ITO, Ward-2(2), Hyderabad V. M/s. Trident Shelters Pvt.Ltd., Hyderabad

ITA 1160/HYD/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5539 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 01-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JEEVAN LAL LAVADIYA
• Keywords: Unexplained cash credit; Business expenditure; Capital receipt
• Section: 133(6); 68; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1160/HYD/2012 ASSESSMENT YEAR 2009-10 THE INCOME TAX OFFICER WARD-2(2) HYDERABAD. VS. M/S. TRIDENT SHELTERS PVT. LTD. HYDERABAD PAN: AACCT4554F [APPELLANT] [RESPONDENT] APPELLANT BY: SRI JEEVAN LAL LAVADIYA RESPONDENT BY: SRI K.C. DEVDAS DATE OF HEARING: 20.12.2013 DATE OF PRONOUNCEMENT: 22.01.2014 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-III, HYDERABAD DATED 25 TH MAY, 2012 FOR THE ASSESSMENT YEAR 2009-10. 2. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE CIT(A) ERRED IN FACTS AND IN LAW IN IGNORING TH E LOW FINANCIAL CAPACITY OF VALLEY DISTRIBUTORS (P) LTD., AS EVIDENCED BY ITS PROFIT AND LOSS ACCOUNT FOR A.Y. 08-09 WITH NET PROFIT OF JUST RS. 4,953/- AND BY ITS PROFIT AND LOSS ACCOUNT FOR AY 09-10 WITH A NET PROFIT OF JUST RS. 6,79,297/- AND BY ITS BALANCE SHEET SHOWING ABSOLUTELY NO DEPRECIABLE ASSETS AND THERE BEING NO FRESH CAPITAL INFLOW DURING THE YEAR UNDER CONSIDER ATION. 2. THE CIT(A) ERRED IN FACTS AND IN LAW IN IGNORING TH E FACT THAT THE TELEPHONE NUMBER BY M/S. VALLEY DISTRIBUTORS PVT. L TD., GIVEN IN ITS PUTATIVE REPLY TO THE ASSESSING OFFICER'S PRELI MINARY ENQUIRY WAS FOUND TO BE WRONG NUMBER AND NONE-RESPONSIVE TO TELEPHONIC CONTACTS, THAT IT SMACKED OF BEING A SUI TCASE COMPANY OR A NAME-LENDER FOR CHANNELLING THE UNACCO UNTED MONEYS OF THE ASSESSEE COMPANY. 3. THE CIT(A) ERRED IN FACTS IN LAW IN IGNORING THE LO W FINANCIAL CAPACITY OF M/S. CHURAMANI HOUSING PVT. LTD., AS EV IDENCED BY ITS BALANCE SHEET FOR THE A.Y. 2009-10 SHOWING ABSO LUTELY NO ITA NO. 1160/HYD/2012 M/S. TRIDENT SHELTERS PVT. LTD . ======================= 2 DEPRECIABLE ASSETS AND THERE BEING NO FRESH CAPITAL INFLOW DURING THE YEAR UNDER CONSIDERATION AND ARTIFICIALL Y CONTRIVED PROFIT BEING SHOWN IN THE P&L A/C FROM APPARENTLY D UBIOUS AND UN-EVIDENCED SOURCES. FURTHER IT IS TO MENTION THA T THE MAIN SOURCE OF INCOME OF THE COMPANY IS INTEREST INCOME. SUCH BEING THE CASE IT IS NOT CLEAR WHY THE COMPANY HAS INVESTED SO MUCH AMOUNTS WITH HUGE PREMIUM WITH NO PROMISE OF A NY RETURNS. 4. THE CIT(A) ERRED IN FACTS AND IN LAW IN IGNORING TH E FACT THAT THE TELEPHONE NUMBER GIVEN BY M/S. CHURAMANI HOUSING PR IVATE LIMITED IS ALSO BEING USED BY 25 OTHER NON-DESCRIPT IVE COMPANIES, THAT IT SMACKED OF BEING A SUITCASE COMP ANY OR A NAME-LENDER FOR CHANNELLING THE UNACCOUNTED MONEYS OF THE ASSESSEE COMPANY. 