ITO - 5(3)(3), MUMBAI V. M/s. VERTEX TECHNOSOFT LTD.,

ITA 3242/MUM/2007

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7600 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 15-03-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 26-04-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUBACHAN RAM
• Keywords: Unexplained cash credit; Opportunity of being heard; Additional evidence; Revenue expenditure; Capital expenditure
• Section: 68; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH: MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.3242/MUM/2007 (ASSESSMENT YEAR: 2003-04) INCOME-TAX OFFICER -5(3)(3), MUMBAI ...... APPELLANT VS VERTEX TECHNOSOFT LTD., 1011, EMBASSY CENTRE 207, NARIMAN POINT, MUMBAI -400 021 ..... RESPONDENT PAN: AABCV 2231 J APPELLANT BY: MR. SUBACHAN RAM RESPONDENT BY: MR. VIPUL JOSHI/MR SAMEER G. DALAL/MR. KUNAL GOKHALE DATE OF HEARING: 15.03.2012 DATE OF PRONOUNCEMENT: __.03.2012 O R D E R PER R.S. PADVEKAR, JM : IN THIS APPEAL THE REVENUE HAS CHALLENGED THE IMPUG NED ORDER OF THE LD. CIT (A)-5, MUMBAI DATED 16.03.2007 FOR THE A.Y. 2003-04. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS IN THE APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER LAW, THE LD. CIT (A)-V, MUMBAI ERRED IN DELETIN G THE ADDITION OF ` 7,90,54,500/- MADE U/S.68 OF THE I.T. ACT, 1961 AS UNEXPLAINED CASH CREDITS OF THE ASSESSEE COMPANY, AS THE ASSESSEE FAILED TO PROVE THE CREDIT WORTHINESS AND GENUINENESS OF THE TRANSACTION WITH REGARD TO NEW SHARE CAPITAL RECEIVED DURING THE YEAR BEFOR E THE A.O. AND ALSO BY ADMITTING NEW EVIDENCE IN CONVENTI ON OF RULE 46A OF THE I.T. RULES, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER LAW, THE LD. CIT (A)-V, MUMBAI ERRED IN ALLOWIN G THE ITA 3242/M/2007 VERTEX TECHNOSOFT LTD. 2 CLAIM OF THE ASSESSEE COMPANY FOR DEDUCTION U/S.35D OF THE I.T. ACT, 1961 OF ` 12,00,416/- ON ACCOUNT OF SHARE ISSUE EXPENSES. 2. THE FACTS WHICH REVEALED FROM THE RECORD ARE AS UNDER. THE ASSESSEE HAS FILED THE RETURN OF INCOME FOR A.Y. 20 03-04 DECLARING THE LOSS OF (-) ` 22,336/-. THE RETURN FILED BY THE ASSESSEE WAS SE LECTED FOR SCRUTINY. THE A.O. ISSUED THE NOTICE U/S.143(2) ON 30.11.2004 WHICH WAS DULY SERVED ON THE ASSESSEE ON 09.12.2004. THE A.O. ALSO ISSUED THE NOTICE U/S.142(1) CALLING FOR THE INFORMATION A ND DETAILS FROM THE ASSESSEE. IT APPEARS THAT THE ASSESSEE REQUESTED F OR THE TIME TO ATTEND THE HEARING HENCE, THE A.O. ADJOURNED THE HE ARING FROM TIME TO TIME. THE A.O. HAS OBSERVED THAT DESPITE BEING GIV EN AMPLE OPPORTUNITIES THE ASSESSEE FAILED TO FURNISH ANY OF THE DETAILS AS CALLED FOR IN THE NOTICE U/S.142(1) DATED 09.09.2005. THE A.O. FINALLY ISSUED THE LETTER DATED 04.01.2005 BY SPEED POST IN WHICH THE ASSESSEE WAS MADE AWARE OF THE PREVIOUS SEVERAL ADJOURNMENTS. T HE A.O. ALSO ASKED THE ASSESSEE WHY THE ASSESSMENT SHOULD NOT BE COMPLETED EX- PARTE U/S.144 OF THE I.T. ACT. THE ASSESSEE WAS GI VEN THE TIME TO FILE THE REPLY BY 12.01.2006. AS NOTED BY THE A.O. ON T HE SAID DATE ALSO THE ASSESSEE DID NOT ATTEND. ON 