Oracle Health Park Pvt. Ltd., Lucknow V. ACIT, Lucknow

ITA 732/LKW/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48318 (ITAT-LUCKNOW)
• Duration Of Justice: 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 10-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K B AJAJ
• Keywords: Gift; Principle of natural justice; Period of limitation; Time period of passing order

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B - BENCH, LUCKNOW. BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A.NO.732(LKW.)/2010 A.Y. : 2005-06 ORACLE HEALTH PARK (P.) LTD., VS. THE ACIT, RANGE- II, 2 ND FLOOR, 20 PANCHWATI COLONY, LUCKNOW. RAHIM NAGAR, LUCKNOW. PAN AAACO6341F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ABHINAV MEHROTRA, C.A. RESPONDENT BY : SHRI P.K.BAJAJ, SR.D.R. O R D E R PER N.K.SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE O RDER DATED 4.10.2010 OF THE LD.CIT(A)-I, LUCKNOW. 2. THE FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED IN THIS APPEAL: 1. BECAUSE THE LEARNED FIRST APPELLATE AUTHORITY OUGHT TO HAVE ANNULLED THE ASSESSMENT ORDER AS THE ORDER HAVING BEEN SERVED BEYOND THE LIMITATION PERIOD WAS ILLEGAL. 2. BECAUSE WITHOUT PREJUDICE TO THE ABOVE, THE LEA RNED FIRST APPELLATE AUTHORITY HAD NO WARRANT TO CONFIRM THE A DDITION OF RS.2 LAKHS BEING THE CONTRIBUTIONS RECEIVED FROM TW O SHAREHOLDERS TOWARDS SHARE CAPITAL OF THE COMPANY . 2 3. BECAUSE THE LEANED FIRST APPELLATE AUTHORITY ERR ED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER OUT OF M ARKETING EXPENSES TO THE EXTENT OF RS.31,000. 4. BECAUSE THE LEARNED FIRST APPELLATE AUTHORITY OU GHT TO HAVE ADJUDICATED THE FOLLOWING ADDITIONAL GROUND TAKEN D URING THE APPELLATE PROCEEDINGS. BECAUSE THE LEARNED ASSESSING OFFICER OUGHT TO HA VE ALLOWED SET OFF OF BROUGHT FORWARD LOSSES AND ALLOW ANCES OF EARLIER YEARS PER LAW. 5. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY T O FACTS, LAW AND PRINCIPLES OF NATURAL JUSTICE. 6. THE APPELLANT CRAVES LAVE TO ADD, AMEND AND DELE TE ANY GROUNDS AT THE TIME OF THE HEARING. 3. GROUND NO.1 OF THE APPEAL WAS NOT PRESSED, SO IT IS DISMISSED AS NOT PRESSED. 4. AS REGARDS TO THE GROUND NO.2, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE CONFIRMATION OF ADDITION OF RS.2,00,000 FOR THE CONTRIBUTION RECEIVED FROM THE TWO SHAREHOLDERS TOWARDS SHARE CAPITAL OF THE ASSESSEE-COMPANY. 5. THE FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSEE FURNISHED THE RETURN OF INCOME ON 30.10.2005 DECLARING AN INC OME OF RS.74,300. THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS INCREASED ITS SHARE CAPITAL BY RS.2 LACS AS COMPARED TO THE LAST YEAR. HE, THEREFORE, ASKED THE ASSESSEE TO FURNISH THE DETAILS. IN RESPONSE TO THAT THE ASSESSEE SUBMITTED THAT SHRI SANJAY SRIVASTAVA AND SHRI SURENDRA SINGH CONTRIBUTED TO THE INCREASE IN SHARE CAPITAL. ACCORDING TO THE AO, THE ASSESSEE COULD