Y, ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF CE MENT, FILED ITS RETURN OF INCOME FOR THE AY. 2009-10 ON 30-0 9-2009 ADMITTING INCOME OF RS. 2,91,01,250/- UNDER THE HEAD INCOME FROM OTHER SOURCES BEING INTEREST EARNED ON FIXED DE POSITS. DURING THE ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE A CT, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIM ED TO ITA. NO. 1050/HYD/2014 :- 2 -: HAVE RECEIVED A TOTAL SUM OF RS. 70,32,63,855/- WHICH INCLUDED SHARE CAPITAL OF RS. 48,50,080/- AND SHARE PREMIUM OF RS. 69,84,11,520/- FROM THREE COMPANIES I.E., DAL MIA CEMENTS LTD., NEW DELHI, INDIA CEMENTS LTD., CHENNAI AN D SUGUNI CONSTRUCTIONS PVT. LTD., HYDERABAD. HE EXAMINED THE ISSUE IN DETAIL AND TAKING NOTE OF THE FACT THAT THE ASSESS EE- COMPANY HAD NO BUSINESS OPERATIONS, HUGE FUNDS WERE INFUSED TOWARDS SHARE PREMIUM AND SHARE APPLICATION MONEY HE MADE FURTHER INVESTIGATION. HE OBSERVED THAT THE FACE VALUE O F THE 0% CONVERTIBLE PREFERENTIAL SHARES WHICH WERE APPLIED FO R BY THE RESPECTIVE PARTIES WAS RS. 10/-, WHILE THE SHARE PREMI UM WAS RS. 1,440/- PER SHARE. AFTER DETAILED EXAMINATION OF THE PARTIES AND THE MATERIAL ON RECORD, THE ASSESSING OFFICER HEL D THAT THE COMPANYS RATE PER SHARE AT RS. 10/- IS REASONABLE AND ACCEPTABLE, BUT THE PREMIUM AMOUNT OF RS. 1,440/- IS TO WARDS RECEIVING BENEFITS FROM THE THEN GOVERNMENT IN THE FORM OF CLEARANCES, APPROVALS AND ALLOTMENT OF PROJECTS WITHOUT EXPECTING ANYTHING FROM THE ASSESSEE-COMPANY I.E., BH ARATHI CEMENT CORPORATION PRIVATE LIMITED. THEREFORE, HE TREATE D THE ENTIRE AMOUNT RECEIVED TOWARDS SHARE PREMIUM AS INCOME OF THE ASSESSEE-COMPANY U/S. 28(IV) OF THE ACT, VIDE ORDE R DT. 30-12-2011. 3. THEREAFTER, THE CIT ASSUMED JURISDICTION U/S. 263 OF THE ACT AND PERUSED THE ASSESSMENT RECORDS OF THE ASSESSEE. HE OBSERVED THAT THE ASSESSMENT ORDER IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE FOR THE FOLLOWING REASON: ITA. NO. 1050/HYD/2014 :- 3 -: (A) ON VERIFICATION OF ASSESSMENT RECORD, IT IS S EEN THAT DURING THE F.Y. 2008-09 RELEVANT TO THE A.Y. 2009-10, THE ASSE SSEE HAS RECEIVED SHARE APPLICATION MONEY OF RS. 50 CRORES FROM M/S. INDIA CEMENT LTD., WHILE ADDING THE SHARE CAPITAL U/S. 28(IV) IN THE HANDS OF M/S. BHARATHI CEMENT CORPORATION LTD., ON THE GROUND THA T THE TRANSACTION WAS NOT GENUINE, THE AO HAS FAILED TO TREAT THE AMO UNT RECEIVED TOWARDS SHARE APPLICATION MONEY FROM M/S. INDIA CEM ENT LTD., AS BENEFIT ACCRUED TO THE ASSESSEE. THUS, A SHOW CAUSE NOTICE U/S. 263 OF THE ACT WAS ISSU ED TO THE ASSESSEE. IN RESPONSE TO THE SAME, ASSESSEE APPEAR ED AND FILED WRITTEN SUBMISSIONS THROUGH