Aatash Dredging and Constructions Pvt. Ltd, Ahmedabad V. DCIT, Circle-1, Ahmdabad

ITA 1843/AHD/2018

AI Insights

The case involves Aatash Dredging and Constructions Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) confirming the addition of Rs.5,25,00,000 as unexplained cash credit under Section 68 of the Income Tax Act, 1961, and the disallowance of interest on late payment of TDS. The Tribunal examined the documents and arguments presented by both parties, including the identity and creditworthiness of the companies involved in the share capital transactions and the nature of the interest on late payment of TDS. The Tribunal found that the assessee had met the burden of proof regarding the genuineness of the transactions and that the interest on late payment of TDS was compensatory, leading to the decision in favor of the assessee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125330 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 12-07-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 26-08-2018
• Other Referred Cases: Furniss v. Dawson, Workmen of Associated Rubber Industry Ltd. vs. Associated Rubber Industry Ltd., McDowell & Co Ltd vs. Commercial Tax Officer, DCIT vs. Brijlaxmi Leasing & Finance Ltd., Graviss Hospitality Ltd. vs. DCIT, Prism Cement Ltd. vs. JCIT, Deepak Fertilisers and Petrochemicals Corpn. Ltd. vs. DCIT, M/s. R. S. Triveni Foods P. Ltd. vs. Addl. CIT, Commissioner of Incometax, Central Circle, Salem v. Victory Spinning Mills Ltd, Deputy Commissioner of Income tax v. GDA Finvest & Trade (P.) Ltd., Commissioner of Income tax, Chennai v. Pranav Foundation Ltd., Commissioner of Income tax (Cental) v. Vacmet Packaging (India) P. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Capital asset; Business income; TDS
• Section: 68; 37; 271(1)(c); 143(3); 92; 133(6); 37(1); 143(1); 195; 274; 143(2); 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & Ms. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./ I. T. A. No . 1 843/Ahd/20 18 ( नधा रण वष / A ss es sment Year : 2011-12) A at as h D r e dgi n g An d C o ns t r uc t io ns P vt . L t d. 21 3, D e v Ar c C o m m er c i al C e n tr e , I sc o n C i rc l e, S . G . H i gh w a y, A h me da b a d बनाम/ Vs . D y . C o mm is s i on e r o f I n c o m e- t a x C ir c l e- 1, A h m ed ab ad थायी लेखा सं./जीआइआर सं./P A N/ G I R N o . : A A G C A3 1 1 9 F (अपीलाथ /Appellant) . . ( यथ / Respondent) अपीलाथ ओर से /Appellant by : Shri Tushar Hemani, Sr. Advocate & Shri Parimalsinh B. Parmar, AR यथ क ओर से/Respondent by : Ms. Chitra Soneji, Sr. D.R. स ु नवाई क तार ख / D a t e o f H e a r i ng 13/07/2023 घोषणा क तार ख /D a t e o f P ro n o u nc e me n t 30/08/2023 O R D E R PER Ms. MADHUMITA ROY - JM: The instant appeal filed at the behest of the assessee is directed against the order dated 13.02.2018 passed by the Ld. Commissioner of Income Tax (Appeals)-1, Ahmedabad (in short ‘CIT(A)’) arising out of the order dated 25.03.2014 passed by the DCIT, Circle-1, Ahmedabad under Section 143(3) of the Income Tax Act, 1961, (hereinafter referred to as ‘the Act’), whereby and whereunder addition to the tune of Rs.5,25,00,000/- under Section 68 of ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 2 - the Act has been confirmed. The disallowance of interest of Rs.2,19,170/- on late payment of TDS under Section 37 of the Act as confirmed by the Ld. CIT(A) is also under challenge for Assessment Year 2011-12. 2. There is delay of 111 days in preferring the instant appeal before us. 3. The order passed by the Ld. CIT(A) for the year under consideration was received by the assessee on 09.03.2018 and thus, the appeal was supposed to be filed on 07.05.2018 but the same was filed only on 27.08.2018. Hence, the delay. 4. An affidavit explaining such delay has been filed by the Director of the assessee company, namely, Zubin Jinofer Bhujwala before us. The contents of the affidavit is as follows: “1. I am the Director of "Aatash Dredging and Constructions Pvt. Ltd.," The order passed by the learned Commissioner of Income-tax (Appeals) for the Assessment Year 2011-12 was received by the assessee on 09.03.18 and therefore, appeal before Your Honors was required to be filed on or before 07.05.18. However, appeal came to be filed on 27.08.18 and thus, there is a delay of 111 days in filing the appeal before Your Honors. The reasons for the said delay are: a) The impugned order passed by the Ld. CIT(A) was received by the assessee on 09.03.18. The said order was handed over to me for passing on the same to the concerned Chartered Accountant for filing appeal before Hon'ble the Income Tax Appellate Tribunal. However, inadvertently, I forgot to pass on such order to the concerned Chartered Accountant. b) On inquiry by the concerned Chartered Accountant, I realized that the impugned order was not passed on for filing an appeal before Your Honors. Upon such facts coming to the knowledge of assessee, impugned order was immediately forwarded to the concerned Chartered Accountant who, in turn, forwarded the same to the ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 3 - concerned Advocate. Thereafter, concerned advocate prepared Form No.36 along with Grounds of Appeal and forwarded the same to the assessee for signature. Thereafter, present appeal came to be filed before Your Honors on 27.08.18. In the mean-time, there was a delay of 111 days in filing the appeal. 2. Under the circumstances stated above, the delay in filing the appeal is mainly on account of the fact that I, inadvertently, forgot to pass on the impugned order to the concerned Chartered Accountant for preparing appeal against the same. Hence, it is prayed to Your Honors that there is good and sufficient reason to condone the delay and therefore the delay in filing the appeal may kindly be condoned and the appeal may kindly be decided on merits.” 5. It appears that there was some delay in communicating the order to the Chartered Accountant by the assessee and, in turn, to the Ld. Advocate for preparing the appeal to be filed before us. There is no deliberate or intentional cause of delay found in filing such appeal before us rather sufficient reason has been shown to substantiate such delay as reflecting from such affidavit which is found to be acceptable. Such “cause” shown by the assessee was also not controverted by the Ld. DR with all his fairness. Hence, the delay is condoned. 6. In Ground No.1, the impugned addition has been made under Section 68 of the Act in respect of share capital receipt by the appellant from two companies, namely, Mewad Tradelink Pvt. Ltd. and Jai Jeen Mata Marketing Pvt. Ltd. to the tune of Rs.3,24,00,000/- and Rs.2,01,00,000/-, respectively. 7. We have heard the rival contentions made by the respective parties and we have also perused the relevant materials available on record. ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 4 - 8. The assessee, engaged in the business of Civil Contractor, filed its return of income on 28.09.2011 declaring total income at Rs.45,48,430/-, which was processed under Section 143(1) of the Act. Upon selection of this case for scrutiny notice under Section 143(2) of the Act dated 18.09.2012 followed by subsequent notice in terms of the statutory provisions was issued and served upon the assessee. The issue relates to the addition of forfeited amount of share capital to the tune of Rs.5.25 Crores by the appellant company, for which, the appellant was directed to furnish details of a number of occasions commencing from 29.08.2013 by the Ld. AO but without result. Ultimately, show cause dated 18.10.2013 under Section 271(1)(c) r.w.s. 274 of the Act was issued whereupon partial details were furnished. The resolution dated 04.10.2010, copy of return of income, bank statement and agreement with the party, if any, though were directed to be furnished by the assessee, since nothing was forthcoming, penalty notice under Section 271(1)(b) of the Act was issued and order thereupon dated 13.11.2013 was passed for non-compliance of statutory notice. Finally, on 26.11.2013 following details were furnished by the appellant: Name of the Co. PAN Share forfeite d amount Date of intention to invest shown by the Cos. Date of acceptati ons by the assessee cos. First install ment by the assess ee Share issued NOC by the cos. Share forfeite d Mewad Tradeli nk Pvt. Ltd. AAGCM 1123P 3.24 cr. 11.5.10 8.7.10 20.8.1 0 28.8 cr. 15.10.1 1 11.11.1 0 Jai Jeen Mata Marketi ng Pvt. AACCJ2 035K 2.01 cr. 7.5.10 7.5.10 28.7.1 0 29.0 7 cr. 15.10.1 1 11.11.1 0 ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 5 - Ltd. 9. However, the return of income, bank statement were not filed. Letter under Section 133(6) of the Act was issued to both the companies on 16.01.2014 with a request to furnish bank statement highlighting share application money given by the assessee and copy of return of income and computation thereof were directed upon which bank statement was furnished. After careful consideration of the entire set of documents, the Ld. AO observed that both the companies have not filed their return of income for A.Y. 2011-12 and formed almost at the same time and having same address. Both companies are having same director "S. Sharma". According to the Ld. AO, the creditworthiness was found and the entire investment was found to be on the basis of loan. Both the companies have 'NIL' fixed assets. Further that, both the companies accept share forfeited as their fate on 15.10.2010 and then share is forfeited on 11.11.10. Companies whose own creditworthiness nil, give acceptance to share forfeiture and the process is finished between May November 2010. According to the Ld. AO, it was clearly beyond doubt and very easy to comprehend the real story behind the entire transaction. 