M/s Luxmi Foodgrains Pvt. Ltd., Kurali V. ITO, W-6(4), Mohali

ITA 316/CHANDI/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4954 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 06-11-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 18-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M P DIWEDI
• Keywords: Unexplained cash credit; Fair market value
• Section: 143(2); 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A, CHANDIGARH . . , ! ' , # '$ BEFORE: SHRI N.K.SAINI, VP & SHRI RAJPAL YADAV, JM ./ ITA NO. 316/CHD/2019 # % &% / ASSESSMENT YEAR : 2013-14 M/S.LUXMI FOODGRAINS P.LTD. HOUSE NO.144,WARD-13 KURALI (PUNJAB) PAN : AACCL 1053 H '( VS. ITO,WARD-6(4) MOHALI (PUNJAB) ( )* / APPELLANT) ( +,)* / RESPONDENT) # %-. / 0 / ASSESSEE BY : SHRI SUDHIR SEHGAL, ADV. !$ / 0 / REVENUE BY : : SHRI M.P. DIWEDI, SR.DR 1 2 / .3 / DATE OF HEARING : 06/11/2019 '45& / .3 / DATE OF PRONOUNCEMENT : 07/11/2019 / ORDER PER RAJPAL YADAV, JUDICIAL MEMBER : ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST ORDER OF THE LD.CIT(A)-2, CHANDIG ARH PASSED FOR THE ASSTT.YEAR 2013-14. 2. GROUNDS OF APPEAL TAKEN BY THE ASSESSEE WERE NOT IN CONS ONANCE WITH RULE 8 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 196 3 - THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. HOWEVER, THE ASS ESSEE HAS AMENDED THESE GROUNDS OF APPEAL AND FILED FRESH GROUNDS WHER EIN IT HAS TAKEN FOUR GROUNDS. A PERUSAL OF THESE GROUNDS WOULD REV EAL THAT GRIEVANCE OF THE ASSESSEE REVOLVES AROUND SINGLE ISSUE VIZ. THE LD.CIT(A) ITA NO NO.316/CHD/2019 2 HAS ERRED IN CONFIRMING THE ADDITION OF RS.58,23,060/-,WHICH WAS ADDED BY THE ASSESSING OFFICER WITH AID OF SECTION 56(2)(VIIB) OF THE INCOME TAX ACT, 1961. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 25.8.2013 DECLARING TOTAL INCOME AT RS.1,43,790/-. THE ASSESSEE AT THE RELEVANT TIME WAS ENGAGED IN THE BUSINESS OF MANUFACT URING STEAM BASMATI AND NON-BASMATI RICE. ITS CASE WAS SELECTED FOR S CRUTINY ASSESSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED THAT THE ASSESSEE- COMPANY HAS ISSUED 13,115 EQUITY SHARES HAVING FACE VALUE OF RS.10/- EACH. IT CHARGED SHARE PREMIUM OF RS.590/- PER EQUITY SHARE RESULTING IN INCREASE IN SHARE CAPITAL BY RS.1,13,150/- AND IN SHARE PREMIU M BY RS.77,37,850/-.THE ASSESSING OFFICER WAS OF THE VIEW THAT FAIR MARKET VALUE PER SHARE HAS TO BE CALCULATED UNDER RULE 11UA WHICH C OMES TO RS.156/- PER SHARE, AND THEREFORE EXCESSIVE RATE AT RS .444/- PER SHARE, TOTAL OF WHICH COMES TO RS.58,23,060/- IS REQUIRED TO BE TREATED AS INCOME OF THE ASSESSEE FROM OTHER SOURCES. HE