ITS AR. HOWEVER, C IT WAS NOT SATISFIED WITH THE CONTENTIONS OF ASSESSEE AND HELD THAT THE ASSESSING OFFICER HAVING RECORDED THAT THE INVESTMENTS MADE BY INDIA CEMENTS LTD., ARE NOT IN THE NATURE OF CAPITAL INVESTMENT BUT ARE THE PAYMENTS MADE FOR CERTAIN BENEFITS , HAS ERRED IN NOT BRINGING THE FULL AMOUNT TO TAX ON RE CEIPT BASIS. HE HELD THAT THE BOOK ENTRY OF TREATING CERTAIN PO RTION AS SHARE APPLICATION MONEY AND CERTAIN PORTION AS SHA RE CAPITAL HAS NO BEARING ON THE REAL NATURE OF THE TRANSAC TION AND NON-TAXATION OF THE SHARE APPLICATION MONEY CAUSED PREJUDICE TO THE REVENUE. ACCORDINGLY, HE DIRECTED THE ASSESSING OFFICER TO BRING THE SUM OF RS. 50,00,00,70 5/- TO TAX. AGAINST THIS REVISION ORDER OF THE CIT, ASSESSEE I S IN APPEAL BEFORE US, RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. BECAUSE, THE LEARNED COMMISSIONER OF INCOME-TAX -II, HYDERABAD (LD. CIT) HAS ERRED IN LAW AS WELL AS ON FACTS WH ILE DIRECTING ADDITION OF RS.50,00,00,000/- TOWARDS SHARE APPLICA TION MONEY RECEIVED IN ASSESSMENT YEAR (AY) 2009-10; 2. BECAUSE, THE LD. CIT HAS ERRED ON FACTS IN CONCL UDING THAT THE LEARNED LOWER AUTHORITIES HAVE ADDED THE ENTIRE INV ESTMENT MADE IN SHARES TO INCOME OF ASSESSEE WHEN IN FACT IT IS ONL Y SHARE PREMIUM THAT HAS BEEN ADDED ON THE GROUND THAT IT IS NOT JU STIFIED. ITA. NO. 1050/HYD/2014 :- 4 -: 3. BECAUSE, EVEN IF IT BE ASSUMED (WITHOUT ADMISSIO N) THAT THE SHARE PREMIUM ACTUALLY REPRESENTS INCOME OF THE ASSESSEE, THE SAME CAN BE BROUGHT TO TAX ONLY WHEN THE SHARES ARE ACTUALLY AL LOTTED AND NOT ON RECEIPT BASIS. 4. BECAUSE, WITHOUT PREJUDICE TO THE ABOVE AND IN T HE FACTS AND CIRCUMSTANCES OF THE CASE, REVISIONARY PROCEEDINGS ARE BAD IN LAW BECAUSE THE ASSESSEE HAS DISCLOSED THE FACT OF RECE IPT OF THE SHARE APPLICATION MONEY IN ITS SUBMISSIONS MADE ON 21.04. 2011 AND THE LD. AO HAS NOT ADDED THIS AMOUNT ONLY AFTER DUE CON SIDERATION OF THE SUBMISSIONS OF THE ASSESSEE; 5. BECAUSE, THE VIEW TAKEN BY THE LD. AO IN NOT ADD ING THE AFORESAID AMOUNT OF RS. 50 CRORES TO INCOME OF ASSESSEE IS ON E POSSIBLE VIEW OF THE MATTER AND IS NOT UNSUSTAINABLE IN LAW AND HAS BEEN REACHED AFTER CONDUCTING EXTENSIVE ENQUIRIES; 6. BECAUSE, INSOFAR AS RECEIPT OF SHARE APPLICATION MONEY IS CONCERNED, THERE IS NO INCORRECT ASSUMPTION OF FACT S BY THE LD. AO; 7. BECAUSE, SECTION 263 DOES NOT VISUALIZE SUBSTITU TION OF THE JUDGMENT OF THE LD. CIT FOR THAT OF THE LD. AO WHO PASSED THE ORDER U/S 143(3) WHEN THE ORDER IS NOT UNSUSTAINABLE IN L AW; 8. BECAUSE, WHEN THE NOTICE THAT WAS SERVED ON ASSE SSEE BY THE LD. CIT REFERS TO ADDITION U/S 28(IV), IT IS NOT OPEN T O THE LD. CIT TO PASS AN ORDER DIRECTING THE LD. AO TO ADD THE AMOUNT UND ER 'APPROPRIATE HEAD OF INCOME' WITHOUT DETERMINING THE APPLICABLE SECTION. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJU DICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, SUPPLEMENT, AMEND, VARY, WITHDRAW OR OTHERWISE MODIFY THE GROUN DS MENTIONED HEREINABOVE AT OR BEFORE THE TIME OF HEARING. 4. LD.AR, WHILE REITERATING THE SUBMISSIONS MADE BEFO RE THE AUTHORITIES BELOW, HAS DRAWN OUR ATTENTION TO THE ASSESSM ENT ORDER, WHEREIN THE ASSESSING OFFICER HAD CALLED FOR THE DETAILS OF SHARE CAPITAL AND SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE AND AFTER THOROUGH EXAMINATION OF THE SAME, H AS TREATED THE SHARE PREMIUM ONLY AS INCOME U/S. 28(IV) OF THE ACT. HE SUBMITTED THAT ASSESSING OFFICER HAS ACCEPTED THE ITA. NO. 1050/HYD/2014 :- 5 -: SHARE CAPITAL OF RS. 10/- PER SHARE AS A GENUINE TRA NSACTION AND IT IS ONLY THE SHARE PREMIUM, WHICH HAS BEEN DOU BTED BY THE ASSESSING OFFICER. HE SUBMITTED THAT ONCE THE ASSESSI NG OFFICER HAS EXAMINED AND CONSIDERED THE WHOLE OF THE ISSUE, THE ORDER CANNOT BE TREATED AS ERRONEOUS ORDER UNLESS AND UNTIL IT IS AGAINST THE LAW. IT IS SUBMITTED THAT FINDING S OF CIT ARE ONLY AN ALTERNATE OPINION THAT THERE WAS NO CROSS ENQUIRY BY THE ASSESSING OFFICER. THEREFORE, HE PRAYED THAT TH E ASSESSMENT ORDER BE RESTORED. 5. THE LD. STANDING COUNSEL FOR THE DEPARTMENT, ON THE OTHER HAND, SUPPORTED THE REVISION ORDER U/S. 263 OF THE ACT. SHE ALSO BROUGHT TO OUR NOTICE THE ORDER OF THE TRIBU NAL AGAINST THE ORIGINAL ASSESSMENT ORDER FOR THE AY. 2009- 10, WHEREIN THE TRIBUNAL HAS REMITTED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS. THEREFORE , ACCORDING TO HER, THE ASSESSMENT ORDER IS CLEARLY ERRONEOUS INSO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE AND THE ORDER U/S. 263 SHOULD BE SUSTAINED. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE DETA ILED WRITTEN SUBMISSIONS FILED BY THEM AND ALSO THE MATERIA L ON RECORD, WE FIND THAT THE ISSUES IN THE ASSESSMENT ORDER U/S. 143(3) OF THE ACT FOR THE AY. 2009-10 HAD COME UP FOR ADJUDICATION BEFORE THE CO-ORDINATE BENCH OF THE TRIBU NAL VIDE ORDER DT. 10-08-2018, WHEREIN THE TRIBUNAL HAD REMITTE D THE MATTER TO THE FILE OF ASSESSING OFFICER WITH THE FOLLOWI NG DIRECTIONS: ITA. NO. 1050/HYD/2014 :- 6 -: 9.2 WE NOTICE THAT AO HAS INVOKED SECTION 28(IV) T O CONVERT THE CAPITAL RECEIPT AS REVENUE. THIS SECTION REFERS TO ANY BENEFIT/PERQUISITE ARISING FROM BUSINESS OR EXERCIS E OF A PROFESSION. THIS CAPITAL RECEIPT IS NOT GENERATED IN THE BUSINE SS WHEREAS LD. CIT(A) CONFIRMED THE CAPITAL RECEIPT