The ACIT, Circle 2(1), Indore V. M/s. Indo Thai Securities Ltd., Indore

ITA 447/IND/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99034 (ITAT-INDORE)
• Duration Of Justice: 2 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-09-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 13-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R A VERMA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI B.C.MEENA, ACCOUNTANT MEMBER I.T.A.NO. 447/IND/2013 A.Y. : 2009-10 ACIT, M/S.INDO THAI SECURITIES LIMITED, CIRCLE 2(1), VS INDORE. INDORE. APPELLANT RESPONDENT C.O.NO.84/IND/2013 (ARISING OUT OF I.T.A.NO. 447/IND/2013) A.Y. : 2009-10 M/S.INDO THAI SECURITIES LIMITED, ACIT, INDORE. VS CIRCLE 2(1), INDORE. CROSS OBJECTOR RESPONDENT PAN NO.AACI4380E DEPARTMENT BY : SHRI R. A. VERMA, DR ASSESSEE BY : SHRI HITESH CHIMNANI, C. A. ACIT VS. M/S.INDO THAI SECURITIES LIMITED,INDORE, I.T.A.NO. 447/IND/2013 AND C.O.NO. 84/IND/2013 A. Y. 2009-10 2 2 O R D E R PER GARASIA, J.M. APPEAL OF THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF CIT(A)-7 , MUMBAI (CONCURRENT JURISDICTION OVER THE CHARGE OF CIT(A)- I, INDORE), DATED 22.02.2013. 2. THE SHORT FACTS OF THE CASE ARE AS UNDER. 3. THE ASSESSEE IS A SHARE BROKING COMPANY. DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT THE ASS ESSEE HAS CLAIMED LONG TERM CAPITAL GAINS OF RS. 44,53,562/- ON SALE OF SHARES AS EXEMPT U/S 10(38) OF THE INCOME-TAX ACT, 1961. THE ASSESSEE HAS GIVEN THESE SHARES ON LOAN TO M/S.KRIS HNA KRAFT DEALERS PRIVATE LIMITED, KOLKATA, ON 26.04.2004, BU T THE BORROWER COMPANY HAVE NEITHER PAID INTEREST NOR RET URNED THE BORROWED SHARES DURING THE FINANCIAL YEAR 2007-08 W HEN AS DATE OF HEARING : 30 . 09 .2015 . DATE OF PRONOUNCEMENT : 30.09. 2015 ACIT VS. M/S.INDO THAI SECURITIES LIMITED,INDORE, I.T.A.NO. 447/IND/2013 AND C.O.NO. 84/IND/2013 A. Y. 2009-10 3 3 PER LAW THE SHARES BECAME IRRECOVERABLE, THE ASSESS EE COMPANY CONVERTED THESE SHARES FROM STOCK IN TRADE TO INVESTMENT. WHEN THE SO CALLED BORROWER COMPANY NOT RETURNED THE BORROWED SHARES THE ASSESSEE COMPANY APPOINTED FATHER OF THE ASSESSEE AS ARBITRATOR AND THE SO CALLED BORROWER COMPANY RETURNED THE SHARES TO THE ASSESSE E AND ASSESSEE COMPANY HAS RECEIVED AND SOLD THESE SHARES DURING THE YEAR AND CLAIMED LONG TERM CAPITAL GAIN. THE AO IN HIS ORDER HAS OBSERVED THE FOLLOWING CONDITIONS :- I. THE ASSESSEE COMPANY IS NOT AUTHORIZED BY ITS MEMORANDUM AND ARTICLES OF ASSOCIATION TO GIVE SHARES ON LOAN. II. THE BORROWER COMPANY WAS INCORPORATED ON 19.10.2004 AND HAVE PAID UP CAPITAL ONLY RS. 1,00,000/- TILL THE DATE. III. ON THE DATE OF LENDING THE SHARES A PRUDENT MANAGEMENT WILL NEVER LEND AN AMOUNT MORE THAN 20 TIMES OF THE NET WORTH OF A COMPANY. AS THE BORROWER COMPANY HAVE THE PAID UP ACIT VS. M/S.INDO THAI SECURITIES