5. THE CIT (A) ERRED IN FACTS AND IN LAW IN IGNORING T HE LOW FINANCIAL CAPACITY OF M/S PNC CAPITAL MARKETS LTD., AS EVIDENCED BY ITS PROFIT AND LOSS ACCOUNT FOR A.Y. 0 8-09 WITH NET PROFIT OF JUST RS. 1,02,476/- AND BY ITS PROFIT AND LOSS ACCOUNT FOR AY 09-10 WITH A NET PROFIT OF JUST RS. 12,019/- AND BY ITS BALANCE SHEET SHOWING ABSOLUTELY NO DEPRECIA BLE ASSETS AND THE FRESH CAPITAL INFLOW BEING MEAGRE WHEN COMP ARED TO THE INVESTMENT OF RS. 1,28,25,000/- MADE BY THE COM PANY. 6. THE CIT(A) ERRED IN FACTS AND IN LAW IN IGNORING TH E FACT THAT NO TELEPHONE NUMBER WAS GIVEN BY M/S. PNC CAPITAL MAR KETS LTD., IN ITS PUTATIVE REPLY TO THE ASSESSING OFFICE R'S PRELIMINARY ENQUIRY TO MAKE FURTHER ENQUIRIES, THAT IT SMACKED OF BEING A SUITCASE COMPANY OR A NAME-LENDER FOR CHANNELLING T HE UNACCOUNTED MONEYS OF THE ASSESSEE COMPANY. 7. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ASSESSEE HAS NOT CARRIED OUT ANY ACTIVITY NECESSARY FOR THE PURPOSE OF ITS MAIN ACTIVITY TO SUPPORT ITS CLAIM T HAT IT ALREADY COMMENCED ITS BUSINESS ACTIVITY. 8. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ENTIRE EXPENDITURE IS ONLY OF ADMINISTRATIVE IN NATURE AND NOT AT ALL RELEVANT TO THE STATED PURPOSE OF THE ASSESSEE. 9. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT MERE PROCESSING OF RETURNS FOR THE A.YS. 2007-08 AND 200 8-09 DOES NOT TANTAMOUNT TO ASSESSMENT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED A RETURN OF INCOME FOR A.Y. 2009-10 ON 29.9.2009 DECLARING LOSS OF RS. 10, 10,343. THE AO OBSERVED THAT THE ASSESSEE HAS PURCHASED LAND AGGREGATING TO 1589 .11 ACRES AT CHANDA AND ITA NO. 1160/HYD/2012 M/S. TRIDENT SHELTERS PVT. LTD . ======================= 3 PUNA DURING THE FY 2006-07 AT A COST OF RS. 21,06,6 2,070 BY RAISING UNSECURED LOANS. DURING THE YEAR, THE ASSESSEE RAISED EQUITY SHARE CAPITAL HAVING FACE VALUE OF SHARE AT RS. 10 EACH ISSUED AT A PREMIUM OF RS. 90 PER SHARE AND THE MONEY WAS USED TO REPAY THE BORROWED LOANS. THE AO QUEST IONED ABOUT THE ISSUE OF SHARES AT PREMIUM. IT WAS STATED BY THE ASSESSEE T HAT THE REASONS FOR ISSUING SHARES AT PREMIUM ARE AS FOLLOWS: 1. TO KEEP THE PAID UP SHARE CAPITAL WITHIN THE AUTHOR IZED CAPITAL. 2. REDUCE THE FEE FOR REGISTER OF THE COMPANY. 3. REDUCING THE FINANCE CHARGES BY USING LESS BORROWED FUNDS. 4. PREVENTING DILUTION OF CONTROL AMONG SHAREHOLDERS B Y REDUCING NO. OF SHARES ISSUED. 5. FURTHER HE STATED THAT VALUATION OF SHARE IS A SUBJ ECT TO MATTER WHICH IS BEST LEFT TO THE WISDOM OF THE COMPANY AND THE PROSPECTIVE SH AREHOLDERS. 6. FURTHER THE SHARES HAVE BEEN ALLOTTED TO THE PROMOT ERS GROUP ONLY. 7. SHARE PREMIUM IS ALSO CAPITAL RECEIPT. 8. POST ALLOTMENT THE BOOK VALUE OF THE COMPANY SHARE IS RS. 99/- FOR EQUITY SHARE AS ON 31/03/2009 4. FURTHER, THE AR ALSO FURNISHED CERTIFIED TRUE COPY OF THE EXTRACTS OF THE MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS HELD ON 31/03 /2008, WHEREIN IT WAS DECIDED TO HOLD THE LAND AS WELL AS THE PROJECT FOR A LONGER PERIOD AND IN ORDER TO MINIMIZE THE BORROWING COST THE COMPANY SHOULD CREATE SHAREHOLDERS FUNDS . FURTHER IN THE MEETING IT WAS DECIDED THAT A PREMIUM OF RS. 90/- PER SHARE SHOULD BE COLLECTED. THE AR ALSO STATED AS UNDER: 1. THE COMPANY IS A PRIVATE LIMITED COMPANY AND IT PRO HIBITS ANY INVITATION TO PUBLIC TO SUBSCRIBES FOR ANY SHARES OF THE COMPANY. 2. THERE IS NO RESTRICTION WITH REGARD TO ISSUES OF SH ARES AT A PREMIUM BY THE PRIVATE LIMITED COMPANY. 