08.02.2006 ONE SHR I RAJKUMAR JAJU, REPRESENTATIVE OF THE ASSESSEE COMPANY ATTENDED AND STATED THAT THE DETAILS CALLED FOR ARE UNDER PREPARATION AND ACCORD INGLY THE A.O. AS PER THE REQUEST MADE BY ASSESSEE ADJOURNED THE CASE TO 14.02.2006. ON THAT DATE ALSO NO DETAILS WERE FILED AND NONE AT TENDED ALSO. THE CASE WAS FINALLY ADJOURNED TO 24.02.2006. ON THAT DATE ALSO NOBODY ATTENDED. THE A.O., THEREFORE, COMPLETED THE ASSES SMENT U/S.144 OF THE ACT ON THE BASIS OF THE INFORMATION AND MATERIA L AVAILABLE ON RECORD. 3. AS FAR GROUND NO. 1 IS CONCERN, FROM THE BALANCE -SHEET IT NOTICED BY THE A.O. THAT THE SHARE CAPITAL OF THE A SSESSEE COMPANY AS ON 31.03.2002 WAS ` 12,00,01,500/- AND AS ON 31.03.2003 THE SAME WAS INCREASED TO ` 19,40,56,000/-. THE A.O., THEREFORE, CONCLUDED THAT THE ASSESSEE HAS RECEIVED NEW SHARE CAPITAL OF ` 7,90,54,500/- ITA 3242/M/2007 VERTEX TECHNOSOFT LTD. 3 DURING THE FINANCIAL YEAR 2002-03. AS OBSERVED BY THE A.O. IN RESPECT OF ASKING THE DETAILS OF THE NEW SHARE CAPITAL LIKE NAME AND ADDRESS AND PAN OF PERSONS INDICATING MODE OF PAYMENT FROM WHOM NEW SHARE CAPITAL HAS RECEIVED ETC. BUT NO DETAILS WERE FURNISHED BY THE ASSESSEE. THE A.O., THEREFORE, CAME TO THE CONCLUS ION THAT THE SAID AMOUNT WAS IN THE NATURE OF UNEXPLAINED CASH CREDIT AND OBSERVED THAT THE ASSESSEE FAILED TO PROVE THE SOURCE AS WEL L AS IDENTITY AND CREDITWORTHINESS AS WELL AS GENUINENESS OF THE TRAN SACTION. THE A.O. MADE ADDITION U/S.68 OF I.T. ACT. 4. SO FAR AS GROUND NO.2 IS CONCERNED, IT WAS NOTIC ED BY THE A.O. THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 12,00,416/- ON ACCOUNT OF SHARE ISSUE EXPENSES WRITTEN OFF. THE A.O. FURT HER EXAMINED THE PROFIT AND LOSS ACCOUNTS, MORE PARTICULARLY, THE DE TAILS OF THE FINANCIAL CHARGES AS PER THE SCHEDULE 13 OF THE PROFIT & LOSS ACCOUNT AND IT WAS SEEN THAT THE ASSESSEE HAS CLAIMED THE EXPENDITURE OF ` 1 LAKH TOWARDS COMMISSION PAID FOR SHARE CALL MONEY. BOTH THOSE EXPENSES TREATED BY THE ASSESSEE AS REVENUE EXPENDITURE AND DEBITED TO P. & L. A/C. IN THE OPINION OF THE A.O. BOTH THE EXPENSES OF ` 12,00,416/- AND COMMISSION PAYMENT OF ` 1 LAKH HAVE BEEN INCURRED BY THE ASSESSEE COMPANY WITH A VIEW TO INCREASE ITS SHARE CAPITAL AND IT OF CAPITAL EXPENDITURE. THE A.O. RELIED ON THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASES OF M/S. BROOKE BOND INDI A LTD. VS. CIT 225 ITR 798 AS WELL AS PUNJAB STATE INDUSTRIAL DEVE LOPMENT CORPORATION LTD. VS. CIT 225 ITR 792 AND DISALLOWED THE ENTIRE EXPENDITURE AND MADE ADDITION TO THE INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEFORE THE LD. CIT (A) AND LD. CIT (A) DELETED BOTH THE ADDITIONS. 