10. So far as the share application money received from the company, namely, Mewad Tradelink Pvt. Ltd. is concerned, it was found that the said company received amount from one Mahima Clothing Pvt. LTd. and Akash Palace Developer Pvt. Ltd. to the tune of Rs.2,74,00,000/- and Rs.66,00,000/-. ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 6 - 11. It was further found that amount of Rs.2,77,25,000/- and Rs.1,49,51,030/- was received by the other company, namely, Jai Jeen Mata Marketing Pvt. Ltd. from A. A. Brother & A.A. & Brothers, respectively. 12. Upon invocation of Section 133(6) of the Act on A.A. & Brothers, it was found that it is one of the linked parties from the fact that money received from swipe card was transferred to another account of A.A. & Brothers or Jai Jeen Mata Marketing Pvt. Ltd. and Mahima Clothing Pvt. Ltd. and also few others too. The total payment made by A.A. Brothers to Mahima Clothing Pvt. Ltd. was of Rs.1,53,50,000/- and Mewad Tradelink Pvt. Ltd. obtained Rs.66,00,000/- from Mahima Clothing Pvt. Ltd. It further appears that major payments made from the account of Jai Jeen Mata Marketing Pvt. Ltd. to Shree Balaji Impex Pvt. Ltd., Neha Exim Pvt. Ltd., Niku Enterprise Pvt. Ltd. apart from the payment made to the appellant company. In that view of the matter, the Ld. AO found the link between the companies, namely, Jai Jeen Mata Marketing Pvt. Ltd., Mewad Tradelink Pvt. Ltd., Aakash Palace Developers Pvt. Ltd. & Mahima Clothing Pvt. Ltd. 13. Further upon field verification made by the Inspector, namely, Shri Pravin Gorane report was furnished with the following notings: “1) Mewad Tradeline Pvt. 2) Jai Jeen Mata Marketing. Address: 48, Jai Mitra Society, Opp. Ranchodnagar, Vinzol Crossing, Vinzol, Ahmedabad. Submitted for kind perusal. I visited the above premises on 20/3/2014 at about 4:30 pm. At the above address, it is found that the same is a residential tenement having three rooms. One Shri Lakhubhai Udaysing Rohadiya, aged about 42 years is staying along with his family since last 8/10 years. His contact No. is 9825068983. He informed that his younger ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 7 - brother Shri Nagardan Udaysing Rohadiya, aged about 38 years is also staying along with his family at this address. His contact No. is 9327134784. It is noticed that no signboard of Mewad Tradeline Pvt. Ltd. or Jai Jeen Mata Marketing was found at the said address On asking about Mewad Tradetine Pvt. Ltd. and Jai Jeen Mata Marketing, Shri Lakhubhal Udaysingh Rohadiya told that his younger brother was running the above two concerns which are closed since many years. He told that he does not know about the business of the above concerns. 3) Akash Palace Developer, 302, Pratibha-1, B/h Sakar-1, Railway Station, Ahmedabad Opp. Gandhigram On the above address, it is found that name sticker of Astitva Training & Placement Services was there on the door of the above premises. On the ground floor, signboard of Parmeshwari Enterprises was found. On inquiry with Shri Babubhai Rabari, Security- man. It is gathered that he does not know about M/s Akash Palace Developer. He also told that the said premises are closed since last 2/3 months. 4) Mis A A Brothers, B-113, Orchid Green, Nr. Girdharnagar Bus stop, Ahmedabad I visited the above premises on 21/3/2014 at about 10:30 am. It is found that Orchid Green is a Residential Complex. On the ground floor, sign board of Shri Anmal Aggarwala was found. The Flat was locked. On inquiry in Flat No. B-114, it is gathered that the Flat is closed since last 2-3 months. No signboard of M/s A A Brothers was found at the Flat. Submited.” 14. Having regard to the report made in the field enquiry and so called transaction made in between the parties, the Ld. AO came to prima facie following opinion: “ a. The companies whose shares have been claimed to be forfeited are not existing in reality and are mere paper companies. b. The companies address is a pure residential tenement. c. Even the person staying there does not know about business of concern. d. The concerns who gave loans also have non-verifiable address.” 15. Thereafter, the Director of these two companies, namely, Jai Jeen Mata Marketing Pvt. Ltd. & Mewad Tradelink Pvt. Ltd. was directed to be produced by the appellant but without any result whereupon show cause dated ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 8 - 19.03.2014 was issued with a prima facie view of addition in respect of share application of Rs.5,25,00,000/- under Section 68 of the Act as unexplained cash credit, as the assessee failed to prove the identity, genuineness and creditworthiness and further failed to produce Directors of the Company. Therefore, the Director, namely, Shri S. Sharma of Mewad Tradelink Pvt. Ltd. & Jai Jeen Mata Marketing Pvt. Ltd. was produced. The statement was recorded on 23.02.2014 of the common Director, namely, Shri S. Sharma who confessed of doing the entire work for commission of Rs.25,000/- to Rs.50,000/-. Considering the statement recorded from the said Shri S. Sharma on 22.03.2014 and upon examination of witnesses, the Ld. AO came to a finding that creditworthiness and genuineness of the entire transaction is far from established, the same as existed on paper only but not in reality. No return was filed by any of the companies. Upon verification, no such existence of the company was found. The assessee was further directed to attend. Since, the assessee did not attend before the Ld. AO, he proceeded to deal with the matter on the basis of records available before him. The Ld. AO was of the opinion that the transaction entered into by the appellate company resulting is merely an artifice or a device employed so as to introduce capital which is unexplained. However, he further opined that though, each in the said transaction appears to be legally permissible but when seen in its entirety, it is clear that the said transaction is merely a device to reduce its tax liability. The addition, therefore, was finally made by the Ld. AO, which was further confirmed by the First Appellate Authority. Hence, the instant appeal before us. 16. Before the First Appellate Authority, the appellant made a written submission on 28.05.2016, the relevant portion whereof is as follows: ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 9 - “1. We shall like to bring to the notice of your honour that Assessee Company is a private limited company domiciled in India and incorporated under the provisions of the Companies Act 1956. The company is engaged in tower erection, utility buildings and control stations and all other civil and road construction work. The other aim of the company to explore the dredging business. 2. The assessee company is a growing company and is on its peak as it is bidding for such projects. The assessee company is also going to receive many government projects in near future. The assessee company was approached by many investors directly by brokers. The assessee company has done the transaction of sub contract of Rs. 9.10 cr. with Aakash Palace Developers Pvt. Ltd in the AY 2009-10. We would like to bring to your honour's notice that in view of investment opportunity from the reference of Aakash Palace Developers Pvt. Ltd, the assessee company has allotted shares on 11/08/2010 and 07/08/2010 to Mewad Tradelink Pvt Ltd (PAN AAGCM1123P) and Jai Jeen Mata Marketing Pvt. Ltd. (PAN AACCJ2035K). Necessary resolution in supporting of this fact is enclosed herewith. 3. After several reminders for payment of final call money Mewad Tradelink Pvt Ltd, and Jai Jeen Mata Marketing Pvt. Ltd. had not paid final call money and accordingly assessee company decided to forfeit the shares of Mewad Tradelink Pvt. Ltd and Jai Jen Mata Marketing Pvt. Ltd on 11/11/2010 of Rs. 3.24 cr and Rs 2.01 cr respectively which was decided by the group of members of assessee company mutually as it seems that the investor group in those companies were not able to honour their commitment for funds. 