MAYUR FOUNDATION, JALANDHAR V. ASSISTANT COMMISSIONER OF INCOME TAX,(EXEMPTIONS), CHANDIGARH

ITA 120/ASR/2018

AI Insights

The case involves Mayor Foundation, which received corpus donations from three companies totaling Rs. 8 lakhs. The donations were questioned by the Assistant Commissioner of Income Tax, Chandigarh, and subsequently upheld by the Commissioner of Income Tax (Appeals), Jalandhar, due to the donor companies being struck off by the Registrar of Companies. The primary legal issue was whether these donations could be considered genuine income, given the status of the donor companies as 'shell companies'. The tribunal examined the procedural adherence to sections 68, 115BBE, and 115BBC of the Income Tax Act, focusing on the identity and existence of the donor companies and the nature of the donations as income or capital receipts.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 114855 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 05-12-2022
• Assessment Year: misc
• Appeal Filed On: 05-06-2020
• Other Referred Cases: Patanjali Yogpeth vs. Addl. DIT, CIT vs. Gopal Shri Scrips (P) Ltd.
• Laws Referred To: Income Tax Act 1961, Companies Act 2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Reasonable cause; Capital receipt
• Section: 68; 139; 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No.120/Asr/2018 Assessment Year: 2014-15 Mayor Foundation, C/o Mayor World School, Urban Estate Phase-1, Jalandhar. [PAN: AABTM0863A] (Appellant) Vs. Asstt. Commissioner of Income Tax, (Exemption), Chandigarh. (Respondent) Appellant by Sh. S.K. Vatta, CA. Respondent by Smt. Ratinder Kaur, Sr. DR Date of Hearing 06.12.2022 Date of Pronouncement 20.12.2022 ORDER Per:Anikesh Banerjee, JM: The impugned appeal of the assessee is instituted in respect of addition of Rs.8 lacs as made u/s 68 read with section 115BBE and 115BBC of the Act against the order of the ld. Commissioner of Income Tax (Appeals)-2,Jalandhar, [in brevity the CIT(A)] bearing appeal No. 2/10451/16-17/CIT(A)/Jal., date of order 11.01.2018, the order passed u/s 250(6) of the Income Tax Act 1961, [in brevity the Act] for A.Y. 2014-15.The impugned order was emanated from the order of the I.T.A. No.120/Asr/2018 Assessment Year: 2014-15 2 ld. DCIT (Exemptions), Chandigarh, (in brevity the AO) order passed u/s 143(3)of the Act date of order 23.12.2016. The assessee took the following grounds which are extracted as below: “1. Whether the worthy CIT(Appeals) was justified and not erred both in law and on facts in view of the admitted facts & confirmation, from the donors alongwith their PAN details, copies of the Bank accounts statements, copies of their Income Tax Returns, the particulars of the Assessing Officer given in ITR copies, certificate from the drawee Bank having received the said proceeds of the cheques through payee account banking channels, in sustaining the captioned additions of Rs.8.00 Lacs from the captioned companies, u/s 68 read with section 115BBE of the Act merely on the ground that Registrar of companies have struck off their names and taken action for non compliance under the Companies Act, whereas the said entities are continued to be regularly assessed under the Income Tax and are recognized entities ? 2. That in view of the facts and in law, as stated in ground No. 1 supra, the CIT(A) have erred and was unjustified in upholding additions of Rs.8.00 Lacs as the appellant duly discharged its complete onus as to names/addresses of the impugned companies, their identities, their financial capability and sources of the I.T.A. No.120/Asr/2018 Assessment Year: 2014-15 3 funds as contemplated u/s 68 read with section 115BBE and also 115 BBC of the Act. 3. That both LD. ACIT (Exemptions) while making the impugned additions and worthy CIT(Appeals) while upholding the additions have erred in law and facts and was unjustified in treating the said corpus fund donations as income u/s 2(24(ii)(a) of the Income Tax Act as the said donations being Corpus fund donations are in the nature of capital receipts of the Institution and could not be taxed as income in view of the spirit and language of the section 2(24)(ii)(a) as duly upheld by the Hon'able ITAT Delhi Bench in the case of Patanjali Yogpeth vs. Addl. DIT as reported in 151 DTR 104. 4. That the appellant craves to add, delete, and modify any grounds of appeal during the appeal proceedings.” 2. Brief fact of the case is that the assessee has received corpus donation from the following companies. i. Burlington Mercantile (P) Ltd. Rs.2,00,000/- ii. Pentium Capital Management (P) Ltd. Rs.3,00,000/- iii. BKN Consultancy Service (P) Ltd. Rs.3,00,000/- I.T.A. No.120/Asr/2018 Assessment Year: 2014-15 4 The addition was made u/s 68 and the tax was levied u/s 115BBE and 115BBC of the Act on the ground that the said entities are being presently struck off record of registered companies. The revenue authorities have treated these three entities as “Shell Company”. During assessment proceedings the verification was completed by the ld. AO. The notice u/s 133(6) was issued accordingly the verification was duly completed by the three corporate bodies. The financial transaction was through banking channel. The credentiality was verified from financial statement, filed the return u/s 139 &existence of PAN was submitted during the verification. But the company was struck off by the order of Register of Company (in short ROC) a per Section - 248, Companies Act, 2013. So, the identity of the