AS INCOME FROM OTHER SOURCES WITHOUT ESTABLISHING THAT THIS IS INCOME OF THE ASS ESSEE WHEN THE ASSESSEE HAS NOT EVEN COMMENCED THE BUSINESS. THE A LLEGED RECEIPT IS THE BENEFIT INTENDED TO PASS ON TO THE DIRECTOR/ SHAREHOLDES OF THE COMPANY. WE NOTICED THAT THIS CAPITAL INVESTMENT WA S RECEIVED BY THE ASSESSEE AS 0% CONVERTIBLE PREFERENTIAL SHARES. NO DOUBT THERE IS NO IMMEDIATE OUTFLOW TO THE COMPANY IN TERMS OF DIVIDE ND BUT IT IS CONVERTIBLE IN THE NEAR FUTURE AS EQUITY SHARE CAPI TAL. THERE ARE CERTAIN ASPECTS OF THIS INVESTMENT WHICH CERTAINLY RAISES EYEBROWS AS THEY ARE NOT THE BEST OF INVESTMENT DECISION LIKE:- I) NO PARTICIPATION IN THE MANAGEMENT CONSIDERING O NLY 0.43% SHARES WERE ALLOTTED TO OUTSIDERS (NO CONTROLLING INTEREST IS COMPROMISED) II) WITHOUT YIELDING THE CONTROLLING INTEREST, INVE STMENT OF SUCH HUGE SHARE PREMIUM III) NO BASIS FOR ISSUING SHARES AT SUCH HUGE PREMI UM APART FROM THIS ASPECT, THE INVESTMENT IS LEGAL AND WITHIN THE PROVISIONS OF COMPANIES ACT, 1952. WE ARE NOT IN A POSITION TO ACCEPT THE CONTENTION OF THE LD. AR THAT THE INVESTORS HAV E ACTUALLY EARNED THE PROFIT BY INVESTING IN THE ASSESSEE COMPANY. WE NOTICED THAT THE SHARES WERE ALLOTTED WITH SHARE PREMIUM OF RS. 1,44 0/- AND THE SAME SHARES WERE SOLD AT RS. 671.20. WE HAVE TO COM PARE THE SAME SHARES WHICH WERE SOLD AND NOT COMPARED WITH THE PO RTFOLIO OF INVESTMENT. WE ALSO NOTICED THAT IN THE SUBSEQUENT SUBMISSION, AO FOUND THAT THESE SHARES WERE SOLD WITHOUT HAVING AN Y SAY BY THE INVESTORS. ALL THE NEGOTIATIONS WERE MADE BY THE DI RECTORS AND THE PROCEEDS WERE ALSO REINVESTED IN THE ASSESSEE COMPA NY AS LOANS ETC. 9.3 AGAIN, WE ALSO CANNOT PRESUME OR APPLY TEST OF HUMAN PROBABILITIES, WE ARE DEALING WITH THE BUSINESS TRA NSACTION, IT HAS TO BE BASED ON COGENT MATERIAL. CONSIDERING THE WHOLE SITUATION, IN OUR CONSIDERED VIEW, THE AO/CIT(A) HAVE RESTRICTED THEM SELVES BY STOPPING THE INVESTIGATION BASED ON CIRCUMSTANTIAL EVIDENCE AND APPLYING TEST OF HUMAN PROBABILITIES. IN ORDER TO L IFT THE CORPORATE VEIL FOR THE PURPOSE OF DETERMINING WHETHER ANY BENEFIT IS PASSED ON TO THE SHAREHOLDERS/DIRECTORS, THEY HAVE TO BRING ON R ECORD PROPER EVIDENCE/COGENT MATERIAL. WE DIRECT THE AO TO REDO THE ASSESSMENT KEEPING IN MIND THAT NO DOUBT THE ASSESSEE HAS RECE IVED THIS CAPITAL RECEIPT AND WHAT CIRCUMSTANCES WHICH LEAD TO INVEST MENT IS NOT IMPORTANT BUT WHETHER THE ASSESSEE COMPANY WAS USED AS A VEHICLE ITA. NO. 1050/HYD/2014 :- 7 -: TO PASS ON THE BENEFIT TO SHAREHOLDERS/DIRECTORS. I N THIS REGARD, WE DIRECT THE AO TO MAKE THE ASSESSMENT AS BELOW: A) WE NOTICED THAT ASSESSEE HAS