4 We would like to draw your honour's attention to the various provisions, definition and accounting entries related to the matter. Definition A "share" has been defined by the Indian Companies Act, under sec. 2(40) as A share is the share in the Capital of the Company a. Why Do Companies Issue Shares? Companies need to raise money to support the ongoing growth of the company -to do this they need to either borrow money, or sell part of the company. As each share is a small part of the company, the latter option is issuing shares Debt financing is the first option - borrowing money to expand Companies either take out a loan from a bank, or borrow money from bond holders for a fixed period (e. issuing bonds). Equity financing is the second option-issuing shares. The advantage of issuing shares over debt financing is that the company is not mandatory to pay back the money or make interest payments. In return for investing in the shares. shareholders hope that the value of the company will increase and ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 10 - they will be able to sell the shares for a higher price than what they paid for them. This means that shareholders take on the risk that the company's value may not go up, and the value of the shares will be less than what was paid for them. b. Procedure for Issue Of Shares: (a) Issue of Prospectus:- Whenever shares are to be issued to the public the company must issue a prospectus. Prospectus means an open invitation to the public to take up the shares of the company thus a private company need not issue prospectus Even a Public Company issuing its shares privately need not issue a prospectus. However, it is required to file a 'Statement in lieu of Prospectus with the register of companies. The Prospectus contains relevant information like names of Directors terms of issue, etc. It also states the opening date of subscription list, amount payable on application, on allotment & the earliest closing date of the subscription list. (b) Application of Shares: A person intending to subscribe to the share capital of a company has to submit an application for shares in the prescribed form, to the company along with the application money before the last date of the subscription mentioned in the prospectus. Over Subscription:- If the no of shares applied for is more than the no. of shares offered to the public then that is called as over Subscription Under Subscription- If the no. of shares applied for is less than the no of shares offered to the public then it is called as Under Subscription (c) Allotment of Shares: After the last date of the receipt of applications is over the Directors, Proceed with the allotment work. However, a company cannot allot the shares unless the minimum subscription amount mentioned in the prospectus is collected within a stipulated period. The Directors pass resolution in the board meeting for allotment of shares indicating clearly the class & no of shares allotted with the distinctive numbers. Then Letters of Allotment are sent to the concerned applicants Letters of Regret are sent to those who are not allotted any shares & application money is refunded to them. Partial Allotment:- In partial allotment the company rejects some application totally refunds their application money & allots the shares to the remaining applicants. Pro-rata Allotment:- When a company makes a pro-rata allotment, it allots shares to all applicants but allots lesser shares then applied for Eg. If a person has applied for three hundred shares he may get two hundred shares. (d) Calls on Shares: The remaining amount of shares may be collected in installments as laid down in the prospectus. Such installments are called calls on Shares They may be termed as "Allotment amount, First Call, Second Call, etc. ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 11 - (e) Calls-in-Arrears:- Some shareholders may not pay the money due from them. The outstanding amounts are transferred to an account called up as "Calls-in- Arrears account. The Balance of calls-in-arrears account is deducted from the Called-up capital in the Balance Sheet (f) Calls-in-Advance:- According to sec. 92 of the Companies Act, a Company may if so authorized by it's articles, accept from a shareholder either the whole or part of the amount remaining unpaid on any shares held by them, as Calls in advance. No dividend is paid on such calls in advance. However, interest has to be paid on such calls in advance c. Terms of Issue of Shares: A limited company may issue the shares on following different terms. (a) Issue of Shares for Consideration other than cash or for cash or on capitalization of reserves (b) Issue of Shares at par Le, at face value or at nominal value. (c) Issue of Shares at a Premium i.e. at more than face value (c) Issue of Shares at a Discount Le at less than the face value. d. ACCOUNTING ENTRIES: a) For receipt of application money: Bank A/c Dr. To Share Application A/c b) On Allotment: 1) Transfer of Application money to Share Capital Share Application A/c Dr To Share Capital A/c 2) Amount due to on Allotment Share Allotment A/c Dr. To Share Capital A/c To Securities Premium Account (If any) 3) Refund of excess Application money on rejected application Share Application A/c Dr. To Bank A/c Dr 4)Adjustment of excess application money towards allotment money due Share Application A/c Dr To Share Allotment A/c 5) Receipt of Allotment money. Bank A/c Dr. ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 12 - To Share Allotment A/c c) For making First Call: Share First Call A/c Dr. To Share Capital A/c d) For receipt of First Call Money Bank A/c Dr. To Share First Cal Ale e) For calls in arrears: Calls in Arrears A/c Dr. To Share First Call/Share Allotment Share Final Call A/c f) For receipt if calls in advance: Bank A/c Dr. To Calls in Advance A/c e FORFEITURE OF SHARES: When shares are allotted to an applicant, it becomes a contract between the shareholder & the company. The shareholder is bound to contribute to the capital and the premium if any of the company to the extent of the shares he has agreed to take as & when the company makes the calls. If he fails to pay the calls then his shares may be forfeiture by the directors it authorized by the Articles of Association of the company The Forfeiture can be only for non-payment of calls on shares and not for any other reasons. When the Company forfeits the shares, the person loses his membership in the company as well as the amount already paid by him towards the share capital and premium. His name is removed from the register of members. The directors must observe strictly all the legal formalities required by the Articles of Association before forfeiting the shares ACCOUNTING ENTRIES FOR FORFEITURE OF SHARES: Share Capital A/c Dr. (no of forfeited shares amount called up per shares) Security Premium A/c (to the extent premium not received) To Calls in Arrears A/c To Share Forfeiture A/c (amount received towards share received) Note: Once the security premium is collected cannot be cancelled later on. Therefore Forfeited shares were issued at a premium and the premium money is already received on those Forfeited shares, security premium A/c will not be cancelled of debited. ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 13 - Forfeiture of Share Issued at a Discount- If the Forfeited shares are issued at a discount, the proportion amount of discount allowed on such shares should be cancelled if the discount of shares has already been debited Re-Issue of Forfeited Shares: The Directors may reissue the Forfeited shares at par at premium or at a reissued at a discount the maximum discount is restricted to the amount Forfeited on these shares the original discount ACCOUNTING ENTRIES FOR RE-ISSUE OF FORFEITED SHARES: Bank A/c Dr. Dr. Share Forfeited A/c To Share Capital A/c Any profit on reissue of Forfeited shares represents capital profit & hence it should be transferred to capital reserve. Share Forfeiture A/c Dr. To Capital Reserve 1. We would like to bring your honour's attention to few points which shows the intention of the learned Assessing Officer and predetermined mind. It also shows the mistake of the learned Assessing officer in the hurry to pass order. The learned Assessing officer has mentioned remarkable points in the Order, we give below point wise reply of the same a. The learned officer has pointed out that both the companies have not filed their Return of Income for AY 11-12 The learned Assessing Officer has forgotten the fact that the assessee company has taken money in the form of share capital hence non filing of return of income of these two companies is not relevant for the assessee. Further, we would like to add that mere not filling of the Return of Income of Mewad Tradelink Pvt ltd and Jai Jeena Mata Marketing Pvt Ltd doesn't make both the companies bogus companies b. The learned officer has pointed out that both the companies were formed in the month of May, Le on 15/05/2010 and 20/05/2010. The learned Assessing Officer has intentionally mentioned wrong year to make something out of nothing Both the companies are formed in the month of May 2009 with the date mentioned by the learned Assessing Officer. Enclosed herewith Company master from the MCA web site. The learned Assessing Officer has not even think that if the company would have been formed in May 2010 then there should not be previous year comparative amount in Balance sheet. This shows that the learned Assessing Officer has predetermined her mind. ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 14 - c. The learned officer also laid out that both the companies are having same address Le. 48, Jai Mitra Society, Opp. Ranchhodnagar Vinzol Crossing Road, Vinzol Ahmedabad" We would like to bring to your honour's notice that both the companies are formed by group of directors. Assessee has never denied with the fact that those companies are group companies. The learned Assessing Officer has not seen the fact that registered officer of the companies is same as per MCA site but address is 302. Pratibha -1, B/h Sakar-1, Nr. Gandhigram Railway Station, Ashram Road, Ahmedabad. It shows that learned Assessing Officer has not done proper work due to predetermined mind and hurry to pass order. Further, we would like to add that merely same address doesn't make both the companies bogus companies. There are number of group companies having the same address. Even number of group companies which are listed and having the same address, hence merely same address does not make both the companies bogus companies. d. The learned officer also laid out that both the companies are having same director S. Sharma" There are number of group companies having the same directors. Even number of group companies which are listed and having the same direction hence merely same address does not make both the companies bogus companies d. The learned Assessing Officer has also raised doubt on the creditworthiness of the companies and also mentioned that the entire investment was on basis of loan and produced balance sheet of both companies for the same your Moreover, we would like to add here that both the companies are not having any business other than providing investment to other companies. Both the companies are based on profit-sharing basis They borrow funds from other investors and then invest in appropriate companies where the scope of increase in investment is substantial. These companies can be considered as a middle-man companies based on their profit-sharing basis So merely not fling of the Return or investment on basis of loan can't lead to a conclusion that the company is Indulged in some forged activities. We would like to bring to your honour's nation that these companies are formed with an intention of providing funds of the investors to the other companies in need of an investment and where there is potential of growth/appreciation in the value of investment. These companies are formed on profit sharing basis. So the capital of these companies are also kept low i.e. Rs 1,00,000/-. So it cannot be said as bogus company just on the basis of loan or capital shown in balance sheet. e. The learned officer has also stated that both the companies have NL fixed Assets. The assessee has already stated that these are investment companies hence fixed assets are not required. Further, it is not relevant for the assessee company in the case under consideration f. The learned Assessing Officer has mentioned that both the companies, whose own credit worthiness is Nil, have given acceptance to share forfeiture and the process is finished between May-November 2010. The learned Assessing Officer has not ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 15 - seen the real business world so said that. The assessee company is in growing situation and hence in need of capital and fund. It was specifically decided that in the absence of final call all the money which has been paid as share application will be forfeited. Hence the assessee company has forfeited the amount in the absence of final call payment. Looking from the investor perspective, those companies have decided to invest with the specific motive considering various factors like future growth of the company, orders on hand, tenders filed by the company and its status etc. Companies must have considered the same things while making final call payment of Rs. 4.23 cr with stat details available. A clever investor reviews the salon every time while making the payment. Hence, those companies must have lot that it's better not to lose further money then what amount is already been lost Accordingly investor group has taken clever decision in their opinion by again reviewing the situation and by saving final cal payment. There may be several factors for this action like loss of order by the assessee company, may be over valuation, etc which is their internal matter and not relevant for the assessee. g. The learned Assessing Officer has mentioned on page no 12 of the order that "the transaction entered into by the assessee company resulting is merely an article or a device employed so as to introduce capital which is unexplained. Though each in the said transaction appears to be legally permissible but when seen in its entirely becomes clear that the said transaction is merely a device to reduce tax liability It is beyond the understanding of the assessee that when it appears legally permissible then how it's a device to reduce tax liability It is also not understood that how the assessee company has reduced tax liability by doing this transaction. The learned Assessing Officer has shown by various charts that how amount is routed but nowhere its explained that how the assessee has reduced tax liability by this transaction and how it is failing under section 68 h. The learned Assessing officer has mentioned the point of letter us 133(6) send to various banks and findings. The learned officer has stated that issue in case of Mewad Tradelink Pvt Ltd that the amount is received mainly from two companies- Sr. No. Name of the Company Amount Received 1 Aakash Palace Developers Pvt. Ltd. 2,74,00,000 2 Mahima Clothing Pvt. Ltd. 66,00,000 Total 3,40,00,000 4. The learned Assessing Officer has tried to establish that the Mewad Tradelink Pvt Ltd has received Rs 3.40 or from the Aakash Palace Developers Pvt Ltd and Mahima Clothing Pvt. Ltd and out of that Rx 3.24 or has been given to the assessee Assessee Company is not aware of the fact that from where Mewad Tradelink Pvt Ltd has arranged money and it's not relevant for the assessee company also. These ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 16 - all companies may be group companies but it's not relevant for the assessee company The learned Assessing Officer has added this amount of Rs.3.24 or as unexplained cash credit but we are unable to understand that how this transaction can be called as unexplained cash credit as nowhere cash is involved. All the transactions are done through cheque and banking channel. It's a clear transaction of investment only Further, the learned Assessing officer has mentioned in the chart that the assessee company has given Rs.1.50 cr to Aakash Palace Developers Pvt. Ltd. We would like to draw to your honour's notice that the assessee companies have paid the amount to Aakash Palace Developers Pvt. Ltd. because they have acted as a sub contractor for the assessee company in the FY 2008-09 and the total value was Rs.9.10 cr. We have enclosed herewith copy of invoice as well as copy of Form 18A for your ready reference. The assessee company has paid outstanding portion of this amount during the year, hence question of doubting this transaction does not arise. Further, we would like to draw your honour's attention that the assessee company's case has been selected for scrutiny for FY 2008-09 and nothing been added /disallowed for the expenses related to Aakash Palace Developers Pvt. Ltd. Accordingly, its proved that the point raised by the learned Assessing Officer is baseless and shows the intention of the learned Assessing Officer to make something out of nothing. 5. We would like to draw your honour's attention to the fact that Aakash Palace Developers Pvt. Ltd seeing the good work and the worthiness of the assessee company decided to bring investors for the assessee company. The leaned assessing officer in quest of proving the assessee company wrong has inappropriately tried to prove the nexus. The learned Assessing Officer had laid down that Assessee Company had given 1.50 cr to Aakash Palace Developers Ltd. which in turn has given 274 cr to Mewad Tradelink Pvt. Ltd. which in turn has given 3.24 to Assessee Company. The learned assessing officer is just trying to prove nexus inappropriately. For a time being we think in the direction of the learned Assessing Officer then also the learned Assessing Officer has not proved how the balance amount of Rs.1.74 (Rs. 2.74 – Rs. 1.50 cr.) has been transferred by the assessee company. Further it is also not understood that the Mahima Clothing Pvt. Ltd and Aakash Palane Developers Put Ltd. in total have transferred Rs.3.40 cr to Mewad Tradelink Pvt. Ltd then why only Rs. 3.24 cr have been given to Assessee Company and where does Rs. .16 cr gone. 6. We would again like to conclude that Assessee Company has given Rs. 1.50 for business transaction to Aakash Palace Developers Pvt. Lt for acting as a sub contractor. Moreover Mewad Tradelink Pvt. Ltd. have invested more than what have received from Aakash Palace Developers Pvt. Ltd by 0.50 cr. Hence credit worthiness of Mewad Tradeink Pvt Ltd can't be questioned. Hence the nexus or visible link tying to be proved by learned assessee is baseless seeing impressed by the work of the assessee company Aakash Palace Developers Pvt. Ltd has interacted with other investment companies to invest in the assessee company ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 17 - > In case of Jain Jeen Mata Marketing Pvt. Ltd the leaned assessing officer has mentioned that major receipt has came from: Sr. No. Name of the Company Amount Received 1 A.A. Brother 2,77,25,000 2 A.A. & Brother 1,49,51,030 Total 4,26,76,030 7. We would like to bring to yours honour's notice that receiving money from above is not an issue. As explained above all these companies are formed with the same intension of providing finance to appropriate companies. Moreover, the learned Assessing Officer has tried to prove that jai Jeen Mata Marketing Pvt. Ltd. has made major payments to: Sr. No. Name of the Company Amount 1. Shree Balaji Impex Pvt. Ltd. 1,08,00,700 2. Neha Exim Pvt. Ltd. 1,53,50,560 3. Niku Enterprise Pvt. Ltd. 64,00,196 Total 3,25,51,456 8. The learned assessing officer has haphazardly tried to prove that Jain Jeen Mata Marketing Pvt Ltd had made payment of 3.2 cr to these party which in turn had made payments to AA Brothers and AA & Brothers and in turn AA Brothers and AA & Brothers has made payments to Jai Jeen Mata Marketing Pvt. Ltd. We would like to bring to your honour's notice that Jai Jeen Mata Marketing Pvt. Ltd has made payment to the above mentioned party of 32 cr while AA Brothers and AA & Brothers have given Rs 4.20 cr which is more by Rs 1.06 cr than what payment have been made by Jain Jeen Mata Marketing Pvt. Ltd to Shree Balaji Impex Pvt. Ltd. Neha Exim Pvt Ltd Niku Enterprise Pvt. Ltd Further, we would like to add that Jain Jeen Mata Marketing Pvt Ltd had made investment in assessee company of 2.01 cr out of 4 26cr received from AA Brothers and AA & Brothers The credit worthiness of Jain Jeen Mata Marketing Pvt Ltd can't be questioned as AA Brothers and AA & Brothers have given Rs 4 26 cr Moreover we would like to bring to your note that each and every transaction is done through cheque, there is no involvement of cash. 9. The assessee is not able to understand how it is relevant from whom Jai Jeen Mata Marketing Pvt Ltd has taken money and to whom money is given and how it can be called as unexplained cash The learned Assessing Officer has mentioned that bank statement of Jai Jeen Mata Marketing Pvt. Ltd and Mewad Tradelink Pvt. Ltd. reflect no business income The assessee has already stated that these are investment companies hence question of business income does not arise Further, business income cannot be judged by bank statement but it can be judged by Profit & Loss Account and Income Tax Return. The assessee is not able to understand what the learned Assessing Officer has tried to prove by drawing this table which shows which company has taken money from whom and given to whom. ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 18 - 10. Above matter can be summarized in the below table which clears the question of creditworthiness raised by the learned Assessing Officer for which figures have been taken from the Assessment Order:- Name of the Company Amount received Amount paid to Assessee company Mewad Tradelink Pvt. Ltd 34,000,000 32,400,000 Jain Jeen Mata Marketing Pvt. Ltd 42,600,000 20,100,000 Total 76,600,000 52,500,000 11. We would like to bring to your notice the report of Inspector Shri Pravin Gorane. He in his spot verification report has visited the premises of Mewad Tradelink Pvt. Ltd. and Jai Jeen Mata Marketing at 48, Jai Mitra Society. Opp Ranchhodnagar, Vinzol Crossing, Vinzol Ahmedabad. We would like to bring to your honour's notice that Inspector had visited the premises on 20/3/2014 while both the companies were formed on 15/5/2009 and 20/5/2009 ie. approximately after 5 years of the companies have been formed Moreover the inspector has interacted with Shri Lakhubhai Udaysing Rohadiya who is not the proper person for interaction. His statements that above two concerns were running and were closed since many years itself make it confirm that these companies were in existence. Moreover if the Inspector had interacted with proper person then he might have concluded that these companies are shifted from current address to other address or has stopped working, etc. 11.1 Moreover, we would like to add that there are many companies whose registered address is director's premises. So there is no issue in having the address of companies as director's premises. Further, it has been stated earlier also that these are investment company and hence location, address, registered office is not important like any trading or manufacturing company Inspector has also visited the premises of Aakash Palace Developer Pvt. Ltd. at 302, Pratibha 1, B/H Sakar -1, Opp Gandhigram Railway Station, Ahmedabad. He reported that no such company was there on the above mentioned address. We would like to bring to your honour's notice that the company may have shifted on the other place. 11.2 On visit to the premises of M/s AA Brothers, at B-113. Orchid Green, Nr. Girdhamagar Bus Stop. Ahmedabad Inspector stated in the report that it was a residential complex and that the flat was closed since last 2-3 months and no signboard of M/s A A Brothers was found. Your honour kindly note that he has mentioned that sign board of Shri Anmol Aggarwala was found who may be the owner of A.A. Brothers also as short form of his name is A.A. Further we may not ignore the possibility of that Mis AA Brothers has shifted to another place. ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 19 - 11.3 Again, we would like to bring to your honor's notice that since the companies have their registered address as the director's premises doesn't make the companies a fake one. We would like to bring to your honour's notice that many companies are having their address registered with ROC the residential address of director of the company We may not ignore the possibility of Company has shifted to another place 12. We give hereunder the clarifications regarding the statement of the director of the investee company taken by your honour. We have been informed by Mr S Sharma whose statement was recorded that he was given a lecture for 15 minutes by the learned Assessing Officer before the recording of the statement started. Kindly note that he is giving a statement for the first time in his life in the Income Tax Office and he was coerced and had become nervous tending to forget or recollect things which he knew. Also your honour will realize that such a small statement lasting for two and half hours which in itself cannot be handled by a seasoned person, leave aside a person giving a statement for the first time in his life. The atmosphere created in the office was such that he would face dire consequences and won't regret doing any work in his life. When an intelligent person or a highly qualified person will not be able to withstand a statement for two and half hours especially when his mindset becomes unstable and nervous. 13. Below are the observations regarding few important questions and answers recorded in the statement: -In question No 1, he was asked about the shareholders of Mewad Tradelink Pvt Ltd. and Jai Jeen Mata Marketing Pvt. Ltd. on this he has replied that he was director of these companies. This question is totally irrelevant as Assessing Officer had verified the signed Balance Sheets of the companies only two signs of Mr S Sharma and Mrs Rekha Sharma This also shows the mental state of Mr Sharma as he was answering the question which was not being asked. -Clear example of nervousness of person can be seen for answer to question no 2 in which he was asked whom you are in contact with in Aatash Dredging & Construction Company Private Limited. He has replied that I know about MR. Jinofer Bhujwala but I have neither met him in person nor spoken to him and contradictonly stating that he does not know the gender of Mr. Jinofer Bhujwala Your honour he was NEVER asked to specify the gender of Mr Jinofer Bhujwala, also he has stated MR. Jinofer Bhujwala in the answer and later doubted the gender which shows the mind of the person and the tremendous pressure exerted on him. -In question No 5 he was asked to tell the name of the investor who gave him Rs 5 crores. On this he replied that he did not remember. This question was totally irrelevant as it is obvious that he will not remember any name and addresses of investors orally ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 20 - -In question No 8,9,10,11 he was asked by that did he know Aakash Palace Developers, Mahima Clothing Pvt Ltd AA Brothers, Niku Enterprise, Neha Exim Pvt Ltd and Balaji Impex On this he denied We would like to bring to your honor's notice that your learned assessing officer has already proved the link that all these transaction are done between those companies but from his answer we can see his state of mind. -In question No. 12 he was asked who filed return of Income of Mewad Tradelink Pvt Ltd. and Jai Jeen Mata Marketing Pvt. Ltd. He answered that he has not done any work in it other than investment in Astash Dredging & Construction Pvt. Ltd. This reply clearly states that the main affairs of company are done by professionals. -In Question No. 14 he was asked how he agreed to forfeiture of Rs 5 crore when you are earning meager 20-25 thousands/months To this he replied that he did as per the direction and he was a person of very small means. We would like to here add that he was acting as an investee in assessee company and was borrowing funds from other professional person. THE PERSON BEING INTERROGATED MR SUDARSHAN KUMAR SHARMA IS READY TO MAKE AN AFFIDAVIT SHOWING UNDER WHAT CIRCUMSTANCES AND WHAT STATE OF MIND HE HAS GIVEN THE STATEMENT TO YOUR HONOUR 14. From the above interrogation the learned officer has jumped to the below conclusion: -He doesn't know any one from the assessee company. - We would like to bring to your honor's notice that this is an investee company for which investment is brought by professional person from clients and is invested in