ITO 3(1)(3), MUMBAI V. COMPETENT FINANCIAL SERVICEDS P. LTD, MUMBAI

ITA 7652/MUM/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1286 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 30-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BRIJ MOHAN CHATURVEDI
• Keywords: Peak credit; Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 68

Judgement Text

T HE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA ( A M) & SHRI RAVISH SOOD ( J M) I.T.A. NO. 7652 /MUM/ 201 6 (ASSESSMENT YEAR 20 12 - 13 ) ITO 3(1)(3) ROOM NO. 666 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. V S . M/S. COMPETEN T FINANCIAL SERVICES P. LTD. 32, JOLLY MAKER CHAMBERS - II, NARIMAN POINT, MUMBAI - 400 021. PAN : AAACC1682R ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI BRIJ MOHAN CHATURVEDI DEPARTMENT BY SHRI ABI RAMA KARTHIKEYAN DATE OF HEARING 29.3 . 201 9 D ATE OF PRONOUNCEMENT 4.6 . 201 9 O R D E R PER SHAMIM YAHYA (AM) : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) DATED 29.9.2016 AND PERTAINS TO A.Y. 2012 - 13. 2. GROUNDS OF APPEAL READ AS UNDER : - 1. WHETHER ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 54,020/ - MADE U/S. 14A OF THE I.T. ACT, 1961, WITHOUT APPRECIATING THE FACT THAT THE DISALLOWANCE U/S. 14A OF THE I.T.ACT HAS TO BE COMPUTED AS PER RULE 8D OF THE INCOME TAX RULES, 1962 WHEN THE COMPUTATION OF THE ASSESSEE WAS NOT FOUND TO BE CORRECT AND AS HELD IN THE ORDER OF THE HON'BLE HIGH COURT IN THE CASE OF M/S. GODREJ & BOYCE MANUFACTURING CO. LTD.?' 2. 'WHETHER ON THE FACTS AND IN THE C IRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS. 2,97,00,000/ - MADE U/S. 68 OF THE I.T. ACT, 1961 ON ACCOUNT OF SHARE PREMIUM WITHOUT APPRECIATING THE FACT THAT THE SAID TRANSACTION IS A SHAM TRANSACTION SINCE TH E ASSESSEE HAD TRIED TO DISGUISE THE SAME AS UNSECURED LOANS RECEIVED EARLIER AND CONVERTED INTO EQUITY SHARE CAPITAL IGNORING THE FACT THAT THE ALLEGED AMOUNT WAS RECEIVED AS SHARE CAPITAL & SHARE PREMIUM MONEY BY ASSESSEE ON 08/12/2012 M/S. COMPETENT FINANCIAL SERVICES P. LTD . 2 IE. AFTER APPLICA TION DATED 18.11 .2011 FOR ALLOTMENT OF SHARE WAS RECEIVED FROM WADHWAN HOLDING PVT. LTD. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2,97,00,000 / - MADE U/S. 68 OF THE I.T . ACT, 1961 ON ACCOUNT OF SHARE PREMIUM RECEIVED WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD FAILED TO JUSTIFY THE GENUINENESS OF TRANSACTION WITH M / S . WADHWAN HOLDING PVT. LTD.' 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(APPEALS) ON THE ABO VE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. APROPOS SECTION 14A DISALLOWANCE : - 3. DURING THE ASSESSMENT, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS. 1,39,499/ - AS EXEMPT INCOME. HOWEVER, THE ASSESSEE DID NOT MAKE ANY DISALLOWANCE U/S. 14A. FROM THE BALANCE - SHEET ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS SHOWN INVESTMENT OF RS. 10,50,000/ - WHICH WAS SAME AS IN THE LAST YEAR. ON AN INQUIRY IN THIS REGARD THE ASSESSEE INFORMED THAT THE ASSESS EE HAS MADE INVESTMENT OUT OF SHAREHOLDER MONEY AND ASSESSEE HAS NOT BORROWED ANY MONEY FOR THIS PURPOSE. IT WAS FURTHER SUBMITTED THAT DIVIDEND INCOME WAS DIRECTLY CREDITED IN THE D - MAT BANK ACCOUNT. SO NO EXPENDITURE WAS INCURRED OR ANY EFFORT WAS MADE FOR EARNING TAX FREE INVESTMENT. HOWEVER, ASSESSING OFFICER WAS NOT SATISFIED, HE PROCEEDED TO INVOKE PROVISIONS OF RULE 8D AND MADE DISALLOWANCE OF RS. 54,020/ - . 4. UPON ASSESSEES APPEAL IN THIS REGARD LEARNED CIT(A) REFERRED TO ASSESSEES CLAIM THAT TH E ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AND PLACING RELIANCE UPON HON'BLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. (ITA NO. 330 OF 2012 DATED 23.7.2014) , LEARNED CIT(A) DELETED THE ADDITION. 5. AGAINST THIS ORDER, THE REVENUE IS IN APPEAL BE FORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE NOTE THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE BY NOT ACCEPTING THE ASSESSEES M/S. COMPETENT FINANCIAL SERVICES P. LTD . 3 CLAIM THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS TO MAKE INVESTMENTS IN EARNING THE DIVI DEND INCOME . ASSESSEE ALSO CLAIMED THAT DIVIDEND IS DIRECTLY CREDITED TO D - MAT ACCOUNT HENCE NO EFFORT OR EXPENDITURE INCURRED BY THE ASSESSEE IN THIS REGARD. WITHOUT REBUTTING TO THE ABOVE SUBMISSION, THE ASSESSING OFFICER HAS PROCEEDED TO MECHANICALLY IN VOKED RULE 8D OF THE IT RULES. LEARNED CIT(A) HAS DELETED THE ADDITION BY PLACING RELIANCE UPON HON'BLE BOMBAY HIGH COURT DECISION IN THE CASE OF HDFC BANK LTD. (SUPRA) AND DECISION OF HON'BLE P&H HIGH COURT IN THE CASE OF HERO CYCLES LTD. (323 ITR 518) . 7. UPON CAREFUL CONSIDERATION, WE FIND THAT SINCE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT TENABLE ON ACCOUNT OF FACTS NARRATED ABOVE. W E HOLD THAT LEARNED CIT(A) HAS RIGHTLY DELETED THE ADDITION. CASE LAW S RELIED UPON BY LEARNED CIT(A) ARE GERMAN E AND SUPPORT THE CASE OF THE ASSESSEE. ON THIS ISSUE REVENUES APPEAL IS DISMISSED. 8. APROPOS ADDITION U/S. 68 OF THE I.T. ACT. ON THIS ISSUE THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS ISSUED 30,000 SHARE S OF FACE VALUE OF RS. 10/ - EACH AT A PREMIUM OF RS. 990/ - PER SHARE, WHICH COMES TO RS. 2 97,00, 0 00/ - . ON ENQUIRY THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS RESPONDED THAT UNSECURED LOAN RECEIVED EARLIER FROM M/S. WADHWAN HOLDINGS P.LTD. (WHPL) AND STANDING IN THE BOOKS OF COMPANY IS NOW CONVERTED INTO EQUITY SHARE CAPITAL. HOWEVER, THE ASSESSING OFFICER NOTED THAT HE HAS EXAMINED THE BALANCE - SHEET AS ON 31.3.2011 AND THERE WAS NO SUCH UNSECURED LOAN OUTSTANDING IN THE BOOKS AND NO SUCH LOAN WAS REFLECTED IN THE BALANCE - SHEET. HENCE , ASSESSING OFFICER OPINED THAT STAND OF THE ASSESSEE IS FOUND TO BE NOT CONVINCING. FURTHER, HE HAS PROCEEDED TO BRING T O TAX THE SHARE PREMIUM BY REFERRING DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. MAJOR METALS LTD. VS. UOI . HE OB SERVED THAT THE SHARE PREMIUM WAS DISPROPORTIONATE TO THE NET WORTH OF THE COMPANY WHICH ACCORDING TO HIM WAS RS. 151/ - . HE OPINED THAT SUBSCRIBER OF EQUITY SHARES ARE NOT BONAFIDE INVESTOR. HE FURTHER OBSERVED THAT THE ASSESSEE FAILED TO M/S. COMPETENT FINANCIAL SERVICES P. LTD . 