NOT PROVID E EVIDENCE REGARDING THE 3 MODE OF TRANSACTION AND GENUINENESS. HE, THEREFORE, MADE THE ADDITION OF RS.2 LACS. 6. THE ASSESSEE CARRIED THE MATTER TO THE LD.CIT(A) AND SUBMITTED THAT SHRI SANJAY SRIVASTAVA WAS PREVIOUSLY A SALES MA NAGER IN CADILA PHARMACEUTICALS LTD. AT AHMEDABAD AND WAS ASSESSED TO TAX. IT WAS FURTHER STATED THAT HE SUBSCRIBED TO THE SHARE CAPITAL OU T OF HIS PAST SAVINGS AND OUT OF SALE PROCEEDS OF 8 GOLD COINS. IT WAS FURTHER S UBMITTED THAT SHRI SANJAY SRIVASTAVA MOVED FROM AHMEDABAD TO LUCKNOW ON ACCOU NT OF EARTHQUAKE IN THE YEAR 2000 AND STARTED HIS OWN BUSINESS AND THA T COPY OF HIS RETURN OF INCOME WAS FURNISHED. AS REGARDS TO THE SHARE CAPIT AL AMOUNTING TO RS.1 LAC INTRODUCED BY SHRI SURENDRA SINGH, IT WAS SUBMITTE D THAT HE IS A BUSINESSMAN AND CONTRIBUTED TO SHARE CAPITAL FROM T IME TO TIME IN SMALL AMOUNTS. THE COPIES OF ACKNOWLEDGEMENT OF SHRI SUR ENDRA SINGHS RETURNS OF INCOME FOR THE ASSESSMENT YEARS 2004-05 AND 200 5-06 WERE ALSO FURNISHED. 7. THE LD.CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT SHRI SANJAY SRIVASTAVA WAS IN BANKING HABITS BUT IT WAS NOT EXPLAINED AS TO HOW THE SHARE CAPITAL OF RS.1 LAC C LAIMED TO BE CONTRIBUTED BY HIM WAS BROUGHT IN THE FORM OF CASH AND THAT IT WAS SURPRISING TO NOTE THAT NO SALE BILLS IN SUPPORT OF THE ALLEGED SALE OF GOL D COINS HAD BEEN FURNISHED. THE LD.CIT(A) FURTHER OBSERVED THAT SHRI SANJAY SRI VASTAVA CONTRIBUTED SHARE CAPITAL IN CASH ALMOST ON A MONTHLY BASIS AND IF HE HAD REALLY ENOUGH SAVINGS AND SALE PROCEEDS OF GOLD COINS, AS CLAIME D, IT WAS NOT UNDERSTOOD AS TO HOW THE SHARE CAPITAL WAS CONTRIBUTED BY HIM ALMOST IN EQUAL SUMS ON MONTHLY BASIS DURING THE PERIOD 30.4.2004 TO 25.9. 2004. ACCORDING TO THE 4 LD.CIT(A), COPY OF RETURN OF INCOME SUBMITTED IN S UPPORT OF THE CLAIM WAS MERELY A COPY OF THE ACKNOWLDGEMENT OF RETURN AND D ID NOT SUBSTANTIATE THE CLAIMED SAVINGS AND SALE PROCEEDS OF GOLD COINS, RE SULTANT CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION. SIMILAR OBSERVA TIONS WERE MADE BY THE LD.CIT(A) WITH REGARD TO THE CONTRIBUTIONS MADE BY SHRI SURENDRA SINGH. THE LD.CIT(A) WAS OF THE VIEW THAT IT WAS DIFFICULT TO BELIEVE THAT ON SAME DATES BOTH SHRI SANJAY SRIVASTAVA AND SHRI SURENDRA SINGH HAD IDENTICAL AMOUNT OF AVAILABILITY OF CASH TO BE INTRODUCED AS SHARE CAPITAL. HE, THEREFORE, WAS OF THE VIEW THAT CREDITWORTHINESS OF SHRI SURENDRA SINGH AND SHRI SANJAY SRIVASTAVA AND THE GENUINENESS OF THE TRANSACTIONS IN QUESTION REMAINED UNSUBSTANTIATED. THE LD.CIT(A) ALSO POINTE D OUT THAT THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF DIVI NE LEASING AND FINANCE LTD. (299 ITR 268) RELIED ON BY THE ASSESSEE WAS NO T APPLICABLE BECAUSE IN THE SAID CASE THE SHARE CAPITAL WAS SUBSCRIBED IN A IN A PUBLIC ISSUE OF A PUBLIC LIMITED COMPANY, WHILE THE ASSESSEE IS A PRI VATE LIMITED COMPANY AND THE SHARE CAPITAL HAS BEEN INTRODUCED IN THE NAMES OF ITS TWO DIRECTORS. HE ACCORDINGLY CONFIRMED THE ADDITION MADE BY THE AO. 8. NOW, THE ASSESSEE IS IN APPEAL. 9. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ASSESSEE RECEIVED SHARE CAPITAL FROM TWO OF ITS DIRECTORS, WHO WERE A SSESSED TO INCOME-TAX AND EVIDENCE FOR FILING THE RETURNS IN THE SHAPE OF ACK NOWLEDGEMENT OF INCOME- TAX RETURNS WAS FILED BEFORE THE AO, SO, NO ADDITIO N WAS CALLED FOR IN THE HANDS OF THE ASSESSEE. RELIANCE WAS PLACED ON THE F OLLOWING CASE LAWS: (I) JAYA SECURITIES LTD. VS. CIT (2008) 166 TAXMAN 7(AL.), 5 (II) CIT VS. LOVELY EXPORTS (P.) LTD. (2008) 216 C TR (SC) 195, (III) DECISION OF THE I.T.A.T., DELHI BENCH IN DY.C IT VS. ARJUN COLD STORAGE AND GEN. MILLS (P.) LTD.,2009 (13) MTC 1001 (TRIB). 10. IN HIS RIVAL SUBMISSIONS, THE LD.D.R. STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 11. WE HAVE CONSIDERED SUBMISSIONS OF BOTH THE PAR TIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE ASSESSEE RECEIVED SHARE CAPI TAL FROM ITS DIRECTORS, WHO WERE ASSESSED TO TAX AND THE ASSESSEE FURNISHED COP IES OF ACKNOWLEDGEMENT RECEIPTS FOR INCOME-TAX RETURNS. ON A SIMILAR ISSUE , THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. LOVELY EXPORTS (P.) LT D. (2008) 216 CTR (SC) 195 HAS HELD THAT - IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GI VEN TO THE AO, THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN TH EIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH LAW, BUT IT CANNOT B E REGARDED AS UNDISCLOSED INCOME OF ASSESSEE-COMPANY. IN THE PRESENT CASE, THE ASSESSEE RECEIVED THE SHAR E CAPITAL FROM ITS DIRECTORS WHOSE NAMES WERE DISCLOSED TO THE DEPARTMENT AND TH E EVIDENCE FOR FILING THE INCOME-TAX RETURNS IN THE SHAPE OF COPY OF ACKN OWLEDGEMENT OF THE INCOME-TAX RETURNS WAS FURNISHED TO THE AO. THEREFO RE, IF THE AO WAS NOT SATISFIED, THE ACTION COULD HAVE BEEN TAKEN IN THE HANDS OF THE DIRECTORS, BUT NO ADDITION COULD HAVE BEEN MADE IN THE HANDS OF TH E ASSESSEE. THEREFORE, THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THAT VIEW OF THE MATTER, WE DELETE THE IMPUGNED ADDITION MADE BY THE AO AND CONFIRMED BY T HE LD.CIT(A). 6 12. THE NEXT ISSUE VIDE GROUND NO.3 RELATES TO THE CONFIRMATION OF THE ADDITION OF RS.31,000 MADE BY THE AO ON ACCOUNT OF MARKETING EXPENSES. 13. THE FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASKED THE ASSESSE E TO EXPLAIN MARKETING EXPENSES. IN RESPONSE TO THAT, THE ASSESSEE FURNISH ED COY OF THE LEDGER ACCOUNTS AND THE VOUCHERS. THE AO NOTICED THAT THE EXPENSES INCURRED INCLUDED A PAYMENT OF RS.11,000 IN CASH TO DR.K.L.D UBEY FOR HIS MOBILE AND OTHER EXPENSES WERE ALSO OF SIMILAR NATURE. HE, THEREFORE, DISALLOWED THE EXPENSES AMOUNTING TO RS.1,07,138. 