CONFRONTED THE A SSESSEE WITH REGARD TO THE ABOVE ASPECT. IN RESPONSE TO THE QUERY O F THE ASSESSING OFFICER, IT WAS CONTENDED BY THE ASSESSEE THAT THOUGH CHEQUE S WERE RECEIVED, BUT THEY WERE NEVER ENCASHED AND IT WAS JUST A J OURNAL ENTRY IN THE BOOKS OF ACCOUNTS. IT WAS ONLY A NOTIONAL INCOME. EFFE CTIVELY, THIS AMOUNT HAS NOT BEEN ACTUALLY CREDITED IN THE BOOKS OF THE ASS ESSEE. IT WAS ALSO BROUGHT TO THE NOTICE THAT PROMOTERS WHO HAVE SUB SCRIBED THESE SHARES WERE FACING FINANCIAL PROBLEM, AND ULTIMATELY CHEQUES WER E NOT ENCASHED IN SUBSEQUENT YEAR ALSO. THE LD.AO HAS REJECTED THIS CONTENTIONS OF THE ASSESSEE ON THE GROUND THAT SINCE THE ASSES SEE HAS ITA NO NO.316/CHD/2019 3 BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, THE M OMENT IT HAS RECEIVED THE CHEQUES FOR SALE OF THOSE SHARES, IT IS T O BE CONSTRUED THAT RIGHT TO RECEIVE THE MONEY HAS ACCRUED TO IT, AND THE ALLE GED AMOUNT DESERVED TO BE ASSESSED UNDER SECTION 56(2)(VIIB) OF THE ACT. 4. DISSATISFIED WITH THE ASSESSMENT ORDER, THE ASSESSEE CA RRIED THE MATTER IN APPEAL BEFORE THE LD.FIRST APPELLATE AUTHORITY. IT REITERATED ITS CONTENTIONS. HOWEVER, THE APPEAL DID NOT BRING ANY RELIEF TO THE ASSESSEE. THE LD.CIT(A) HAS CONCURRED WITH THE ASSESSING O FFICER. 5. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THA T AS FAR AS ACTUAL ENCASHMENT OF CHEQUES IS CONCERNED, THAT ASPECT HAS NOT BEEN DISPUTED BY BOTH THE REVENUE AUTHORITIES. ACCORDING TO THE M, THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, AND THER EFORE, THE MOMENT IT RECEIVED CHEQUES, IT SHOULD HAVE RECOGNIZED THE A CTUAL RECEIPT OF THE CONSIDERATION. HE TOOK US THROUGH SECTION 56(2)(VII) OF THE ACT AND CONTENDED THAT THIS SECTION EMPLOYEES EXPRESSION RECEIVE WHICH CONTEMPLATES ACTUAL RECEIPTS OF THE CONSIDERATION, AND NOT NOT IONAL ONE. THERE IS NO ACTUAL CASH GOING TO THE BOOKS OF THE ASSESSEE, AND THEREFORE THERE SHOULD NOT BE ANY ADDITION. FOR BUTTRESSING HIS CONTENTION, HE RELIED UPON THE ORDER OF THE ITAT, KOLKATTA BENCH IN THE CASE OF ITO VS. BHAGWAT MARCOM P.LTD., 109 TAXMANN.COM 330. IT HAS BE EN RENDERED IN ITA NO NO.2236/KOL/2017. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT IT IS A RECENT DECISION AND DIRECTLY ON THE SIMILAR FACTS AND CIRCUMSTANCES. ON THE OTHER HAND, THE LD.DR RELIED UPON THE O RDERS OF THE REVENUE AUTHORITIES. ITA NO NO.316/CHD/2019 4 6. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND GONE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE WITH REGARD TO THE F ACT THAT CHEQUES FOR SALE OF THESE SHARES REPRESENTING PREMIUM HAVE NOT BEEN ENCASHED BY THE ASSESSEE. IN OTHER WORDS, THE AMOUNT HAS NOT BEEN ACTUALLY RECEIVED BY THE ASSESSEE, AND CREDITED IN ITS ACCOUNTS. LE T US TAKE NOTE OF SECTION 56(2)(VIIB) OF THE ACT, WHICH READS AS UNDER: 56(2)(VIIB) WHERE A COMPANY, NOT BEING A COMPANY I N WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN A NY PREVIOUS YEAR, FROM ANY PERSON BEING A RESIDENT, ANY CONSIDERATION FOR ISSUE OF SHARES THAT EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AGGREGATE CONSIDERATION RECEIVED FOR SUCH SHARES AS EXCEEDS T HE FAIR MARKET VALUE OF THE SHARES: 7. A PERUSAL OF THIS SECTION WOULD REVEAL THAT THE EXPRESSION RECEIVE EMPLOYED IN THIS CLAUSE WOULD INDICATE THAT THE ASSE SSEE SHOULD HAVE ACTUALLY RECEIVED THE AMOUNTS, AND NOT A NOTIONAL ONE , BECAUSE IN VARIOUS AUTHORITATIVE PRONOUNCEMENTS IT HAS BEEN CON STRUED THAT THE AMOUNTS SHOULD HAVE BEEN ACTUALLY RECEIVED. ITAT, K OLKATTA BENCH HAS CONSIDERED IDENTICAL ASPECT, AND MADE FOLLOWING DISCUSS ION: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT ITS SHARES WERE ISSUED BY THE ASSESSEE-COMPANY DURING THE YEAR UNDE R CONSIDERATION AT PREMIUM TO CERTAIN COMPANIES IN LIEU OF THE SHARES HELD BY THE SAID COMPANIES AND THERE WAS THUS NO INFLOW OF CASH INVO LVED IN THESE TRANSACTIONS. THE SAID TRANSACTIONS WERE ENTERED IN TO IN THE BOOKS OF ACCOUNT OF THE ASSESSEE-COMPANY BY WAY OF JOURNAL E NTRIES AND IT DID NOT INVOLVE ANY CREDIT TO THE CASH AMOUNT. THE LEARNED DR AT THE TIME OF HEARING HAS NOT BROUGHT ANYTHING ON RECORD TO REBUT OR CONTROVERT THIS POSITION. HE HOWEVER HAS CONTENDED BY RELYING ON TH E DECISION OF HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF V.I.S.P. ( P) LTD. (SUPRA) AS WELL AS THE DECISION OF MUMBAI BENCH OF THIS TRIBUN AL IN THE CASE OF PANNA S. KHATAU (SUPRA) THAT SECTION 68 WAS STIL L APPLICABLE IN THE PRESENT CASE INVOLVING CREDIT TO THE SHARE CAPITAL AND SHARE PREMIUM ITA NO NO.316/CHD/2019 5 AMOUNT. IT IS HOWEVER OBSERVED THAT THE FACTS INVOL VED IN THE CASE OF V.I.S.P. (P.) LTD. (SUPRA) WERE DIFFERENT INASMU CH AS THE LIABILITY IN QUESTION IN THE SAID CASE REPRESENTED TRADING LIABI LITY OF THE ASSESSEE ACCRUING AS A RESULT OF PURCHASES MADE BY THE ASSES SEE DURING THE RELEVANT YEAR AND SINCE THE SAID LIABILITY WAS FOUND TO BE A BOGUS LIABILITY, ADDITION MADE BY THE AO WAS HELD TO BE SUSTAINABLE BY THE HO N'BLE MADHYA PRADESH HIGH COURT. 