4 SUBSTANTIATE THE SAID UNSECURED LOAN AND SUBSEQUENTLY CONVERSION OF SHARE PREMIUM. HE INTER ALIA OBSERVED THAT NO DETAILS AND COPY OF RECEIPT OF DULY FILLED SHARE APPLICATION FORM S FROM NEW INVESTORS HAVE BEEN FILED. HE FURTHER OBSERVED THAT THERE WERE NO SUPPORTING DETAIL S EVIDENCING THEREIN THE ALLOTMENT. THE ASS ESSING OFFICER PROCEEDED TO TAX THE SHARE PREMIUM OF RS. 2,97,00,000/ - U/S. 68 OF THE ACT. 9. UPON ASSESSEES APPEAL LEARNED CIT(A) NOTED THAT ASSESSEE HAS CLAIMED THAT IT HAS SUPPLIED ALL NECESSARY DETAILS AS UN DER : - 1) SHARE APPLICATION FORM SHOWING AMOUNT OF CAPITAL AND PREMIUM WITH DETAILS OF CHEQUE NO. AND DATE OF PAYMENT (22/11/2011) WHICH WAS CLEARED ON 08/12/2011) 2) BANK TRANSACTION DETAILS 3) BANK STATEMENT OF OUR COMPANY 4) BANK STATEMENT OF SUBSCRIBER/S HAREHOLDER FOR THE MONTH OF DECEMBER, 2011 WHICH HAS OPENING BALANCE AS ON 01/12/2011 OF MORE THAN RS. 4.39 CRORE WITH PEAK BALANCE OF RS. 11.87 CRORE AND CLOSING BALANCE AS ON 31/12/2011 OF RS. 5.12 CRORE, THE TOTAL TRANSACTION IN ITS ONE BANK ALE IS MORE THAN RS. 37.85 CRORES DURING THE MONTH OF DEC. 2011 WHICH S HOWS FULL FINANCIAL CREDIBILITY /CAPABILITY OF SUBSCRIBER /SHAREHOLDER, 5) RESOLUTION OF ALLOTMENT OF SHARES, 6) RETURN OF ALLOTMENT(FORM 2) FILED WITH ROC ON 07/03/2012, 7) ANNUAL RETURN FILED WITH ROC SHOWING SUBSCRIBER SHAREHOLDER, 8) COPY OF BALANCE SHEET OF SUBSCRIBER/SHAREHOLDER HAVING HUNDREDS OF CRORES OF INVESTMENTS AND OTHER ASSETS, 9) INCOME - TAX RETURN COPY OF SUBSCRIBER SHAREHOLDER DECLARING TAXABLE INCOME OF MORE THAN RS. 168 L ACS WITH INCOME TAX PAYMENT OF RS. 62.35 LACS, AND 10) PAN DETAILS OF SUBSCRIBER/SHAREHOLDER. 10. LEARNED CIT(A) ALSO NOTED THAT THE CASE LAWS RELIED UPON BY THE ASSESSEE. HE HAS EXTENSIVELY REPRODUCED ASSESSEES SUBMISSION. LEARNED CIT(A) NOTED THAT TH E ASSESSING OFFICER HAS OBSERVED THAT UNSECURED LOAN FROM WHPL WAS CONVERTED INTO EQUITY SHARES. HE FURTHER NOTED THAT AT THE SAME M/S. COMPETENT FINANCIAL SERVICES P. LTD . 5 TIME ASSESSING OFFICER HAS NOTED THERE WAS NO UNSECURED LOAN OUTSTANDING DURING THE YEAR. LEARNED CIT(A) OBSERVED THAT THE AS SESSING OFFICER HAS IGNORED DETAILS SUBMITTED BY THE ASSESSEE IN JUSTIFICATION OF THE SHARE PREMIUM. LEARNED CIT(A) PROCEEDED TO EXAMINE PROVISIONS OF SECTION 68 OF THE I.T. ACT. THEREAFTER HE OBSERVED THAT IN THE PRESENT CASE THE ASSESSING OFFICER HAS CLE ARLY NOT DISPUTED EITHER THE IDENTITY OR THE CREDITWORTHINESS OF WHPL. HE OBSERVED THAT HE HAS RAISED ONLY UNSUBSTANTIATED DOUBTS TOWARDS NATURE OF SHARE PREMIUM. THEREAFTER LEARNED CIT(A) REFERRED TO CATENA OF CASE LAWS. LEARNED CIT(A) CONCLUDED THAT ONLY REASON FOR THE ASSESSING OFFICER TO MAKE ADDITION THAT SHARE PREMIUM IN THIS CASE WAS JUSTIFICATION FOR THE PREMIUM OF RS. 990/ - PER SHARE. HE FOUND THAT ASSESSEES EXPLANATION WELL FOUNDED ACCORDINGLY HE PROCEEDED TO DELETE THE ADDITION. 11. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL BEFORE US. 12. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT THE ASSESSEE HAS RECEIVED SHARE APPLICATION MONEY FROM WHPL. SHARES ISSUED AT FACE VALUE OF RS. 10 PER SHARE. PREMIUM WAS RS. 990/ - PER SHARE. SHARE PREMIUM ACCOUNT WAS RS. 2,97,00,000/ - . THE ASSESSING OFFICER HAS NOTED ASSESSEES EXPLANATION THAT THE ASSESSEE HAS EARLIER RECEIVED UNSECURED LOAN WHICH WAS LATER ON CONVERTED INTO EQUITY SHARE WITH PREMIUM. THE ASSESSING OFFICER CANNOT F IND ANY RECORDING OF UNSECURED LOAN IN THE BOOKS OF THE ASSESSEE - COMPANY, HENCE HE DOUBTED THE TRANSACTIONS. THE ASSESSING OFFICER DREW ADVERSE INFERENCE FOR THE HUGE SHARE PREMIUM RECEIPT. HE RELIED UPON DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF MAJOR METALS (SUPRA). HE INTER ALIA ALSO OBSERVED THAT THE ASSESSEE HAS NOT SUPPLIED WITH DULY FILLED SHARE APPLICATION FORM IN THE RETURN OF ALLOTMENT. HENCE, ASSESSING OFFICER ADDED SHARE PREMIUM RECEIPT U/S. 68 OF THE ACT. 13. IN THIS REGARD WE NOTE THAT DESPITE DOUBTING THE TRANSACTION BY OBSERVING THAT HE COULD NOT VERIFY ASSESSEES CLAIM THAT UNSECURED LOAN WAS CONVERTED INTO EQUITY CAPITAL , T HE ASSESSING OFFICER HAS ONLY DISALLOWED SHARE PREMIUM M/S. COMPETENT FINANCIAL SERVICES P. LTD . 6 PORTION. HE HAS NOT DISTURBED EQUITY SHARE C APITAL PORTION OF THE REPORTED CONVERSION OF UNSECURED LOAN. HENCE, THE ASSESSING OFFICERS ADVERSE INFERENCE ON THIS ACCOUNT IS NOT SUSTAINABLE. FURTHERMORE, WE FIND THAT SOLE BASIS OF THE ASSESSING OFFICERS DISALLOWANCE IS THAT SHARE PREMIUM IS NOT JUST IFIED. SHARE HAS BEEN SUBSCRIBED BY WHPL. NECESSARY DETAILS AND CONCERNED BANK STAMEN T HAS ALREADY BEEN PROVIDED. NO DEFECT IN THE SAME HAS BEEN POINTED OUT BY THE ASSESSING OFFICER IN THIS REGARD. THE LEARNED COUNSEL OF THE ASSESSEE ALSO SUBMITTED THAT TH E AMOUNT WAS RECEIVED DURING THE YEAR AND THE ASSESSING OFFICER HAS ERRED IN LOOKING FOR IT IN LAST YEARS BALANCE SHEET. BE AS IT MAY W E NOTE THAT ADDITION HAS NOT BEEN MADE ON THE LACK OF IDENTITY AND CREDITWORTHINESS OF THE TRANSACTION RATHER THE ASSESS ING OFFICER HAS DOUBTED THE GENUINENESS OF THE TRANSACTION ON THE GROUND THAT HUGE AMOUNT OF SHARE PREMIUM IS UNJUSTIFIED. WE NOTE THAT EX TANT PROVISIONS OF LAW DID NOT POSTULATE ANY ADVERSE INFERENCE ON ACCOUNT OF NON - JUSTIFICATION OF SHARE PREMIUM. CONCE RNED PROVISIONS WERE BR OUGHT INTO STATUTE BOOK IN THE F ORM OF SECTION 56( VII B) BY THE FINANCE ACT 2012 W.E.F. 1.4.2013. THE SAME IS APPLICABLE FROM A.Y. 2013 - 14. THIS VIEW IS DULY SUPPO RTED SEVERAL DECISION OF HON 'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GAGANDEEP INFRASTRUCTURE P. LTD. I .T.APPEAL NO.1613 OF 2014 DATED 20.3.2017 AND GREEN INFRA LTD. (IT APPEAL NO. 1162/2014 DATED 16.1.2017). 14. ACCORDINGLY IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(A) DELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SHARE PREMIUM. 15. IN THE RESULT, APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 4 . 6 . 201 9 . SD/ - SD/ - (RAVISH SOOD ) (SH A MIM YAHYA ) J U DICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 4 / 6 / 20 1 9 M/S. COMPETENT FINANCIAL SERVICES P. LTD . 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESP ONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR ) PS ITAT, MUMBAI