3. THE SHARES WERE ALLOTTED TO THE PROMOTERS GROUP AND THE COMPANY IN WHICH THEY HAVE INTEREST AND ASSOCIATE COMPANIES. 4. THE FACT IS SHARES ARE ONLY OFFERED TO THE PROMOTER S AND THEIR ASSOCIATES INCLUDING COMPANIES IN WHICH THEY HAVE INTEREST. 5. THE AO OBSERVED THAT M/S. VALLY DISTRIBUTERS PVT. L TD., M/S. PNC CAPITAL MARKET PVT. LTD. AND M/S. CHURAMANI HOUSING PVT. LTD. WILL NOT FIT INTO RELATED PARTIES. FURTHER DURING THE COURSE OF SCRUTINY PROCEEDINGS THE AR STATED TH AT THE LAND WAS SOLD DURING THE F.Y 2010- ITA NO. 1160/HYD/2012 M/S. TRIDENT SHELTERS PVT. LTD . ======================= 4 11. HENCE IT IS CLEAR THAT THE COMPANY HAS EXPLOITE D THE SHAREHOLDERS FUNDS FOR PURCHASE OF LAND AND THEREAFTER SELLING THE SAME. THE AR DID N OT FURNISH THE DETAILS OF UTILIZATION OF THESE SALE PROCEEDS. ALSO, THE CONTENTION THAT BOOK VALU E IS RS. 99/-, CANNOT BE ACCEPTABLE BECAUSE THE ENTIRE LAND IS PURCHASED WITH SHAREHOLD ERS' FUNDS ONLY (MOSTLY PREMIUM). IT IS NOT CLEAR HOW AN OUTSIDER WILL PAY SUCH HUGE PREMIU M FOR REPAYING THE LOANS. FURTHER, THERE IS NO WRITTEN PROMISE OF ANY FUTURE BENEFIT OR LIKE LIHOOD OF ANY DIVIDEND. HENCE, THE PREMIUM PAID TO THE COMPANY BY OUTSIDERS MAY BE TREATED AS INCOME ACCRUED TO THE ASSESSEE COMPANY AS IT NOT REQUIRED TO REPAY THE SAID AMOUNT . THE MAIN BENEFICIARY OF THE PREMIUM AMOUNT IS TO THE PROMOTER GROUP AND THE ABO VE MENTIONED PARTIES, NAMELY M/S. VALLY DISTRIBUTERS PVT. LTD., M/S. PNC CAPITAL MARK ET PVT. LTD. AND M/S. CHURAMANI HOUSING PVT. LTD., WILL NOT HAVE ANY SAY IN THE AFFAIRS OF THE COMPANY. THE VARIOUS FACTORS HAVE TO BE KEPT IN MIND TO ASCERTAIN THE NATURE OF TRANSACTION S. RELIANCE MAY BE PLACED ON JUDGMENTS OF HON'BLE SUPREME COURT IN THE CASE OF MCDOWELL AN D COMPANY LTD. VS. CTO (154 ITR 148) AND JUGGILAL KAMLAPAT VS. CIT (73 ITR 702). IT IS CLEAR THAT THE RECEIPT OF THE SHARE PREMIUM IS WITHOUT ANY BASIS AND IT WAS ONLY A PLOY TO BRIN G IN ITS OWN FUNDS. HENCE THE SHARE PREMIUM RECEIVED FROM THE ABOVE MENTIONED UNRELATED PARTIES IS TREATED AS INCOME FROM OTHER SOURCES. WITHOUT PREJUDICE TO THE ABOVE, ALT ERNATIVELY, THESE AMOUNTS MAY BE TREATED AS UNEXPLAINED CASH CREDITS U/S. 68 OF THE INCOME-T AX ACT, 1961 AS THE GENUINENESS AND CREDITWORTHINESS OF THE PARTY GIVING PREMIUM IS DOU BTFUL AND DEFIES BUSINESS LOGIC. THE DETAILS OF SHARE PREMIUM RECEIVED FROM UNRELATED PA RTIES ARE AS UNDER: M/S. VALLY DISTRIBUTERS PVT. LTD. - RS. 2,03,25,0 00 M/S. PNC CAPITAL MARKET PVT. LTD. - RS. 1,28,25,00 0 M/S. CHURAMANI HOUSING PVT. LTD. - RS. 45,00,0 00 ---------------------- RS. 3,73,50,000 ============ 6. THE AO FURTHER OBSERVED THAT THE CLAIM OF THE ASSES SEE TOWARDS LOSS OF RS. 10,10,343 IS NOT ACCEPTABLE AS THE ASSESSEE DID NOT COMMENCE ITS BUSINESS ACTIVITY AND THE CLAIM OF BUSINESS EXPENDITURE IS NOT ALLOWA BLE. ACCORDINGLY, HE DISALLOWED THE SAME. AGGRIEVED, THE ASSESSEE PREFERRED AN APP EAL BEFORE THE CIT(A). 