party is in question. The Corporate body is artificial juridical person, so the existence of the corporate body was duly rejected by the ROC. In appeal the submission was made by the assessee with all the relevant documents related transaction, credentiality, and the declaration of income before the Income tax was submitted. But the ld. CIT(A) upheld the order of the ld. AO and accepted the findings of the assessing authority. Being aggrieved assessee filed an appeal before us. 3. In the appeal hearing the ld. Counsel for the assessee has filed a written submission which is kept in the record. The ld. Counsel for the assessee in appeal submission clearly mentioned that the verification u/s 133(6) was completed and the corporate body had taken part in verification before the revenue authorities. I.T.A. No.120/Asr/2018 Assessment Year: 2014-15 5 The copy of the bank transaction from APB pages 8 to 23 was duly filed as evidence for genuine transaction. The ld. Counsel also relied on the order of the ITAT, Delhi Bench in case of Patanjali Yogpeeth vs. Addl. CIT 151 DTR 114 and also the CIT vs. Gopal Shri Scrips (P) Ltd. (2019) 307 CTR 596 (SC). As per the counsel the entire addition on the basis of the assumption that the corporate bodies had made the transaction by recycled the cash of the assessee. But there is no such evidence related to the claim of the revenue. 4. The ld. Sr. DR relied on the order of the ld. CIT(A) in page no. 16 para 4.12 to 4.15 which is reproduced as below: “4.12 However, as regards the donations received from 3 companies are concerned, the appellant has reiterated the submissions filed before the AO. It is an accepted fact that a corporate entity is an artificial juridical person but it is also true that behind this artificial person, lies a bunch of natural persons who act for and on behalf of the company. It is also an accepted fact that a corporate entity exists for making/maximising profits from the activity of business. Thus, this activity of giving donations by a corporate entity located in Kolkatta to an institution based in Jalandhar has to be viewed in the light of the nature of relationship between the two. The appellant has not been able to bring on record any evidence to prove the existence of any such a relationship. Mere filing of paper evidence does not lead to the hard fact that these I.T.A. No.120/Asr/2018 Assessment Year: 2014-15 6 donations are genuine in nature. It is not a case where these donations have been given by the corporate entity as a percentage of its profit so as to satisfy the compliance of the conditions for GSR spending. 4.13 Further, I find that the judicial decisions cited by the appellant on this issue are not applicable on account of differences in the factual matrix of the present case. It is not a case where small donations have been received were and it was difficult keep the record of their names and addresses. Rather, it is a case where donations have been received from corporate entities by cheque but their whereabouts could not be proved by the appellant either in the course of assessment proceedings or in the course of present proceedings. 4.14 I find that appellant has failed to bring on record any further evidence to controvert the findings given by the AO on this issue. The appellant has merely reiterated the fact that confirmation is from these companies have been filed, along with their PAN and bank account details. However, the fact that these companies are defunct and their names have been struck off by the Registrar of Companies has not been disputed by the appellant with irrefutable evidence. The government has taken in the recent past strong action against these shell companies, which have been used to introduce unaccounted funds in I.T.A. No.120/Asr/2018 Assessment Year: 2014-15 7 different entities in the form of donations, share application money, share capital and loans etc. 4.15 In view of the facts discussed above, I confirmed the addition of Rs.8 lakh out of the total addition of Rs.53 lakh made by the AO under this head.” 5. We heard the rival submission and considered the documents available in the record. The primarily corpus funds were donated by the three corporate bodies total amount of Rs.8 lacs. The revenue authorities were tried to proof that there is a distinct connection in between two donor-companies have a same director. There is no question about veracity the transaction of the assessee, the credentiality and the filing of return related to substantiate the claim for receiving the donation by the assessee. But in fact, the corporate bodies are artificial juridical person. Under Section - 248, Companies Act, 2013, the name of company can be removed /struck off by the ROC. Here, we quick look on the Section - 248, Companies Act, 2013 read with Section 560 of Companies Act, 156. “CHAPTER XVIII REMOVAL OF NAMES OF COMPANIES FROM THE REGISTER OF COMPANIES 81 Power of Registrar to remove name of company from register of companies. 81a 82 248. (1) Where the Registrar has reasonable cause to believe that— (a) a company has failed to commence its business within one year of its incorporation; 83 [or] (b) 84 [***] (c) a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under 84a [section 455; or] I.T.A. No.120/Asr/2018 Assessment Year: 2014-15 8 84b [ (d) the subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company and a declaration to this effect has not been filed within one hundred and eighty days of its incorporation under sub-section (1) of section 10A; or (e) the company is not carrying on any business or operations, as revealed after the physical verification carried out under sub-section (9) of section 12.] he shall send a notice to the company and all the directors of the company, of his intention to remove the name of the company from the register of companies and requesting them to send their representations along with copies of the relevant documents, if any, within a period of thirty days from the date of the notice. (2) Without prejudice to the provisions of sub-section (1), a company may, after extinguishing all its liabilities, by a special resolution or consent of seventy-five per cent members in terms of paid-up share capital, file an application in the prescribed 84b manner to the Registrar for removing the name of the company from the register of companies on all or any of the grounds specified in sub-section (1) and the Registrar shall, on receipt of such application, cause a public notice to be issued in the prescribed manner: Provided that in the case of a company regulated under a special Act, approval of the regulatory body constituted or established under that Act shall also be obtained and enclosed with the application. (3) Nothing in sub-section (2) shall apply to a company registered under section 8. (4) A notice issued under sub-section (1) or sub-section (2) shall be published in the prescribed 84c manner and also in the Official Gazette for the information of the general public. (5) At the expiry of the time mentioned in the notice, the Registrar may, unless cause to the contrary is shown by the company, strike off its name from the register of companies, and shall publish notice 84d thereof in the Official Gazette, and on the publication in the Official Gazette of this notice, the company shall stand dissolved. (6) The Registrar, before passing an order under sub-section (5), shall satisfy himself that sufficient provision has been made for the realisation of all amount due to the company and for the payment or discharge of its liabilities and obligations by the company within a reasonable time and, if necessary, obtain necessary undertakings from the managing director, director or other persons in charge of the management of the company: Provided that notwithstanding the undertakings referred to in this sub-section, the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the register of companies. (7) The liability, if any, of every director, manager or other officer who was exercising any power of management, and of every member of the company dissolved under sub-section (5), shall continue and may be enforced as if the company had not been dissolved. (8) Nothing in this section shall affect the power of the Tribunal to wind up a company the name of which has been struck off from the register of companies.” I.T.A. No.120/Asr/2018 Assessment Year: 2014-15 9 “Section 560 in The Companies Act, 1956 560. Power of Registrar to strike defunct company off register. (5) At the expiry of the time mentioned in the notice referred to in sub- section (3) or (4), the Registrar may, unless cause to the contrary is previously shown by the company, strike its name off the register, and shall publish notice thereof in the Official Gazette; and on the publication in the Official Gazette of this notice, the company shall stand dissolved: Provided that- (a) the liability, if any, of every director, the managing agent, secretaries and treasurers, manager or other officer who was exercising any power of management, and of every member of the company, shall continue and may be enforced as if the company had not been dissolved; and (b) nothing in this sub- section shall affect the power of the Court to wind up a company the name of which has been struck off the register.” So, the existence of the donors are in question. The counsel for the assessee had failed to file the effective date of striking off the companies and also placed reliance on the judgment of the Hon’ble Apex Court and the ITAT, Delhi,supra. The ITAT Delhi Bench dated 08/02/2017 in case of Patanjali Yogpeeth to support the proposition that corpus donation is nature of capital receipt, which are not liable for tax as income. In the case of Hon’able Apex Court held thatAppeal proceedings can continue even in case of company whose name has been struck off from Register of Company under section 560(5) of the Companies Act, 1956.But in factual matrix both the judgments are not similar with assessee’s fact. Section 68 is governed by the four necessary ingredients and one of them is existence of the party. In any case the existence of the party in question. In the companies act there are different process to restore the companies& removal of strike off. The assessee I.T.A. No.120/Asr/2018 Assessment Year: 2014-15 10 was unable to produce any documents in support of their action to restore the donor-company before the judicial authority. Accordingly, the question was unanswered related to the identity of the corporate bodies to prove the existence related the transaction of assessee. We find no infirmity in the order of the ld. CIT(A). So, the addition made by the ld. AO is upheld. 6. In the result, the appeal of the assessee bearing ITA No. 120/Asr/2018 is dismissed. Order pronounced in the open court on 20.12.2022 Sd/- Sd/- (Dr. M. L. Meena) (ANIKESH BANERJEE ) Accountant Member Judicial Member AKV Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By Order