14. THE ASSESSEE CARRIED THE MATTER TO THE LD.CIT(A ) AND FURNISHED THE LEDGER EXTRACT IN RESPECT OF MARKETING EXPENSES. TH E LD.CIT(A) WHILE PERUSING THE DETAILS MENTIONED IN THE LEDGER EXTRAC T, NOTICED THAT ALL THE PAYMENTS FOR EXPENSES HAD NOT BEEN MADE IN CASH AND THAT THE AO HAD ALSO NOT SPECIFIED THE EXTENT TO WHICH CASH PAYMENTS CO ULD NOT BE VERIFIED RESULTING IN DISALLOWANCE BY HIM. HE FURTHER OBSERV ED THAT TWO PAYMENTS INCLUDED A CASH PAYMENT ON 17.8.2004 FOR GIFTING T O DOCTOR AND AN AMOUNT OF RS.11,000 PAID ON 8.6.2004 TO DR.K.LDUBEY FOR HI S MOBILE. ACCORDING TO THE LD.CIT(A), THE ASSESSEE COULD NOT ESTABLISH THA T THOSE TWO ITEMS OF EXPENSES WERE WHOLLY AND EXCLUSIVELY INCURRED FOR T HE PURPOSE OF BUSINESS. HE, THEREFORE, RESTRICTED THE DISALLOWANCE TO RS.31 ,000 WHICH INCLUDED THE ABOVE-MENTIONED TWO CASH PAYMENTS. 15. NOW, THE ASSESSEE IS IN APPEAL AGAINST THE SUST ENANCE OF ADDITION OF RS.31,000. 7 16. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL ON RECORD. IN THE INSTANT CASE, IT IS NOTI CED THAT THE ASSESSEE INCURRED EXPENSES ON ACCOUNT OF GIFT TO THE DOCTORS AND COUL D NOT ESTABLISH THAT THOSE PAYMENTS WERE FOR BUSINESS EXIGENCIES. THEREFORE, WE ARE OF THE VIEW THAT THE LD.CIT(A) WAS JUSTIFIED IN SUSTAINING THE DISA LLOWANCE OF RS.31,000, WHICH INCLUDED THE AFORESAID TWO PAYMENTS MADE IN C ASH ON 17.8.2004 AND 8.6.2004. WE, THEREFORE, DO NOT SEE ANY MERIT IN TH IS GROUND RAISED BY THE ASSESSEE. 17. IN GROUND NO.4, THE CONTENTION OF THE ASSESSE I S THAT THE LD.CIT(A) HAD NOT ADJUDICATED THE ADDITIONAL GROUND, WHICH WAS RE LATED TO SET OFF OF BROUGHT FORWARD LOSSES AND ALLOWANCES OF EARLIER Y EARS AS PER LAW. 18. DURING THE COURSE OF HEARING, THE LD. COUNSEL F OR THE ASSESSEE , AT THE VERY OUTSET, STATED THAT HE AO DID NOT ALLOW THE BE NEFIT OF CARRY FORWARD LOSSES, WHICH WERE ALLOWABLE TO THE ASSESSEE AS PER LAW. THEREFORE, THE GROUND WAS RAISED BEFORE THE LD.CIT(A), WHO HAD NO T ADJUDICATED THE SAME. THE LD.D.R. COULD NOT CONTROVERT THE AFORESAID CONT ENTION OF THE LD. COUNSEL FOR THE ASSESSEE. IN THE INSTANT CASE, IT APPEARS THAT THE AO WHILE FRAMING THE ASSESSMENT, IGNORED THE EARLIER RECORD. WE, THEREF ORE, DEEM IT APPROPRIATE TO SET ASIDE THIS ISSUE BACK TO THE FILE OF THE AO FOR VERIFICATION AND IF THE CLAIM OF THE ASSESSEE IS FOUND ALLOWABLE AS PER LAW, THEN THE CLAIM OF CARRIED FORWARD OF THE LOSSES IS TO BE ALLOWED TO THE ASSE SSEE. ACCORDINGLY, THIS GROUND IS REMANDED TO THE AO FOR VERIFICATION AND MAKING THE DECISION IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONA BLE OPPORTUNITY OF 8 BEING HEARD TO THE ASSESSEE. 19. GROUNDS NO.5 AND 6 ARE GENERAL IN NATURE, SO, DO NOT REQUIRE ANY COMMENT ON OUR PART. 20. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FO R STATISTICAL PURPOSES. (THE ORDER PRONOUNCED IN THE OPEN COURT ON 7.4.11 ) SD. SD. (H.L.KARWA) (N.K.SAINI) VICE PRESIDENT ACCOUNTANT MEMBER APRIL 7TH ,2011. COPY TO THE : 1. APPELLANT 2. RESPONDENT 3. CIT(A) (4) CIT 5.DR. A.R.,ITAT, LUCKNOW. SRIVASTAVA.