7. ON APPEAL, REGARDING THE FIRST ISSUE, THE CIT(A) OB SERVED THAT THE ASSESSEE IS A COMPANY ESTABLISHED DURING FINANCIAL YEAR 2006-07 RELEVANT TO ASSESSMENT YEAR 2007-08. THE COMPANY RAISED UNSECU RED LOANS OF RS. ITA NO. 1160/HYD/2012 M/S. TRIDENT SHELTERS PVT. LTD . ======================= 5 21,06,62,070 DURING FINANCIAL YEAR 2006-07 I.E., AS SESSMENT YEAR 2007-08 EARLIER TO THIS ASSESSMENT YEAR. DURING THIS ASSESSMENT YEAR I.E., 2009-10, THE ASSESSEE- COMPANY ISSUED SHARES WITH PREMIUM OF RS. 90/- TO D IFFERENT PARTIES INCLUDING THE THREE PARTIES DISPUTED BY THE AO. BEFORE THE AO AL SO DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THE DETAILS AND THE AO HIMSELF IN PAGE 2 OF HIS ORDER AS REPRODUCED HEREUNDER ACKNOWLEDGED THE SAME: 1. THE COMPANY IS A PRIVATE LIMITED COMPANY AND ITS PR OHIBITS ANY INVITATION TO PUBLIC TO SUBSCRIBES FOR ANY SHAR ES OF THE COMPANY. 2. THERE IS NO RESTRICTION WITH REGARD TO ISSUES OF SH ARES AT A PREMIUM BY THE PRIVATE LIMITED COMPANY. 3. THE SHARES WERE ALLOTTED TO THE PROMOTERS GROUP AND THE COMPANY IN WHICH THEY HAVE INTEREST AND THEIR ASSOC IATE COMPANIES. 4. THE FACT IS SHARES ARE ONLY OFFERED TO THE PROMOTER S AND THEIR ASSOCIATES INCLUDING COMPANIES IN WHICH THEY HAVE INTEREST. 8. THE CIT(A) FURTHER OBSERVED THAT THE ASSESSING OFFI CER IN HIS ORDER STATED THAT THE ASSESSEE'S EXPLANATION WAS CONSIDERED BUT IT IS THAT THE COMPANY PURCHASED A LAND WITH SHAREHOLDERS FUNDS ONLY. THE AR, BEFORE APPELLATE PROCEEDINGS STATED THAT THE SHARES WITH PREMIUM WER E ISSUED ONLY TO THE PROMOTERS AND THEIR ASSOCIATES. FROM THE ASSESSMENT ORDER, I T IS CLEAR THAT THE AO IS IN CONFUSION STAGE AND WITHOUT PROPER ENQUIRY, EVIDENC E OR BASIS ADDED THE SHARE PREMIUM FROM THE THREE PARTIES ONLY AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT, AND ACCEPTED THE OTHER PARTIES. THE AO FAILED TO ME NTION VALID REASON OR LOGIC, WHY HE IS ACCEPTING OTHERS AND ADDING THESE 3 PARTIES O NLY AND NOT ADDING OTHER 12 PARTIES. THE ASSESSING OFFICER SIMPLY MENTIONED THA T 'HOWEVER ON VERIFICATION IT IS FOUND THAT M/S. VALLY DISTRIBUTERS PVT. LTD., M/S. PNC CAPITAL MARKET PVT. LTD., AND M/S. CHURAMANI HOUSING PVT. LTD., WILL NOT FIT INTO RELATED PARTIES.' THE AO FAILED TO GIVE REASON WHY THEY ARE NOT FIT. THE ASSESSEE STA TED THAT THE COMPANY PURCHASED LAND IN EARLIER YEARS WITH UNSECURED LOANS. DURING THIS ASSESSMENT YEAR, THE ASSESSEE-COMPANY ALLOTTED SHARES WITH PREMIUM IN SU PPORT OF WHICH THE BALANCE SHEET, FORM 2 OF ALLOTMENT SHARES ALSO SUBMITTED BY THE ASSESSEE BEFORE THE AO ALSO. THEREFORE, THERE IS NO JUSTICE OR SUBSTANTIA L REASON TO ADD THE SHARE PREMIUM ITA NO. 1160/HYD/2012 M/S. TRIDENT SHELTERS PVT. LTD . ======================= 6 AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT. THER EFORE, THE CIT(A) WAS CONVINCED WITH THE DETAILS FILED BY THE ASSESSEE-COMPANY AND HE WAS OF THE OPINION THAT THE ADDITION MADE ON THIS ACCOUNT IS UNJUSTIFIED AND IL LOGICAL AND, THEREFORE, THE CIT(A) DELETED THE SAME. 9. REGARDING THE SECOND ISSUE, THE CIT(A) OBSERVED THA T THERE IS MERIT IN THE CASE RELIED ON BY THE ASSESSEE. THE BUSINESS OF THE ASSESSEE WAS SET UP AND THE AO RECOGNIZED THE SAME BY ACCEPTING THE RETURN OF I NCOME FILED BY THE ASSESSEE- COMPANY AND THE ASSESSMENTS ALSO COMPLETED FOR THE A.YS. 2007-08 AND 2008-09. THEREFORE, KEEPING IN VIEW OF THE FACTS OF THE CASE AND SUBMISSIONS