5. THE OPERATIVE PART OF THE FINDINGS OF THE LD. CI T (A) IS AS UNDER: 2.4 I HAVE PERUSED THE FACTS OF THE CASE. IN MY OPINION P RIMA FACIE SHARE CAPITAL CANNOT BE TREATED AS SUBJECT MA TTER OF ADDITION U/S.68. THIS WOULD PARTICULARLY BE SO WHEN THE IDEN TITY OF THE SHAREHOLDERS IS ESTABLISHED. ALSO, SUCH AN ADDITION IS NOT ITA 3242/M/2007 VERTEX TECHNOSOFT LTD. 4 PERMISSIBLE ONCE IT IS ESTABLISHED THAT THE AMOUNT UNDER CONSIDERATION HAS BEEN RECEIVED BY APPELLANT BY CHE QUE IN ITS BANK ACCOUNT. FURTHER, IN THE CASE OF BHAICHAND H. GANDHI REPORTED IN 144 ITR 167 IT HAS BEEN HELD THAT CREDI T ENTRIES IN THE BANK ACCOUNTS CANNOT BE SUBJECT MATTER OF SECTION 6 8. ALSO HONBLE GUHAWATI HIGH COURT IN THE CASE OF NEMICHAN D KHOTARI HAS HELD THAT SCOPE OF SECTION 68 IS RESTRICTED TO CASH RECEIPTS BY THE ASSESSEE IN CONTRAST TO AMOUNTS RECEIVED BY CHE QUE. I AM ALSO IN AGREEMENT WITH THE APPELLANT THAT THE FACTS OF THE MATTER ARE SQUARELY COVERED BY THE DECISIONS IN THE CASE O F NEMICHAND KOTHARI AND BHAICHAND H. GANDHI. IN THIS SITUATION THE ADDITION MADE U/S.68 CANNOT BE UPHELD. I HAVE ALSO PERUSED THE DECISIONS REFERRED BY THE APPELLANT IN THE CASE OF STELLAR INVESTMENTS LTD. IN THE SAID DECISION, HONBLE SUP REME COURT HAS CATEGORICALLY ARGUED THAT THE TRIBUNAL HAD COME TO A CONCLUSION ON FACTS AND NO INTERFERENCE HAD BEEN CALLED FOR AN D HAD DISMISSED THE APPEAL ACCORDINGLY. IT IS HOWEVER NO TICED THAT IN THE DECISION OF HONBLE DELHI HIGH COURT IN THIS VE RY CASE HONBLE COURT HAD HELD THAT EVEN IF IT IS ASSUMED THAT SUBS CRIBES TO THE INCREASE OF SHARE CAPITAL ARE NOT GENUINE, UNDER NO CIRCUMSTANCES COULD THE AMOUNT OF SHARE CAPITAL BE REGARDED AS UN DISCLOSED INCOME OF THE COMPANY. ON OVERALL ANALYSIS OF THES E DECISIONS IT APPEARS TO ME THAT THE ISSUE OF SHARE CAPITAL CONTR IBUTION BEING INCOME OF THE COMPANY HAS TO BE DECIDED ON DEPENDIN G ON FACTS OF EACH CASE. IN THE INSTANT CASE, THERE IS NO PRIM A FACIE NEXUS BETWEEN THE SHARE CAPITAL INTRODUCED IN THE FORM OF ADDITIONAL CALL MONEY AND INCOME OF THE COMPANY. IN SUCH A SITUATIO N, SHARE CAPITAL INTRODUCED IN THE CAPITAL OF THE COMPANY CA NNOT BE CONSIDERED TO BE INCOME OF THE COMPANY. THE ADDITIO N MADE IS ACCORDINGLY DELETED. 3 GROUND OF APPEAL NO.1 IS AGAINST DISALLOWANCE O F RS.13,00,416/- ON ACCOUNT OF SHARE ISSUE EXPENSES A ND RS.1,56,339/- ON ACCOUNT OF ADMINISTRATIVE AND SELL ING EXPENSES. THE SHARE ISSUE EXPENSES HAS GOT TWO PARTS, THE FIR ST BEING ITA 3242/M/2007 VERTEX TECHNOSOFT LTD. 5 AMOUNT OF RS.12,00,416/- WHICH WAS CLAIMED BY THE A PPELLANT ULS.35D AND HAS BEEN DISALLOWED BY THE A.O. ON THE GROUND THAT NO DETAILS HAVE BEEN FILED. IN FACT THESE EXPENSES RELATE TO THE ORIGINAL SHARE ISSUE OF THE APPELLANT OF YEAR 1996. SINCE THEN APPELLANT HAS BEEN CLAIMING THESE EXPENSES U/S.35D BY WRITING OFF THE EXPENSES CAPITALIZED IN THE FIRST YEAR. THE RE IS THEREFORE NO REASON FOR DISALLOWING THE EXPENDITURE UNDER QUESTI ON. THE DISALLOWANCE MADE IS DELETED. 3.1 THE SECOND PART OF THE SHARE ISSUE EXPENSES O F THIS GROUND OF APPEAL IS AGAINST THE AMOUNT OF RS.1 LAKH PAID T O DEVAS FABRICS LTD. FOR COLLECTION OF THE FINAL CALL MONEY RECEIVED BY THE APPELLANT DURING THE YEAR. THIS EXPENDITURE IS NOT REVENUE IN NATURE AND IS THEREFORE REQUIRED TO BE CAPITALIZED. THE A.O. IS DIRECTED ACCORDINGLY. 