potentially startup companies where the scope of increase in investment is substantial The vestment brought in by the investee company has never been in doubt by your honour as all investments are brought in cheques or RTGS only. -He is a man of small He was acting as an investee in Assess Company by bringing funds from other professional investors. The balance sheet both the companies stated the same. Kindly note that in any investments made by a person, there is always a commission paid to a person bringing in investment deposits or making investments. These vestments can be in the form of deposits mutual funds or equity shares. So when a person earns commission is not a crime or it does not show that he is not creditworthy. - He does not remember other directors of companies 15. Below are the few important points of statement of Mr. Sharma: -Your honour will observe that in the statement Mr. Sharma has stated that he did not know the names of few parties or has just heard about them as the investment/ ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 21 - deposits are brought in by professional person whose name is mentioned in his statement to your honour & he would not know such investors personally -He does not know who gave loans to his companies We would like to bring to your honour's notice that he was borrowing funds from the investee who were interested in investing in other potential companies. He borrowed funds from other companies for investing in other companies. So that amount can't be treated as loan. -He doesn't know who the shareholders of the companies are. Kindly note that the investments in the investee company made by various parties have never been in the doubt; neither has the investments made in Aatash Dredging & Constructions Private Limited made in doubt. HENCE, NEITHER THE SOURCES OF FUNDS NOR THE INVESTMENT IS IN DOUBT. -He was merely a dummy to serve aim of Aatash Dredging & Construction Pvt. Ltd. We would like to inform you that he was working as an investee group who himself was borrowing fund from other professional. So he can't be considered as merely a dummy person. -He worked for meagre commission of 25000-50000 We didn't disagree with this As stated above ho was acting as a middle man for commission A person has a night to work in the capacity as a director his personal creditworthiness is not important but The creditworthiness of the company is important which is never in doubt 16. Kindly note that in any investments made by a person, there is always a commission paid to a person bringing in investment/depsotis or making investments These investments can be in the form of deposits, mutual funds or equity shares. So when a person ears commission, it is not a crime or it does not show that he is not creditworthy Your honour kindly note that the company is genuine Activities of only taking deposits and making investments does not show that it is not genuine and one cannot doubt the creditworthiness of the company. 17. To prove that the creditworthiness & genuineness of the entire transaction it has to be proved that amounts received by the investee companies were bogus and that amount given to the assessee company was not worth investing in. The learned Assessing Officer has not proved either of the above. Even the statement taken of Mr Sharma of the investee company clearly shows that he was coerced to that extent that though were being two directors Le husband & wife, he could not recollect the name of second director of the company who was his wife, Rekha, and a statement extracted under such pressure will never be justified Based on the facts and the documents and the above explanation alongwith the enclosures are enough to dispel the thought about doubting the genuineness and creditworthiness of the company and the transaction. 18. Facts of the 25/03/2014 to show the intention and predetermined mind of the learned Assessing Officer: ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 22 - Moreover, we would like to bring to your honour's notice on the point of notice vide letter dtd. 21/03/2014. This notice being served on 24/03/2014 and asked to give submission on 25/03/2014 on 11.00 a.m. Authorized representative of the assessee had visited the place on 25/03/2014 at 11.30 am. The learned assessing officer in quest of hurry Didn't accept assessee's reply saying that the time allocated to you was over and the order is ready. We would like to bring to your honor's notice that delay of genuine 30 minutes would not refrain assessee representative form presenting the case. 19. Further the learned Assessing Officer has served notice dated 21/03/2014 on 2403/2014 given time of less than one day. The learned Assessing Officer could easily send a person to serve notice on 21/033/2014 only or could have asked assessee to collect the notice from their office. It is beyond the understanding of the assessee that when learned Assessing Officer has taken 3 days to reach notice to assessee then what went wrong in delay of 30 minutes. The delay was due to the fact that the Representative of the assessee company was busy with another Income Tax Authority only. Any mach can also understand that 30 minute delay can be due to traffic also. 20. Further, it was not 31/03/2014 and being last day of getting it time barred. The learned Assessing Officer could easily give date of hearing after few days to give sufficient time to assessee for preparation. Hence, it's not being last day the reaction of the learned Assessing Officer for not accepting reply is not appropriate and full of injustice. 21. Moreover the learned assessing officer in order of proving assessee wrong has informed authorized representative to collect the order at 3.00 pm whereas before few minutes was told that order is ready. When authorized representative reached there the order was handed at 4.00 pm. The representative of the assessee company seen the drama during the time gap of 3:00 pm to 4.00 p.m. Staff member of the learned Assessing Officer was preparing the Order and was literally running to complete the order in any way Staff member has also asked few details to the representative of Assessee Company to give it to learned Assessing Officer which was available in file which also shows that the learned Assessing Officer has not seen property the details submitted in the hurry to make something out of nothing with predetermined mind. The learned officer has just acted inappropriately in hurry of proving our assessee wrong. These all actions of learned Assessing Officer proved the Intention of the learned Assessing Officer and predetermined mind. 22. The following case law quoted by learned Assessing officer is irrelevant in case of assessee. This clearly shows that Assessing Officer has misunderstood the case. ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 23 - -Lord Brightman in Furniss v. Dawson [1984] 1 All ER 530, 2 WLR 226, 239(HL) (p. 157 of 154 ITR) -Workmen of Associated Rubber Industry Ltd. Vs. Associated Rubber Industry Ltd. 157 ITR 77 -McDowell & Co Ltd vs. Commercial Tax Officer 154 ITR 148 23. The case of Lord Brightman in Furniss was not relevant to the case under consideration Case of Associated Rubber Industry Ltd is also not applicable and it is related to transfer of income and payment of Bonus to employees which are not relevant in any way to the case under consideration Further, the learned Assessing officer has mentioned case law of McDowell & Co Ltd This case is also not applicable to the case under consideration as it is regarding avoidance of tax whereas question of tax does not arise in the case under consideration. Question of reducing tax liability does not arise in the case under consideration. 24. The learned officer in quest of finding out something out of nothing has inappropriately misunderstood the whole situation. The learned officer has stated that the transaction entered into have no tenable reason supported by evidence was furnished in support of the said. We would like to bring to your honour's notice that this is a case between Investee Company and Assessee Company. Here Assessee Company was in need of investment and despite of notice and calls the shareholders fail to pay full money so the assessee company decided to forfeited money. 25. We would like to bring to your honour's notice the below judgments which are relevant in assessee's case: -Commissioner of Incometax, Central Circle, Salem v. Victory Spinning Mills Ltd[2014] 50 taxmann.com 416 (Madras) Section 68, read with section 133, of the Income tax Act, 1961 Cash Credit (Share application money) A survey conducted in premises of assessee unearthed certain irregularities regarding investments in shares Assessing Officer concluded that transactions in shares were not genuine and creditworthiness of shareholders was doubtful and made addition under section 65 Most of share applicants had appeared when summons were issued and they had accepted their investments Whether share application money could not be treated as cash credit in hands of assessee. Deputy Commissioner of Income tax v. GDA Finvest & Trade (P.) Ltd. [2015] 57 taxmann.com 62 (Delhi Trib.) Section 68 of the Incometax Act, 1961 Cash credit (Share capital) Assessment year 2005-06 Assessee company received share capital from investor company Assessing Officer suspected genuineness of entries as all investors were Kolkata based companies Assessing Officer carried out ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 24 - investigation and based on inspector's report made addition in income of assessee as unexplained cash credit under section 68 It was found that inspector did not make enquiry about existence of investor companies Whether Inspector's report could not be sole basis for making addition when all other documents were in order -Commissioner of Income tax, Chennai v. Pranav Foundation Ltd. [2014] 51 taxmann.com 198 (Madras) Section 68 of the Income-tax Act, 1961 Cash Credit (Share application money) - Assessment year 2007-08 Assessee received share application money and share premium money from four parties-Assessing Officer treated said money as unexplained credit under section 68- However all four parties were limited companies and enquiries were made and received from four companies and all companies accepted their investment-Whether where assessee had categorically established nature and source of said sum, addition of such subscription as unexplained credit under section 68 was unwarranted-Held, yes [Para 6in favour of assessee) Commissioner of Income tax (Cental) v. Vacmet Packaging (India) P. Ltd.[2014] 45 taxmann.com 204 (Allahabad) Section 68 of the Income-tax Act, 1961 Cash credit (Share application money) - Assessment year 2007-08 Assessing Officer made addition under section 68 on account of share application money received by assessee company even though assessee had filed all documentary evidence, like share application form, copies of bank statement, income-tax return, balance sheet, share allotment certificates of board resolution of share applicants, PAN card, register certificate of Registrar - Moreover, applicant companies also confirmed investment made by them and submitted all relevant documents - Whether since assessee had discharged onus establishing identity and creditworthiness of applicant companies and genuineness of transaction, addition made by Assessing Officer under section 68 was to be deleted-Held, yes SUMMARY OF ACTION TAKEN BY THE LEARNED ASSESSING OFFICER : -The learned Assessing officer has considered the transaction as unexplained cash credit u/s 68 but nowhere in the transaction cash is involved and all the transactions are through cheque only. -The learned Assessing Officer has not proved how section 68 applied to assessee as how and from where other two companies has raised funds is not question and important for the assessee company ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 25 - -The learned Assessing Officer has not proved how the assessee company has reduced tax liability by doing this transaction. -The learned Assessing officer has ignored the Assessment of the assessee company by his predecessor as the learned Assessing Officer has mentioned reference of Rs. 1.50 cr which is part of the payment made out of transaction of Rs. 9 10 cr done during AY 2009-10 -The learned Assessing Officer has merely concentrated on less important information like common director, office address, date of formation of the company, Return of income not filed, etc -The learned Assessing Officer stated that both companies have NIL fixed assets which is not relevant for the transactions and fixed assets is not required being investment company. - The learned Assessing Officer made references and details of more of other companies and less of the assessee company In the chart the learned Assessing Officer has shown how the amount is routed in between other companies to prove transaction covered us 68 that the cash of the assessee company is being used is missing. -The learned Assessing Officer mentioned that the company has made investment from loan taken which is not important in the assessee's case. It is important if the assessing Officer is doing assessment of that two companies The learned Assessing Officer has stated that to produce PAN card. Bank Statement, Balance sheet is not sufficient to prove identity, genuineness and creditworthiness of the transaction. -The learned Assessing Officer ignored the fact that both companies have raised more funds then what is invested in assessee company which itself proves the creditworthiness of companies. -Report of inspector is produce but has not mentioned any specific and the learned Assessing officer has tried to make something out of nothing. -The learned Assessing Officer has coerced the director and made a different atmosphere and given lecture for 15 minutes before starting and told to face dire consequences. The statement taken in such circumstances cannot be considered. -The learned Assessing Officer has mentioned conclusion from the statement of director which is not much relevant. The learned Assessing Officer has taken the base of decisions which is applicable in the case. ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 26 - -The learned Assessing Officer has served notice dated 21/03/2014 on 24/03/2014 mentioning hearing of 11.00 am on 25/03/2014 and given less than day to prepare to the assessee. -The learned Assessing Officer has intentionally and to harass assessee did not accepted submission by reaching just 30 minute late. -The learned Assessing Officer has stated that order is ready when representative of the assessee company reached at 11.30 am but surprisingly told to collect at 3.00 p.m. -When the representative of the assessee company reached at 3:00 pm, the order was not ready and delivered at 4.00 p.m. -Various mistake and action of the learned Assessing Officer clears the intention and predetermined mind. From the above explanations along with the case law, we request your honour to delete the addition made by the learned Assessing Officer. 17. Further, as per the direction of the Ld. CIT(A), a detailed remand report was filed by the Ld. AO upon which rejoinder to the following effect was given: “2.4 The appellant has submitted the Rejoinder of the Remand Report vide its letter dated 29/01/2018 before CIT (A)-1, which is reproduced as under:- 1. Below is the comparison of clause of section 68 and the case under consideration: Sr. No. Particulars Applicability of Section 68 Assessee case 1 assessee offers no explanation about the nature and source thereof Yes No 2 identity of the investors proved No Yes 3 Creditworthiness of investor proved No Yes 4 genuineness of the transaction Proved No Yes 5 Presentation of Lender/ Investor No Yes 6 Involvement of Cash Yes No 7 Involvement of Accommodation entry Yes No 8 Rotation of Assessee's Money Yes No 9 Initially amount has been paid from assessee's end Yes No 10 Investor requires to prove nature and No Yes ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 27 - sources amount invested for AY 2011 -12 2. The learned Assessing Officer has relied on few cases, below is the comparison of Assessee's case and case law quoted by the learned Assessing officer: > Lord Brightman in Furniss v. Dawson [1984] 1 All ER 530 Sr. No. Particulars Lord Brightman in Furniss v. Dawson Assessee's case 1 Assessee had sold the Shares to new formed company Yes No 2 Effect on the income tax Yes No 3 New issue of shares by the assessee itself No Yes 4 Series of Transactions Yes No 5 Transfer of assets from one to another before ultimate sell Yes No 6 New Company created Yes No > Workmen of associated rubber industry ltd v associated rubber industry ltd 157 ITR77 Sr. No. Particulars Workmen of Associated Rubber Industry ltd Assessee's case 1 Assessee had sold the Shares to new formed company Yes No 2 Effect on the Bonus payable to employees Yes No 3 New issue of shares by the assessee itself No Yes 4 Newly formed company wind up after few years Yes No 5 Related to lift the veil of corporate entity Yes No 6 New Company created Yes No 7 Case related to Income Tax Act No Yes McDowell & co. ltd. vs. commercial tax officer 154 ITR 148 Sr, No. Particulars Mcdowell & co. ltd Assessee's case 1 Matter related to tax evasion / avoidance Yes No ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 28 - 2 Effect on the Excise Duty payment Yes No 3 Case related to Income Tax Act No Yes 4 Resulting into lower tax payment Yes No 5 Concealment of legal relation by a device Yes No 18. We have gone through the documents relied upon by the assessee annexed to the paper book filed before us as stated to have been filed before the authorities below by the assessee which has neither controverted by the Ld. DR. 19. It appears from the entire records, the Ld. AO made addition of Rs.5,25,00,000/- under Section 68 of the Act on account of forfeiture of share capital of Rs.3,24,00,000/- & Rs.2,01,00,000/- received from Mewad Tradelink Pvt. Ltd. and Jai Jeen Mata Marketing Pvt. Ltd.; respectively. The details of documents, particularly, PAN, IT returns, bank statement and confirmation of the impugned parties were duly furnished before the authorities below in support of the identity and creditworthiness of the parties and genuineness of the transactions. According to the Revenue, the amount of forfeiture of share capital to be taxed in view of the provision of Section 56(2)(ix) of the Act introduced by the Finance (No.2) Act, 2014 which provides that “any amount received as advance or otherwise in the course of negotiation for transfer of a capital asset would be taxable as ‘income from other sources’ if such amount is forfeited and negotiations do not result in transfer of such capital asset.” But the case of the assessee is otherwise. As per the assessee’s submission prior to the introduction of such provision forfeiture of share application money was considered as a capital receipt and was not supposed to be taxed as income under Section 28(iv) or Section 41(1) ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 29 - of the Act. In this respect, the assessee relied upon the following judgments, the details whereof is as follows: i. DCIT vs. Brijlaxmi Leasing & Finance Ltd., reported in [2009] 118 ITD 546 (Ahmedabad-ITAT) ii. Graviss Hospitality Ltd. vs. DCIT, reported in [2015] 53 taxmann.com 63 (Mumbai-Trib.) iii. Prism Cement Ltd. vs. JCIT, reported in [2006] 101 ITD 103 (Mum.) iv. Deepak Fertilisers and Petrochemicals Corpn. Ltd. vs. DCIT, reported in [2009] 116 ITD 372 (Mumbai) v. M/s. R. S. Triveni Foods P. Ltd. vs. Addl. CIT in ITA No. 739/Del/2019 20. Further that, it is also the case of the assessee that the provision of Section 56(2)(ix) was brought into force w.e.f. 01.04.2015 and cannot be made applicable to the case in hand and thus, the addition is not sustainable under Section 68 of the Act. Even otherwise the three ingredients prescribed under Section 68 of the Act being identity of the parties, genuineness of the transactions and creditworthiness of payer was proved by the assessee. When the initial burden has been duly discharged by the assessee by placing on records at the documentary evidences as mentioned in the foregoing paragraphs, the further onus of proving the assessee wrong shifts on the Revenue. Further that, in the present case, the receipt of share capital and identity of the share applicants was directed to be proved and once it is proved the assessee can be said to have been duly discharged the burden. On this aspect, the assessee relied upon the following judgments: i. CIT v. Lovely Exports (P.) Ltd. 216 CTR 195 (SC) ii. PCIT vs Chartered Speed P Ltd - Tax Appeal 126 & 126 of 2015; iii. CIT vs. Peoples General Hospital Ltd. - (2013) 356 ITR 65 (MP); iv. CIT vs. Steller Investment Ltd. -251 ITR 263 (SC); 21. Following judgments have been considered and the contention made by the assessee on this aspect found to be acceptable. ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 30 - 22. So far as the "Source of source" is concerned, which was directed to be proved by the assessee, the assessee relied upon the judgments placed in the following maners: i. DCIT vs. Rohini Builders 256 ITR 360 (Guj.) ii. Murlidhar Lahorimal vs. CIT 280 ITR 512 (Guj.) iii. CIT vs. Pragati Co. Op. Bank Ltd. 278 ITR 170 (Guj.) iv. CIT vs. Orissa Corporation Pvt. Ltd. 159 ITR 78 (SC) 23. The assessee’s case is this that the amendment in the provision of Section 68 of the Act was made w.e.f. 01.04.2013 (ie. AY 13-14 onwards) and the said amendment is prospective in nature and therefore, the source of source need not to be proved by the assessee as the said amendment is not binding upon the assessee’s case for A.Y. 2011-12. The two following judgments have been relied upon by the assessee on this aspect: i. ITO vs. Valley Comtrade Pvt. Ltd. – ITA 2034/Ahd/2017; ii. CIT vs. Gagandeep Infrastructure Pvt. Ltd. – 80 taxmann.com 272 (Bom) ; 24. On the contrary, the Revenue has made the addition on the basis of the statement made by the common Director, Shri S. Sharma for the purpose of making addition. Upon perusal of the order impugned, we do not find any allegation of accommodation entry has been labelled against the assessee. Neither any involvement of any entry operator, on movement of cash or assessee’s money is being involved has been alleged by the authorities below while making addition by the Ld. AO or confirming such addition by the Ld. CIT(A). Neither any cogent documents is forthcoming from the Revenue in order to establish the observation of having the device to reduce its tax liability. The other judgments relied upon by the assessee were duly considered by us where it has been repeatedly decided that the amount of forfeited share application money transferred to warrant forfeiture account is a ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 31 - capital receipt only and cannot be taxed as income of the assessee either under Section 28(iv) or Section 41(1) of the Act. Since, the assessee had not credited forfeited amount in its P&L account on the contrary credited the same in the capital reserve account, the same is to be treated as capital receipt and not to be taxed. In this particular case, after several reminders for payment of final call money, Mewad Tradelink Pvt. Ltd. and Jai Jeen Mata Marketing Pvt. Ltd. since not paid the final call money and the assessee company decided to forfeit the shares of Mewad Tradelink Pvt. Ltd. and Jai Jeen Mata Marketing Pvt. Ltd. to tune of Rs.3.24 Crore and Rs.2.01 Crore, respectively which was decided by the Group of Members of assessee company mutually as the group of those investor group was not able to honour their commitment for funds. We further find from the observation made by the Ld. AO that the transaction entered into by the assessee company with those parties appears to be legally permissible but when seen in its entirety it becomes clear that the said transaction is merely a device to reduce its tax liability. Such observation, however, not found to be established by corroborative cogent evidence on the part of the Revenue. On the contrary, the source of documents as relied and furnished by the assessee before the authorities below are sufficient enough to come to a conclusion that the assessee has been able to prove the identity, creditworthiness and genuineness of the cash creditors. The three ingredients since being fulfilled, the addition under Section 68 of the Act is not found to be sustainable. Hence, with the above observation, we delete the addition made by the authorities below. 25. Ground No.2 relates to disallowance of interest of Rs.2,19,170/- on late payment of TDS under Section 37 of the Act is under challenge before us. ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 32 - 26. We have heard the rival contentions made by the respective parties and we have also perused the relevant materials available on record. 27. The assessee claimed interest on late payment of TDS amounting to Rs.2,19,170/-. Show cause, therefore, was issued on 24.03.2014 as to why the same should not be disallowed. Since, no reply was forthcoming from the assessee, the Ld. AO disallowed the same as expenses of TDS is not allowable in the Income Tax and interest income on late payment of TDS was thus also not allowable according to the Ld. AO. Such addition was also confirmed by the First Appellate Authority. 28. The case of the assessee is this that the assessee paid interest on late payment of TDS. Interest is not in the nature of penalty. Though penalty paid is not allowable under Section 37(1) of the Act, but interest paid for late payment prescribed under statute; on the other hand, the penalty is violation of any provision but paid the amount late but with interest, the same is allowable. On this count, Ld. Counsel appearing for the assessee further relied upon the judgment CIT vs. Oriental Insurance Co. Ltd., reported in [2009] 183 TAXMAN 186 (Kar.), wherein it has been held that Section 201(1A) is a provision to levy interest for delayed remittance of the TDS. It is the practice of the revenue that for belated payment of tax for any reasonable cause, the assessee is liable to pay interest at the rate of 12 per cent per annum. Similarly, for refunds, the revenue pays interest to the assessee. Therefore, the levy of interest under section 201(1A) cannot, at any cost, be construed as penalty. Ld. Counsel further relied upon in the case of Deputy Commissioner of Income-tax v. Messee Dusseldorf India (P.) Ltd., reported in [2010] 129 TTJ 81 (DELHI)(UO), wherein it has been held that interest paid by assessee ITA No. 1843/Ahd/2018 (Aatash Dredging and Constructions Pvt. Ltd. vs. DCIT) A.Y.– 2011-12 - 33 - on late deposit of service-tax is allowable [In favour of assessee]. Interest paid by the assessee for the delayed payment of service-tax is compensatory and has the same character as service-tax, and therefore, the same is allowable. 29. Thus, taking into consideration the ratio laid down by the above two Judicial Forums in the above matter, we find that as the case of late payment of TDS is not in the nature of penalty, the same is allowable under Section 37 of the Act. In that view of the matter, the above disallowance made by the authorities below to the impugned amount of Rs.2,19,170/- is hereby quashed. The addition is, therefore, deleted. 30. In the result, the appeal preferred by the assessee is allowed. This Order pronounced on 30/08/2023 Sd/- Sd/- (WASEEM AHMED) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 30/08/2023 S. K. SINHA True Copy आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं%धत आयकर आय ु 'त / Concerned CIT 4. आयकर आय ु 'त(अपील) / The CIT(A)- 5. *वभागीय -त-न%ध, आयकर अपील य अ%धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड3 फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील$य अ%धकरण, अहमदाबाद / ITAT, Ahmedabad