MADE BY THE ASSESSEE, HE WAS CONVINCED WITH THE SUBMISSIONS AND DETAILS OF THE ASSESSEE. THE AO HAS NOT TAKEN UP ANY ENQUIRY OR VERIFIED AND NOT GATHERED EVIDENTIAL PROOF TO DISALLOW THESE EXPENSES ARE NOT CORRECT. THEREFORE , THE ADDITION MADE BY THE AO IS NOT JUSTIFIED. ACCORDINGLY, THE CIT(A) DELETED THE SAME. 10. THE LEARNED DR SUBMITTED, WITH REGARD TO DELETION O F RS. 3,73,50,000 MADE U/S. 68 OF THE ACT, THAT THE CIT(A) IS NOT CORRECT IN IGNORING THE LOW FINANCIAL CAPACITY OF VALLEY DISTRIBUTORS (P) LTD., AS EVIDENCED BY IT S PROFIT AND LOSS ACCOUNT FOR A.Y. 08-09 WITH NET PROFIT OF JUST RS. 4,953/- AND BY IT S PROFIT AND LOSS ACCOUNT FOR AY 09- 10 WITH A NET PROFIT OF JUST RS. 6,79,297/- AND BY ITS BALANCE SHEET SHOWING ABSOLUTELY NO DEPRECIABLE ASSETS AND THERE BEING NO FRESH CAPITAL INFLOW DURING THE YEAR UNDER CONSIDERATION. THE CIT(A) IGNORED THE FA CT THAT THE TELEPHONE NUMBER BY M/S. VALLEY DISTRIBUTORS PVT. LTD., GIVEN IN ITS PU TATIVE REPLY TO THE ASSESSING OFFICER'S PRELIMINARY ENQUIRY WAS FOUND TO BE WRONG NUMBER AND NONE-RESPONSIVE TO TELEPHONIC CONTACTS, THAT IT SMACKED OF BEING A SUITCASE COMPANY OR A NAME- LENDER FOR CHANNELLING THE UNACCOUNTED MONEYS OF TH E ASSESSEE COMPANY. THE CIT(A) ERRED IN FACTS IN LAW IN IGNORING THE LOW FI NANCIAL CAPACITY OF M/S. CHURAMANI HOUSING PVT. LTD., AS EVIDENCED BY ITS BALANCE SHEE T FOR THE A.Y. 2009-10 SHOWING ABSOLUTELY NO DEPRECIABLE ASSETS AND THERE BEING NO FRESH CAPITAL INFLOW DURING THE YEAR UNDER CONSIDERATION AND ARTIFICIALLY CONTRIVED PROFIT BEING SHOWN IN THE P&L A/C FROM APPARENTLY DUBIOUS AND UN-EVIDENCED SOURCES. FURTHER IT IS TO MENTION THAT THE MAIN SOURCE OF INCOME OF THE COMPANY IS INTERES T INCOME. SUCH BEING THE CASE IT IS NOT CLEAR WHY THE COMPANY HAS INVESTED SO MUC H AMOUNTS WITH HUGE PREMIUM WITH NO PROMISE OF ANY RETURNS. THE CIT(A) WAS NOT CORRECT IN IGNORING THE FACT THAT ITA NO. 1160/HYD/2012 M/S. TRIDENT SHELTERS PVT. LTD . ======================= 7 THE TELEPHONE NUMBER GIVEN BY M/S. CHURAMANI HOUSIN G PRIVATE LIMITED IS ALSO BEING USED BY 25 OTHER NON-DESCRIPTIVE COMPANIES, T HAT IT SMACKED OF BEING A SUITCASE COMPANY OR A NAME-LENDER FOR CHANNELLING T HE UNACCOUNTED MONEYS OF THE ASSESSEE COMPANY. THE CIT(A) ERRED IN FACTS AND IN LAW IN IGNORING THE LOW FINANCIAL CAPACITY OF M/S PNC CAPITAL MARKETS LTD., AS EVIDENCED BY ITS PROFIT AND LOSS ACCOUNT FOR A.Y. 08-09 WITH NET PROFIT OF JUST RS. 1,02,476/- AND BY ITS PROFIT AND LOSS ACCOUNT FOR AY 09-10 WITH A NET PROFIT OF JUST RS. 12,019/- AND BY ITS BALANCE SHEET SHOWING ABSOLUTELY NO DEPRECIABLE ASS ETS AND THE FRESH CAPITAL INFLOW BEING MEAGRE WHEN COMPARED TO THE INVESTMENT OF RS. 1,28,25,000/- MADE BY THE COMPANY. THE CIT(A) ALSO IN IGNORED THE FAC T THAT NO TELEPHONE NUMBER WAS GIVEN BY M/S. PNC CAPITAL MARKETS LTD., IN ITS PUT ATIVE REPLY TO THE ASSESSING OFFICER'S PRELIMINARY ENQUIRY TO MAKE FURTHER ENQUI RIES, THAT IT SMACKED OF BEING A SUITCASE COMPANY OR A NAME-LENDER FOR CHANNELLING T HE UNACCOUNTED MONEYS OF THE ASSESSEE COMPANY. 11. THE LEARNED AR SUBMITTED THESE THREE COMPANIES VIZ. , M/S. VALLY DISTRIBUTERS PVT. LTD., M/S. PNC CAPITAL MARKET PVT. LTD. AND M/ S. CHURAMANI HOUSING PVT. LTD. ARE INVESTMENT COMPANIES AND HAVE ENOUGH FUNDS TO FINAN CE THE ASSESSEE-COMPANY AND THERE IS NO NECESSITY OF CASH INFLOW IN THE ASSESSMENT YE AR UNDER CONSIDERATION TO ADVANCE THE FUNDS TO THE ASSESSEE-COMPANY. HE DREW OUR ATTENTI ON TO THE BALANCE SHEETS AND PROFIT AND LOSS A/CS. PLACED IN THE PAPER BOOK. ACCORDING TO HIM, THE ASSESSEE NEED NOT EXPLAIN SOURCE OF THE SOURCE FROM WHOM IT HAS RECEIVED THE FUNDS. IF THE AO HAS ANY DOUBT REGARDING THE GENUINENESS OF THE TRANSACTIONS, HE COULD HAVE VERIFIED THE SAME WITH THOSE PARTIES. FURTHER HE SUBMITTED THAT ONE OF THE REASONS GIVEN BY THE AO TO TREAT THESE FUNDS AS UNEXPLAINED IS THAT THERE ARE NO DEPRECIABLE ASSETS IN THE BALANCE SHEETS OF THOSE COMPANIES. OWNING OF DEPRECIABLE ASSETS IS IRRELEV ANT FACTOR TO DECIDE THE CREDITORS' CAPACITY TO ADVANCE THE MONEYS TO THE ASSESSEE. ACCORDING T O THE AR, CASH FLOW POSITION OF THE CREDITORS IS TO BE SEEN BUT NOT OWNING OF ANY DEPRE CIABLE ASSET. HE SUBMITTED THAT THERE WAS AN ENQUIRY BY THE AO WITH THOSE COMPANIES U/S. 133( 6) OF THE ACT AND THAT ENQUIRY SHOWED THAT THE TRANSACTIONS ARE FOUND TO BE GENUINE AND T HE AO CONSIDERED IRRELEVANT FACTORS TO SUSTAIN THE ADDITION. HE RELIED ON THE FOLLOWING J UDGEMENTS: 1. CIT VS. ARCANE DEVELOPERS (P) LTD., 95 DTR 49 (DEL) 2. CIT VS. SAMSUNG INDIA ELECTRONICS, 92 DTR 420 (DEL) ITA NO. 1160/HYD/2012 M/S. TRIDENT SHELTERS PVT. LTD . ======================= 8 3. CIT VS. LANCO INDUSTRIES LTD., 242 ITR 357 (AP) 4. TOLARAM DAGA VS. CIT, 59 ITR 632 (GAU.) 5. SAROGI CREDIT CORPORATION VS. CIT, 103 ITR 344 (PAT NA) 6. NEMI CHAND KOTHARI VS. CIT, 264 ITR 254 (GAU.) 7. CIT VS. NOORJAHAN (PK) (SMT.), 237 ITR 570 (SC) 8. JINDA UDYOG VS. ITO, 260 ITR 123 (CHD) 9. CIT VS. STELLER INVESTMENT LTD., 254 ITR 263 (SC) 10. CIT VS. K. MAHIM UDMA, 242 ITR 133 (KER) 11. DHAKESWARI COTTON MILLS LTD. VS. CIT, 26 ITR 775 (S C) 12. OMAR SALAY MOHAMED SAIT VS. CIT, 37 ITR 151 (SC) 13. CIT VS. CREATIVE WORLD TELEFILMS LTD., 333 ITR 100 (BOM) 14. CIT VS. ASK BROTHERS LTD., 333 ITR 111 (KAR) 15. CIT VS. ARUNANANDA TEXTILES (P) LTD., 333 ITR 116 ( KAR) 16. CIT VS. OASIS HOSPITALITIES (P) LTD., 333 ITR 119 ( DEL) 12. THE AR SUBMITTED THAT THE CRUX OF THE ABOVE JUDGEME NTS IS THAT THE CONCLUSION ARRIVED AT BY THE APPELLATE AUTHORITY CO ULD NOT BE SAID TO BE WITHOUT EVIDENCE OR UNREASONABLE AND ITS ULTIMATE CONCLUSIO N ACCEPTING THE GENUINENESS OF THE SHARE CAPITAL OF THE ASSESSEE-COMPANY COULD NOT BE FAULTED AND APPEAL OF THE REVENUE IS TO BE DISMISSED. FURTHER HE SUBMITTED T HAT ONCE THE ASSESSEE FILED DETAILS OF THE CREDITORS LIKE PAN, COPIES OF INCOME -TAX RETURNS OF INCOME, SHARE APPLICATION COPY, DETAILED BANK ACCOUNT THROUGH WHI CH THE ASSESSEE RECEIVED MONEY, THE PRIMARY ONUS CAST UPON THE ASSESSEE IS D ISCHARGED. THEREFORE, NO ADDITION COULD BE MADE IN THE HANDS OF THE ASSESSEE -COMPANY ON ACCOUNT OF CERTAIN DISCREPANCIES FOUND BY THE AO WHICH ARE IMM ATERIAL OR IRRELEVANT IN JUDGING THE ISSUE. THE AR FURTHER SUBMITTED THAT THE PROVI SIONS OF SECTION 56(VI) AND (VII) WERE INTRODUCED BY FINANCE (NO. 2) ACT, 2009 W.E.F. 1.10.2009. BEING SO, THESE PROVISIONS ALSO CANNOT BE APPLIED TO THE FACTS OF T HE PRESENT CASE. FOR THIS PURPOSE, THE AR RELIED ON THE DECISION OF THE TRIBUNAL IN TH E CASE OF GREEN INFRA LTD. VS. ITO (145 ITR 240) (MUM). 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THIS CASE, THE ASSESSEE RECEIVED SHARE CAPITAL WITH PREM IUM FROM THE FOLLOWING PARTIES: ITA NO. 1160/HYD/2012 M/S. TRIDENT SHELTERS PVT. LTD . ======================= 9 M/S. VALLY DISTRIBUTERS PVT. LTD. - RS. 2,03,25,0 00 M/S. PNC CAPITAL MARKET PVT. LTD. - RS. 1,28,25,00 0 M/S. CHURAMANI HOUSING PVT. LTD. - RS. 45,00,0 00 ---------------------- RS. 3,73,50,000 ============ 14. ON ENQUIRY BY THE AO, THE ASSESSEE FILED ALL CONFIR MATION LETTERS INCLUDING THE SOURCE OF THE APPLICANT AS WELL AS THE BANK STA TEMENTS EVIDENCING RECEIPT OF SHARE APPLICATION MONEYS AND SHARE APPLICATIONS. H OWEVER, THE AO WAS OF THE OPINION THAT THE COMPANIES FROM WHOM THE ASSESSEE R ECEIVED THE IMPUGNED MONEYS ARE SUITCASE COMPANIES HAVING NO RESOURCES T O ADVANCE THE MONEYS TO THE ASSESSEE-COMPANY. THE DETAILS FILED BY THE ASSESSE E BEFORE THE LOWER AUTHORITIES AS WELL AS BEFORE US, WHICH ARE PLACED ON RECORD AT PAGES 58 TO 93 OF THE PAPER BOOK, SUCH AS CONFIRMATION LETTERS AND BANK STATEME NTS, BALANCE SHEET AND PROFIT AND LOSS A/C., COPIES OF IT RETURNS, LEDGER ACCOUNT EXTRACT, ETC., IN THE CASE OF THESE COMPANIES SHOW THAT THE TRANSACTION IS GENUINE. TH E AO DOUBTED THE SAME ON THE REASON THAT THE SHARES WERE ISSUED AT PREMIUM WHICH DEFIES ALL COMMERCIAL PRUDENCE BUT WE CANNOT IGNORE THE FACT THAT IT IS THE PREROGATIVE OF THE C OMPANY TO DECIDE THE PREMIUM AMOUNT AND IT IS THE WISDOM OF THE SHAREHOLDERS WHETHER THEY WANT TO PURCHASE THE SHARES AT SUCH A PREMIUM. THE REVENUE AUTHORITIES CANNOT QUESTION C HARGING OF SUCH PREMIUM UNLESS THERE IS A PROVISION UNDER THE INCOME-TAX ACT, 1961. THE AO HAVING EXAMINED THE PARTIES (CREDITORS) U/S. 133(6) OF THE ACT AND FOUND NOTHIN G ADVERSE AGAINST THE ASSESSEE TO SHOW THAT THE ASSESSEE'S OWN MONEY FLEW BACK TO THE ASSE SSEE TO THESE THREE CREDITORS AS A CONDUIT, THE AO CANNOT QUESTION THE RAISING OF FUND S BY THE ASSESSEE-COMPANY. AS RIGHTLY ARGUED BY THE LEARNED AR, HAVING CASH/FUND FLOW IS IMPORTANT RATHER THAN HAVING DEPRECIABLE ASSETS. FURTHER, EVEN THE PROVISIONS OF SECTION 56 ARE NOT APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATION WHICH CAME INTO EFFECT ONLY FRO M 1.10.2009 I.E., RELEVANT TO THE A.Y. 2010-11. 15. BEING SO, WE ARE OF THE CONSIDERED OPINION THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION MADE BY THE AO U/S. 68 OF THE ACT. WE CON FIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. GROUND NOS. 1 TO 6 RAISED BY THE REVENUE ARE REJECT ED. . ITA NO. 1160/HYD/2012 M/S. TRIDENT SHELTERS PVT. LTD . ======================= 10 16. COMING TO THE OTHER GROUNDS, THE LEARNED DR SUBMITT ED THAT THE BUSINESS OF THE ASSESSEE WAS NOT SET UP AND THERE WAS NO BUSINESS A CTIVITY BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. 17. ON THE OTHER HAND, THE LEARNED AR RELIED ON THE ORD ER OF THE CIT(A) WHILE PLACING RELIANCE ON THE DECISION OF MUMBAI BENCH OF THIS TR IBUNAL IN THE CASE OF DECCAN GOLDMINES LTD. VS. ACIT, 89 DTR (MUM) (TRIB) 330. 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE ASSESSEE FILED RETURNS OF INCOME FOR A.YS. 2007-08 AND 2008-09. THE LOSS RETURNED BY THE ASSESSEE FOR THESE ASSESSMENT YEARS WAS ACCE PTED IN SUMMARY ASSESSMENT. BEING SO, AFTER ACCEPTING THE RETURN O F INCOME FOR A.YS. 2007-08 AND 2008-09, THE AO CANNOT DISPUTE THE SAME FIGURE IN S UBSEQUENT ASSESSMENT YEAR. HAD THE AO HAS ANY DOUBT REGARDING ALLOWABILITY OF LOSS, FIRST HE SHOULD HAVE QUESTIONED THE SAME IN EARLIER ASSESSMENT YEAR AND NOT IN THE ASSESSMENT YEAR UNDER CONSIDERATION. BEING SO, IN OUR OPINION, THE AO IS PRECLUDED IN REJECTING THE CLAIM OF CARRIED FORWARD LOSS IN THE ASSESSMENT YEA R UNDER CONSIDERATION AS THE BUSINESS WAS ALREADY SET UP. WE ARE OF THE OPINION THAT THE CIT(A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO. GROUND NOS. 7 TO 9 RAISED BY THE REVENUE ARE DISMISSED. 19. MOREOVER, THE CASE-LAW RELIED ON BY THE AR IN THE C ASE OF DECCAN GOLDMINES LTD. VS. ACIT [89 DTR (MUMBAI) (TRIB) 330] (MUM) ALSO SU PPORTS THE CASE OF THE ASSESSEE ON THIS ISSUE, WHEREIN THE TRIBUNAL HELD ASSESSEE UNDER: ' THE ACTIVITY OF COMMERCIAL PRODUCTION IS NOT NEEDED TO DESCRIBE THE BUSINESS IS SET UP WHEN HE IS IN THE BUSINESS OF EX PLORATION. IN THIS LINE OF BUSINESS OF EXPLORATION, THE BUSINESS COMMENCES WIT H 'EXPLORING' FOR MINERALS/GOLD/SILVER IN THE CRESTS OF THE EARTH AND ENDS WITH SUCCESSFUL IDENTIFICATION OF SUCH MINERAL RICH BLOCKS OF EARTH . FOR THIS, THE REQUIREMENTS INCLUDE PERMISSIONS/LICENSES FROM THE GOVERNMENTS, APPOINTING OF PERSONNEL OR GEOLOGISTS EQUIPPED WITH THE ABILITY TO STUDY THE RELEVANT DATA AND INTERPRET FOR THE PURPOSE OF IDEN TIFYING THE GOLD/SILVER/OTHER MINERALS, PLANT AND MACHINERY TO DELVE THE HIDDEN MINERAL RICHES IN THE EARTH ETC. IN THE INSTANT CASE, THE B USINESS SHOULD BE CONSTRUED SET UP AS THE ASSESSEE OBTAINED NECESSARY APPROVALS, RECRUITED REQUISITE PERSONNEL, PROCURED REQUISITE MACHINERY E TC. IN FACT, THE ASSESSEE HAS SUCCESSFULLY IDENTIFIED CERTAIN MINERA L RICH BLOCKS TOO. THE ASSESSEE'S BUSINESS IS SET UP IN THIS YEAR AND IN F ACT, COMMENCED TOO. ITA NO. 1160/HYD/2012 M/S. TRIDENT SHELTERS PVT. LTD . ======================= 11 THUS THE EXPENDITURE INCURRED AFTER THE SET UP CONS TITUTES ALLOWABLE EXPENDITURE. THE CLAIM OF THE ASSESSEE IN RESPECT OF THE DEBITING THE SUM OF RS. 67,57,190 TO P&L A/C IN THIS YEAR IS PROPER. CONSEQUENTLY, THE DESCRIBING THE SAID EXPENDITURE AS PRE-OPERATIVE ON ES IS INCORRECT.' 20. IN THE RESULT, REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JANUARY, 2014. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 22 ND JANUARY, 2014 TPRAO COPY FORWARDED TO: 1. THE INCOME TAX OFFICER, WARD-2(2), ROOM NO. 836, C-BLOCK, 8 TH FLOOR, IT TOWERS, AC GUARDS, HYDERABAD. 2. M/S. TRIDENT SHELTERS PVT. LTD., PLOT NO. 1023, 1 ST FLOOR, INRHYTHM BUILDING, GURUKUL SOCIETY, NEAR MERIDIAN SCHOOL, MADHAPUR, HY DERABAD-500 081. 3. THE CIT(A)-III, HYDERABAD. 4. THE CIT-II, HYDERABAD. 4. THE DR BENCH 'B', ITAT, HYDERABAD