LIMITED,INDORE, I.T.A.NO. 447/IND/2013 AND C.O.NO. 84/IND/2013 A. Y. 2009-10 4 4 CAPITAL RS. 1,0,000/- TILL DATE AND RS. 40,000/- TREATING THE PRELIMINARY EXPENSES OF THE BORROWER COMPANY. IV. THE ASSESSEE COMPANY HAVE THE NET WORTH RS. 3.22 CRORE AND HAVE EARNED A NET PROFIT 25.66 BEFORE TAX FOR THE YEAR ENDED 31.03.2004. THAN UNDER WHAT COMPULSION THE ASSESSEE COMPANY HAS GRANTED THE LOAN OF RS. 12,41,534/- TO EARN A SO SMALL PROFIT OF RS. 24,831/- AND TAKEN SO HUGE RISK. V. THE ASSESSEE COMPANY COULD NOT EXPLAIN THAT WHY THE BORROWING COMPANY CAME TO THE ASSESSEE COMPANY TO TAKE THE SHARES AS LOAN WHILES IT WAS NOT THE BUSINESS OF THE ASSESSEE COMPANY. VI. THE ASSESSEE COMPANY HAS NOT PRODUCED ANY EVIDENCE REGARDING THE PAST WORTHY RELATIONSHIP WITH BORROWING COMPANY. ACIT VS. M/S.INDO THAI SECURITIES LIMITED,INDORE, I.T.A.NO. 447/IND/2013 AND C.O.NO. 84/IND/2013 A. Y. 2009-10 5 5 VII. THE RESOLUTION OF THE BORROWING COMPANY REGARDING TAKING OF SHARES ON LOAN NOT PRODUCED. FURTHER THE RESOLUTION REGARDING THE AUTHORIZED PERSON TO SING THE LOAN AGREEMENT NOT PRODUCED. VIII. THE NAME OF AUTHORIZE PERSON OF THE BORROWER COMPANY HAS NOT BEEN MENTIONED IN THE LOAN AGREEMENT. IX. THE LOAN AGREEMENTS DO NOT CONTAIN THE DISTINCTIVE NO., CERTIFICATE NO., AND THE TOTAL NUMBER OF CERTIFICATES HANDED OVER TO THE BORROWER COMPANY. X. IN CASE OF LOAN DOCUMENTS THE COMMON SEAL OF THE BORROWER COMPANY SHOULD BE EMBOSSED ON THE LOAN DOCUMENTS. THE SEAL SHOULD BE PUT BY THE MANAGING DIRECTOR OR DIRECTOR AND THE SAME SHOULD BE COUNTER SIGNED BY ANOTHER DIRECTOR. A RESOLUTION IN THIS REGARD SHOULD ALSO BE ACIT VS. M/S.INDO THAI SECURITIES LIMITED,INDORE, I.T.A.NO. 447/IND/2013 AND C.O.NO. 84/IND/2013 A. Y. 2009-10 6 6 PASSED BY THE BORROWER COMPANY AND SHOULD BE KEPT BY THE LENDER COMPANY. XI. A CHARGE/CHANGES SHOULD BE REGISTERED WITH REGISTER OF COMPANIES IN FAVOUR OF THE LENDER COMPANY IN CASE OF ANY LOAN IS GRANTED TO ANY PRIVATE OR PUBLIC LIMITED COMPANY. XII. THE ASSESSEE COMPANY HAS SENT LETTER ON 12.05.2005 I.E. ONLY AFTER LAPSE OF 15 DAYS FROM THE DUE DATE OF INTEREST RECEIVABLE STATING THE SUBJECT 'NON-PAYMENT OF INTEREST ON BORROWED SHARES' WHILE IN NORMAL BUSINESS PARLANCE A SIMPLE INFORMATIVE LETTER IS SENT TO THE BORROWER FOR MAKING THE PAYMENT. FURTHER THE SAID LETTER IS ALSO CONTAIN THE LANGUAGE THAT 'BUT YOU DID NOT PAY SAID INTEREST ON SHARES OF RELIANCE INDUSTRIES LIMITED.' HENCE ON GOING THROUGH THE LETTER SENT TO ACIT VS. M/S.INDO THAI SECURITIES LIMITED,INDORE, I.T.A.NO. 447/IND/2013 AND C.O.NO. 84/IND/2013 A. Y. 2009-10 7 7 THE BORROWER COMPANY IT SEEMS THAT IT ALL IS A THOUGHT STORY. XIII. NO EVIDENCE HAS BEEN PRODUCED BY THE ASSESSEE COMPANY EXCEPT THE LOAN AGREEMENT (WHICH IS NOT ACCEPTABLE) WHICH COULD PROVE ANY CORRESPONDENCE BETWEEN THE ASSESSEE AND THE