DECLARED LOSS IN AY 2010-11 AS PER INCOME-TAX ACT, RS. 189.76 CRORES AND IN CASH FLOW, THEY ARE DECLARING DECREASE IN CASH FROM OPERATING ACTIVITIE S TO THE EXTENT OF RS. 71.94 CRORES. ON CAREFUL ANALYSIS, IT CAN BE SE EN THAT ASSESSEE RECEIVED THROUGH SHARE CAPITAL RS. 181.99 CRORES AN D SECURED BORROWINGS RS. 334.47 CORES BUT MADE INVESTMENT IN FIXED ASSETS TO THE EXTENT OF RS. 370.75 CRORES. THE INVESTMENT IN FIXED ASSETS ARE ALREADY COVERED IN SECURED BORROWINGS, THE DECREASE IN CASH FROM OPERATION HAS TO BE VERIFIED PROPERLY. B) HE HAS TO VERIFY WHETHER ANY BENEFIT IS PASSED O N TO SHAREHOLDERS/DIRECTORS THROUGH OTHER MEANS AS THE A SSESSEE IS DECLARING HUGE LOSS IN THE INITIAL YEARS OF OPERATI ON ITSELF. THEREFORE, THIS ISSUE IS REMITTED BACK TO THE AO FO R RE-VERIFICATION AS PER ABOVE DIRECTION AND IN SIMPLE TERMS, VERIFY ALL THE FUNDS AND CASH FLOW MANAGEMENT OF THE COMPANY FOR BOTH AYS 2009-10 & 2010-11. AO SHOULD NOT RESORT TO RELY ON CIRCUMSTANTIAL EVID ENCE OR ON TEST OF HUMAN PROBABILITIES BUT ON FACTUAL EVIDENCE OF PASS ING OF BENEFIT TO THE SHAREHOLDERS/DIRECTORS. HENCE, GROUNDS OF APPEA L RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 6.1. THUS, WE FIND THAT THE TRIBUNAL HAS DIRECTED THE ASSESSING OFFICER TO EXAMINE THE ACCEPTABILITY OF THE S HARE CAPITAL AS WELL AS SHARE PREMIUM AS INCOME OF ASSES SEE. THE ORDER OF CIT U/S. 263 IS ALSO TO THIS EFFECT ONLY. O N A QUERY BY US, BOTH THE PARTIES SUBMITTED THAT THE ASSESSING OFFICER HAS ALREADY PASSED THE ORDER CONSEQUENT TO THE CITS DIRECTI ONS U/S. 263 AND THEREFORE THE ISSUE IS NO LONGER OPEN BE FORE THE ASSESSING OFFICER AND THAT THE APPEAL AGAINST THE SAME IS PENDING BEFORE THE CIT(A). SINCE THE DIRECTIONS OF THE TRIBUNAL TO THE ASSESSING OFFICER ARE ON SIMILAR LINES AS GIVE N BY THE CIT U/S. 263 OF THE ACT, WE CONFIRM THE ORDER OF CIT AND DIRECT THE CIT(A), BEFORE WHOM THE APPEAL AGAINST THE CONSEQUENTIA L ITA. NO. 1050/HYD/2014 :- 8 -: ORDER IS PENDING, TO EXAMINE THE ISSUE IN LINE WITH OU R DIRECTIONS IN ASSESSEES APPEAL FOR THE AY. 2009-10 A GAINST THE REGULAR ASSESSMENT MADE U/S. 143(3) OF THE ACT. IN VIE W OF THE SAME, THE APPEAL OF ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH FEBRUARY, 2019 SD/- SD/- (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMB ER HYDERABAD, DATED 20 TH FEBRUARY, 2019 TNMM ITA. NO. 1050/HYD/2014 :- 9 -: COPY TO : 1. BHARATHI CEMENT CORPORATION PRIVATE LIMITED, 8-2 -696, RELIANCE MAJESTIC, ROAD NO. 10, BANJARA HILLS, HYDE RABAD. 2. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(3), HYDERABAD. 3. CIT-II, HYDERABAD. 4. D.R. ITAT, HYDERABAD. 5. GUARD FILE.