7. IN THE CASE OF PANNA S. KHATAU (SUPRA) CITED BY THE LEARNED DR, BOTH SECTIONS 68 AND 56(2)(VI) WERE HELD TO BE APPLICABL E BY THE TRIBUNAL BUT NO CONCRETE OR COGENT REASONS WERE GIVEN TO JUSTIFY THE APPLICABILITY OF SECTION 68 TO THE CREDITS NOT INVOLVING ANY RECEIPT OR INFLOW OF CASH IN THE RELEVANT YEAR. MOREOVER, THE VIEW TAKEN BY THE TRIB UNAL IN THE SAID CASE IS CONTRARY TO THE DECISION OF HON'BLE CALCUTTA HIGH C OURT IN THE CASE OF JATIA INVESTMENT CO. (SUPRA) RELIED UPON BY THE LD. CIT(A) TO GIVE RELIEF TO THE ASSESSEE ON ISSUE UNDER CONSIDERATION IN THE PRESENT CASE. IN THE SAID CASE, THE THREE NBFCS HAD TAKEN LOANS FROM PRO PRIETARY CONCERN BELONGING TO THE SAME GROUP. SINCE THE SAID LOANS W ERE REQUIRED TO BE LIQUIDATED AS PER THE RBI GUIDELINES AND THERE WAS NO CASH AVAILABLE WITH THE NBFCS TO REPAY THE LOANS, THE SHARES HELD BY TH E THREE NBFCS WERE TRANSFERRED TO A PARTNERSHIP FIRM NAMELY JATIA INVE STMENT CO., AND THE AMOUNT RECEIVABLE AGAINST THE SAID SALE OF SHARES W AS ADJUSTED BY THE NBFCS AGAINST THE LOAN AMOUNT PAYABLE TO PROPRIETAR Y CONCERN. THE PARTNERSHIP FIRM OF M/S. JATIA INVESTMENT CO. THUS RECEIVED SHARES FROM THE THREE NBFCS AND ALSO TOOK OVER THE LOANS PAYABL E BY THE SAID NBFCS TO THE PROPRIETARY CONCERN. THESE TRANSACTIONS WERE ENTERED INTO IN ITS BOOKS OF ACCOUNT BY THE PARTNERSHIP FIRM THROUGH CA SH BOOK BY DEBITING THE INVESTMENT IN SHARES AND CREDITING THE LOAN AMO UNT OF THE PROPRIETARY CONCERN. THIS CREDIT APPEARING IN THE BOOKS OF ACCO UNT OF THE PARTNERSHIP FIRM, M/S. JATIA INVESTMENT CO. WAS TREATED BY THE AO AS UNEXPLAINED CASH CREDIT U/S 68 AND ON CONFIRMATION OF THE SAME, WHEN THE MATTER REACHED TO THE HON'BLE CALCUTTA HIGH COURT, IT WAS HELD BY THEIR LORDSHIP THAT WHEN THE CASH DID NOT PASS AT ANY STAGE AND SI NCE THE RESPECTIVE PARTIES DID NOT RECEIVE CASH NOR DID PAY ANY CASH, THERE WAS NO REAL CREDIT OF CASH IN THE CASH BOOK AND THE QUESTION OF INCLUS ION OF THE AMOUNT OF THE ENTRY AS UNEXPLAINED CASH CREDIT COULD NOT ARISE. I N OUR OPINION, THE RATIO OF THIS DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF JATIA INVESTMENT CO. (SUPRA) IS SQUARELY APPLICA BLE IN THE FACTS OF THE PRESENT CASE AND THE LD. CIT(A) WAS FULLY JUSTIFIED IN DELETING THE ADDITION ITA NO NO.316/CHD/2019 6 MADE BY THE AO U/S 68 BY HOLDING THAT THE SAID PROV ISION WAS NOT APPLICABLE. 8. SINCE ASSESSEE HAS NOT RECEIVED ACTUAL CONSIDERATION, IT HAS ONLY RECEIVED CHEQUES WHICH HAVE NOT BEEN ENCASHED, THEREFORE, T HE PROPOSITION LAID DOWN IN THE ABOVE ORDER OF THE ITAT, KOLKATA BENCH IS CLEARLY APPLICABLE ON THE FACTS OF THE PRESENT CASE. WE ALL OW THE APPEAL OF THE ASSESSEE AND DELETE THE ADDITION. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 7 TH NOVEMBER, 2019. SD/- SD/- (N.K. SAINI) VICE-PRESIDENT (RAJPAL YADAV) JUDICIAL MEMBER CHANDIGARH; DATED, /11/2019