BORROWER COMPANY. XIV. THE REMINDER LETTER SEND BY ASSESSEE COMPANY DOES NOT CONTAIN THE NAME AND DESIGNATION OF THE PERSON DEMANDING THE INTEREST. XV. THE COMPANY HAS LEND SHARE ON 26.04.2004 AND THE COMPANY HAVE TAKEN SHELTER OF THE COURT BEFORE 3 YEARS I.E. BEFORE 26.04.2007 AFTER THIS DATE THE DEBT BECOME TIME BAR OR LOSS ASSETS. THAN HOW THE MANAGEMENT OF SO BIG ORGANIZATION CONVERTED TO THE LOSS ASSETS TO ACIT VS. M/S.INDO THAI SECURITIES LIMITED,INDORE, I.T.A.NO. 447/IND/2013 AND C.O.NO. 84/IND/2013 A. Y. 2009-10 8 8 INVESTMENTS. XVI. WHO HAS APPOINTED THE ARBITR ATOR? THE ASSESSEE COMPANY HAS ONLY APPOINTED THE ARBITRATOR AND HAS NOT PRODUCED ANY EVIDENCE OR CORRESPONDENCES THAT THE BORROWER COMPANY WAS AGREE ON THE ARBITRATOR. XVII. THERE IS NO EVIDENCE OF THE PRESENCE OF ANY PERSON ON BEHALF OF THE BORROWER COMPANY. XVIII. THE ASSESSEE COMPANY HAS MADE ALL THE CORRESPONDENCE AT WRONG ADDRESS THAN HOW A PERSON REPRESENTING THE COMPANY COULD ATTEND THE ARBITRATION. XIX. THE ASSESSEE COMPANY HAS TRIED TO TW IST HIS STORY BY INTRODUCING AN ARBITRATOR WHILE THERE WAS NO DISPUTE WHICH COULD BE RESOLVED BY THE ARBITRATOR AND IN FACT IN SUCH A STORY ARBITRATOR HAS DONE ACIT VS. M/S.INDO THAI SECURITIES LIMITED,INDORE, I.T.A.NO. 447/IND/2013 AND C.O.NO. 84/IND/2013 A. Y. 2009-10 9 9 NOTHING EXCEPT INSTRUCTING THE BORROWER COMPANY TO RETURN THE SHARES AND THE BORROWER COMPANY SIMPLY RETURNED THE SHARES. XX. THE PERSON WHO HAS SIGNED THE WITNESS OF THE LOAN IS NOT AN INDEPENDENT PERSON BUT HE IS AN EMPLOYEE OF THE COMPANY. XXI. THE PERSON WHO WAS APPOINTED SO CALLED ARBITRATOR IS ALSO NOT AN INDEPENDENT PERSON BUT FATHER OF THE AR (OF THIS CASE) OF THE ASSESSEE. XXII. THE DIRECTORS OF THE BORROWER COMPANY HAS NOT TAKEN DIN, INTRODUCED IN THE YEAR 2006 HENCE THE BORROWER COMPANY HAS BECOME THE DORMANT COMPANY. XXIII. THE BORROWER COMPANY HAS NOT SUBMITTED ANY OF ITS ANNUAL RETURN OR BALANCE SHEET SINCE 2006 HENCE THE REGISTRAR OF COMPANIES HAS DECLARED THE COMPANY AS ACIT VS. M/S.INDO THAI SECURITIES LIMITED,INDORE, I.T.A.NO. 447/IND/2013 AND C.O.NO. 84/IND/2013 A. Y. 2009-10 10 10 DORMANT COMPANY. THAN HOW THE COMPANY IS WORKING AND GIVEN THE DELIVERY OF THE SHARES TO THE ASSESSEE COMPANY. 4. AFTER CONSIDERING THE ABOVE DISCREPANCY, THE AO DI D NOT ALLOW LONG TERM CAPITAL GAINS AS CLAIMED AND EX EMPT U/S 10(38) AT RS. 44,53,562/-. 5. THE MATTER CARRIED TO THE LD. CIT(A) AND THE LD. C IT(A) HAS ALLOWED THE CLAIM. 6. THE LD. DR SUBMITTED BEFORE US THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY DID NO T AUTHORIZE TO LEND THE SHARES. THE PAID UP CAPITAL W AS RS. 1 LAC TILL DATE AND LENDING LIMIT OF 20 TIMES OF NET WORT H AND PROFIT OF RS. 24,831/-. MOREOVER, HOW THE ASSESSEE COMPANY HA S TAKEN THE SHARES AS LOAN. THE ASSESSEE COULD NOT PRODUCE BORROWER. RESOLUTION OF BORROWER WAS NOT PRODUCED. NAMES OF A UTHORIZED PERSONS MENTIONED IN THE LOAN AGREEMENT DO NOT CONT AIN SAID CERTIFICATES. RESOLUTION OF COMMON SEAL AFFIXED ON LOAN ACIT VS. M/S.INDO THAI SECURITIES LIMITED,INDORE, I.T.A.NO. 447/IND/2013 AND C.O.NO. 84/IND/2013 A. Y. 2009-10 11 11 AGREEMENT WAS NOT PRESENTED. CHARGE ON LOAN WAS NOT FILED WITH ROC. NO EVIDENCE OTHER THAN LOAN AGREEMENT AND APPOINTED ARBITRATOR AND WHAT ARE THE EVIDENCE THAT THESE SHARES WERE TRANSFERRED TO KOLKATA COMPANY. THEREFO RE, THE LD. CIT(A) WHILE GRANTING THE RELIEF HAS NOT VERIFI ED ALL THESE FACTS. THE LD. CIT(A) SIMPLY HAS RELIED UPON SOME L AW AND ALLOWED THE CLAIM. 7. DURING THE COURSE OF HEARING OF THE APPEAL, WE HAVE DOUBTED ABOUT THE GENUINENESS OF THE TRANSACTION AS TO WHETHER THE ASSESSEE COMPANY HAS GIVEN LOAN OF SHAR ES TO M/S.KRISHNA KRAFT DEALERS PRIVATE LIMITED, KOLKATA, ON 26.04.2004. THE LD. AUTHORIZED REPRESENTATIVE SUBMI TTED THAT THE AO HAS NOT DOUBTED THE GENUINENESS OF THE TRANS ACTION. THEREFORE, THE LD. CIT(A) IS JUSTIFIED IN ALLOWING THE APPEAL OF THE ASSESSEE. WHEN WE TRIED TO ASK FOR THE EVIDENCE AS TO WHAT ARE THE RELATION WITH BORROWER COMPANY AND THE ASSE SSEE COMPANY IS A REGISTERED COMPANY AND BORROWER COMPAN Y IS ALSO REGISTERED AND WE WANTED TO VERIFY THE LOAN AG REEMENT, WHEREIN THE DISTINCTIVE NUMBER, CERTIFICATE SHOULD BE VERIFIED ACIT VS. M/S.INDO THAI SECURITIES LIMITED,INDORE, I.T.A.NO. 447/IND/2013 AND C.O.NO. 84/IND/2013 A. Y. 2009-10 12 12 AND HANDED OVER TO BORROWER COMPANY. THE LOAN DOCUM ENT SHOULD BE EMBOSSED ON THE BORROWER COMPANY SEAL AND IT SHOULD HAVE BEEN REGISTERED WITH THE REGISTRAR OF C OMPANIES. THE ASSESSEE REQUESTED THAT THIS MATTER MAY BE REST ORED TO THE FILE OF THE AO, SO THAT THE ASSESSEE CAN PRODUCE AL L THESE EVIDENCE AND AO CAN EXAMINE. THEREFORE, IN THE INTE REST OF JUSTICE AND FAIR PLAY, WE RESTORE THIS ISSUE BACK T O THE FILE OF THE AO AND THE AO IS DIRECTED TO VERIFY THE GENUINE NESS OF THE ASSESSEE COMPANY, WHICH BORROWED THE SHARES OF KOLK ATA COMPANY. THE AO IS ALSO DIRECTED TO VERIFY THE AGRE EMENT AND GENUINENESS OF ARBITRATION PROCEEDINGS AND DECIDE T HE MATTER AFRESH AS PER LAW AFTER GIVING DUE OPPORTUNITY OF B EING HEARD TO THE ASSESSEE. C. O. NO. 84/IND/2013 : 8. AS WE HAVE ALREADY RESTORED THE MAIN MATTER FOR VERIFICATION TO THE ASSESSING OFFICER, THIS CROSS O BJECTION IS ALSO RESTORED TO THE AO AND THE AO IS DIRECTED TO DECIDE THE SAME AFTER VERIFICATION. ACIT VS. M/S.INDO THAI SECURITIES LIMITED,INDORE, I.T.A.NO. 447/IND/2013 AND C.O.NO. 84/IND/2013 A. Y. 2009-10 13 13 9. IN THE RESULT BOTH APPEAL AS WELL AS CROSS OBJECTIO N ARE ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2015. SD/- (B. C. MEENA) ACCOUNTANT MEMBER SD/- ( D.T.GARASIA) JUDICIAL MEMBER DATED : 30 TH SEPTEMBER, 2015. CPU*