3.2 ON THE ISSUE OF ADMINISTRATIVE AND SELLING EXP ENSES OF GROUND OF APPEAL NO.1 WHICH THE A.O. HAS DISALLOWED @ 20% , I FIND THAT SINCE APPELLANT HAS NOT FILED ANY DETAILS IN THE COURSE OF ASSESSMENT PROCEEDINGS DESPITE ADEQUATE OPPORTUNITY GRANTED TO IT, THE ADDITION MADE IS JUSTIFIED AND IS UPHELD. NOW, THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD S. THE LD. CIT DR HAS RAISED SERIOUS OBJECTION FOR DELETING TH E BOTH THE ADDITIONS. HE SUBMITTED THAT SO FAR AS ADDITION NO .1 IS CONCERNED, THE ASSESSEE FILED THE NEW EVIDENCE IN THE FORM OF SHAR E APPLICATIONS OF 1059 SHAREHOLDERS AND AS WELL AS THE BANK STATEMENT S WHICH WERE NEVER FILED BEFORE THE A.O. HE SUBMITS THAT THE AS SESSEE WAS GIVEN AMPLE OPPORTUNITY TO PRODUCE THE EVIDENCE BUT ON ON E OR THE OTHER PRETEXT THE ASSESSEE KEPT AVOIDING TO FILE THE SAID EVIDENCE. HE SUBMITS THAT THE ACTION OF THE LD. CIT (A) ADMITTIN G THE ADDITIONAL EVIDENCE IN THE GROSS VIOLATION OF THE RULE OF LAW. HE FURTHER SUBMITS THAT THE LD. CIT (A) HAS NOT EVEN CALLED FOR THE RE MAND REPORT OF THE ITA 3242/M/2007 VERTEX TECHNOSOFT LTD. 6 A.O. WHEN NEW EVIDENCE WAS FILED. HE PRAYED FOR RE STORING THE ENTIRE ISSUE TO THE FILE OF THE A.O. WE HAVE ALSO HEARD T HE LD. COUNSEL. 7. WE FIND THAT THE A.O. GAVE AMPLE OPPORTUNITIES T O THE ASSESSEE COMPANY TO PRODUCE THE EVIDENCE AS PER THE DETAILED NOTING MADE IN THE ASSESSMENT ORDER BUT FOR THE BEST REASONS KNOWN TO THE ASSESSEE, REQUIRED DETAILS WERE NOT PRODUCED. ON THE PERUSAL OF THE ORDER OF THE LD. CIT (A) THE ASSESSEE CAME WITH THE EXPLANATION AS WELL AS NEW EVIDENCE THAT THE AMOUNT RECORDED IN BOOKS WAS IN R ESPECT OF THE SHARE APPLICATION MONEY AS ASSESSEE MADE ISSUE AND ASSESSEE ALSO FILED THE COPIES OF THE SHARE APPLICATIONS RECEIVED FROM DIFFERENT PERSONS AS WELL AS BANK STATEMENTS. IT IS TRUE THA T SO FAR AS SHARE APPLICATION MONEY OF THE LIMITED COMPANY IS CONCERN ED, NO ADDITION CAN BE MADE U/S.68 OF THE ACT AS HELD BY THE HONBL E SUPREME COURT IN THE CASES OF CIT VS. LOVELY EXPORTS PVT. LTD. 2 16 CTR 195 (SC) & CIT VS. STELLAR INVESTMENT LTD. 251 ITR 263 (SC). BUT AT THE SAME TIME, THE LD. CIT (A) COULD HAVE CALLED FOR REMAND REPORT FROM THE A.O. WHEN ADMITTEDLY, NEW EVIDENCE WAS FILED. WE, THERE FORE, CONSIDER IT FIT TO RESTORE THE ISSUE TO THE FILE OF THE A.O. FOR FR ESH CONSIDERATION AND VERIFICATION. THE A.O. IS ALSO DIRECTED TO TAKE IN TO CONSIDERATION THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F LOVELY EXPORTS PVT. LTD. (SUPRA) AS WELL AS STELLAR INVESTMENT LTD . (SUPRA). THE A.O. SHOULD GIVE REASONABLE OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. THE ASSESSEE IS ALSO DIRECTED TO COOPERATE WITH THE A.O. FOR PROVIDING THE REQUISITE DETAILS & EVIDENCE. 8. IN THE RESULT, REVENUES APPEAL IS ALLOWED FOR T HE STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 8TH MARCH, 2012. SD/- ( B. RAMAKOTAIAH ) ACCOUTANT MEMBER SD/- ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 28TH MARCH, 2012 ITA 3242/M/2007 VERTEX TECHNOSOFT LTD. 7 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-5, MUMBAI. 4) THE CIT M.C.-5, MUMBAI. 5) THE D.R. F BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN