Tacel Sanitaryware P Ltd., Vriddhachalam V. ITO, Cuddalore

ITA 868/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0706 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-02-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 20-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V SRINIVASAN
• Keywords: Source of fund; Deemed to accrue or arise in india
• Section: 143(3); 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE , ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.868/MDS/2012 ( ASSESSMENT YEAR : 2006-07) M/S. TACEL SANITARYWARE PVT.LTD. R.S NO.120/6-ANNA NAGAR, KATTUKUDALORE ROAD, VRIDDHACHALAM-606 001. CUDDALORE DIST. PAN:AACCT0939L VS. INCOME TAX OFFICER, WARD-I(1) S.N.CHAVADY, CUDDALORE. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. V.SRINIVASAN, A.R. RESPONDENT BY : MR.SHAJ I P.JACOB, ADDL. CIT DATE OF HEARING : 20 TH FEBRUARY, 2013 DATE OF PRONOUNCEMENT : 28 TH FEBRUARY, 2013 O R D E R PER VIKAS AWASTHY, JM: THE APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUGNING THE ORDER OF THE CIT(A)-XII, CHENNAI DATED 24.1.201 2. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE MANUFACTURING OF SANITARY WARES. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASS ESSMENT YEAR 2006-07 ON 27.11.2006 DECLARING NEGATIVE INCOM E OF ` 13,06,403/-. THE ASSESSING OFFICER VIDE ASSESSMENT ORDER DATED 31.12.2008 PASSED UNDER SECTION 143(3) OF THE ACT ITA NO.868/MDS/2012 2 MADE CERTAIN ADDITIONS/DISALLOWANCES IN THE INCOME RETURNED BY THE ASSESSEE. THE ASSESSING OFFICER HAS MADE ADD ITIONS UNDER SECTION 68 OF THE ACT ON ACCOUNT OF UNEXPLAIN ED SOURCE OF FUNDS. THE ASSESSING OFFICER HAS HELD THAT THE ASSESSEE HAS INTRODUCED FUNDS AS SHARE CAPITAL/SHARE APPLICA TION MONEY THROUGH DUBIOUS MEANS. NEITHER THE ASSESSEE NOR THE ALLEGED SHAREHOLDERS/SHARE APPLICANTS HAVE FURNISHE D ANY COGENT EVIDENCE TO PROVE THEIR RESPECTIVE CLAIMS. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESS EE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) V IDE IMPUGNED ORDER DATED 24.1.2012 DISMISSED THE APPEAL OF THE ASSESSEE. NOW, THE ASSESSEE HAS COME IN SECOND APP EAL BEFORE THE TRIBUNAL ASSAILING THE ORDER OF THE CIT( A) . 3. THE ASSESSEE HAS RAISED FOUR GROUNDS OF APPEAL. GROUND NO.1 IS GENERAL IN NATURE. GROUND NO.2 RELAT ES TO ADDITION MADE UNDER SECTION 68 OF THE ACT TO THE TU NE OF ` 5,22,39,000/-, WHICH ACCORDING TO THE ASSESSEE REPR ESENTS SHARE CAPITAL FROM 42 APPLICANTS. THE OTHER TWO GRO UNDS WITH RESPECT TO DISALLOWANCE OF ADVERTISING EXPENDITURE UNDER SECTION 40(A)(IA) AND DISALLOWANCE OF EXPENSES FOR WANT OF ITA NO.868/MDS/2012 3 EVIDENCE WERE NOT PRESSED BY THE COUNSEL FOR THE AS SESSEE. THEREFORE, THE ONLY EFFECTIVE GROUND OF APPEAL FOR ADJUDICATION BEFORE THE TRIBUNAL IS WITH RESPECT TO CONFIRMATION OF ADDITION MADE BY CIT(A) UNDER SECTION 68 OF THE ACT. 4. SHRI V.SRINIVASAN, APPEARING ON BEHALF OF THE AS SESSEE SUBMITTED THAT THE ASSESSEE IS A PRIVATE LIMITED CO MPANY REGISTERED UNDER THE PROVISIONS OF THE COMPANIES AC T, 1956. DURING THE FINANCIAL YEAR 2005-06, THE ASSESSEE HA S RAISED SHARE CAPITAL BY WAY OF ISSUE OF SHARES TO CLOSE RE LATIVES, FRIENDS AND ACQUAINTANCES. THE ASSESSEE IN ITS BOOK S OF ACCOUNT HAD SHOWN RECEIPT OF SHARE APPLICATION MONE Y TO THE TUNE OF ` 4,90,00,000/-. THE TOTAL NUMBER OF SHAREHOLDERS I N THE ASSESSEE COMPANY IS 50. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER RAISED A QUERY RE GARDING INCREASE IN SHARE CAPITAL AND SHARE APPLICATION MON EY. THE ASSESSEE PROVIDED LIST OF SHAREHOLDERS ALONG WITH C OMPLETE ADDRESSES. IN SOME OF THE CASES, STATEMENTS OF THE PERSONS WHO HAVE MADE INVESTMENTS IN THE ASSESSEE COMPANY W ERE ALSO RECORDED UNDER THE PROVISIONS OF SECTION 131 O F THE ACT. THE A.R. POINTED OUT THAT ALL THE PERSONS APPEARING BEFORE THE ITA NO.868/MDS/2012 4 ASSESSING OFFICER PRODUCED CHITTA/ADANGAL TO SHOW T HAT THEY WERE AGRICULTURISTS AND HAD LAND HOLDINGS. THIS FAC T HAS BEEN RECORDED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. HOWEVER, THE ASSESSING OFFICER HAS DISCARDED THE ST ATEMENTS AND THE DOCUMENTS PRODUCED BY THE INVESTORS ON THE GROUND THAT NONE OF THEM HAD PRODUCED LAND DOCUMENTS OR BA NK ACCOUNT STATEMENTS OR EVIDENCE FOR RECEIPT OF AGRIC ULTURAL INCOME. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE PERSONS WERE NOT ASSESSED TO TAX AND THEY WERE NOT HAVING ANY EVIDENCE TO PROVE THAT THEY HAVE MADE INVESTMEN T IN THE ASSESSEE COMPANY DESPITE THE FACT THAT THEY HAD ADM ITTED THAT THEY HAD INVESTED HUGE MONEY IN THE ASSESSEE C OMPANY. THE A.R. FURTHER SUBMITTED THAT THE CIT(A) HAS ALSO ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER PRIMA RILY ON THE GROUND THAT THE SHARE APPLICANTS ARE NOT GENUINE AN D THEIR CREDITWORTHINESS IS NOT ESTABLISHED. THE A.R. CON TENDED THAT OUT OF THE 49 PERSONS WHO MADE INVESTMENTS IN THE ASSESSEE COMPANY 45 HAD PERMANENT ACCOUNT NUMBER (PAN), 41 PERSONS HAVE FILED RETURN OF THEIR INCOME AND ONE O F THE INVESTOR I.E. MR. P.PRAKASH WHO HAS ALTHOUGH HAVIN G ITA NO.868/MDS/2012 5 PERMANENT ACCOUNT NUMBER, SINCE HAD GONE ABROAD D URING THE PROCEEDINGS HAD CONFIRMED THROUGH FAX MESSAGE REGARDING INVESTMENTS MADE IN THE ASSESSEE COMPANY. THE STATEMENTS OF AS MANY AS 36 INVESTORS WERE RECORDE D BY THE ASSESSING OFFICER, THE SWORN AFFIDAVITS OF AS MANY AS 46 PERSONS ALONG WITH IDENTITY PROOF WERE FILED BEFORE THE CIT(A). THE RETURNS OF THEIR INCOME ALONG WITH STATEMENTS O F INCOME OF 42 INVESTORS IN THE COMPANY WERE ALSO FILED BEFO RE THE CIT(A). COPIES OF THE SWORN STATEMENTS OF 36 PERSON S RECORDED DURING THE PROCEEDINGS BEFORE THE CIT(A) W ERE ALSO NOT TAKEN INTO CONSIDERATION BY THE CIT(A) WHILE D ISMISSING THE APPEAL OF THE ASSESSEE. THE A.R. SUBMITTED THAT OUT OF THE 49 PERSONS, WHO MADE INVESTMENTS IN THE COMPANY, ADDITIONS UNDER SECTION 68 WERE MADE IN RESPECT OF 46 PERSONS. THE DETAILS OF ALL THE 46 PERSONS WERE FUR NISHED BEFORE THE CIT(A). THE ASSESSEE HAD DISCHARGED ITS ONUS OF PROVING GENUINENESS OF PERSONS WHO MADE INVESTMENT AND THE CREDITWORTHINESS OF THE INVESTORS. DESPITE THE FACT THAT THE ASSESSEE HAD FURNISHED VOLUMINOUS RECORDS TO PROVE THE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THE I NVESTORS, ITA NO.868/MDS/2012 6 THE CIT(A) BY TAKING A HYPER TECHNICAL VIEW DISCARD ED ALL THE EVIDENCES FURNISHED BY THE ASSESSEE. THE AR IN ORDE R TO SUPPORT HIS CONTENTIONS HAS RELIED ON THE JUDGEMENT OF THE HONBLE MADARS HIGH COURT IN THE CASE OF CIT VS. EL ECTRO POLYCHEM LTD., REPORTED AS 294 ITR 661 (MAD) AND IN THE CASE OF CIT VS. GOBI TEXTILES LTD. REPORTED AS 294 ITR 663 (MAD) AND THE ORDER OF THE CHENNAI BENCH OF THE TR IBUNAL IN THE CASE OF MIDAS GOLDEN DISTILLERIES P.LTD. VS. CI T REPORTED AS 124 TTJ 25 (CHENNAI). 5. ON THE OTHER HAND, SHRI SHAJI P.JACOB APPEARING ON BEHALF OF THE REVENUE SUBMITTED THAT THE CIT(A) HA S GIVEN CATEGORIC FINDING THAT CREDITWORTHINESS OF THE INVE STORS IS NOT ESTABLISHED. THE DR POINTED OUT THAT THE CIT(A) HAS ALSO GIVEN CATEGORIC FINDING THAT ALTHOUGH THE ASSESSEE HAS SUBMITTED THE RETURNS FILED BY THE INVESTORS BUT MA JORITY OF THE RETURNS WERE FILED ON A SINGLE DAY I.E. 28.06.2010. A PERUSAL OF THE RETURNS FILED SHOW THAT THERE WERE DEFICIENCIES IN THE INFORMATION PROVIDED IN THE RETURNS WHICH INDICATE THAT THE RETURNS HAVE BEEN FILED IN A HURRIED MANNER ONLY TO SHOW THAT ALL THE APPLICANTS ARE INCOME-TAX ASSESSEES AND TH E RETURNS ITA NO.868/MDS/2012 7 ARE STAGE-MANAGED, WHICH IS AN EFFORT TOWARDS CREA TING EVIDENCE. EXCEPT FOR THE BALD STATEMENTS OF INVESTO RS, THE ASSESSEE HAD NOT PRODUCED ANY OTHER DOCUMENT TO SHO W THAT THEY HAD MADE INVESTMENTS WITH THE ASSESSEE COMPANY . THE D.R. STRONGLY SUPPORTED THE ORDER OF THE CIT(A) AND PRAYED FOR DISMISSAL OF THE APPEAL OF THE ASSESSEE. 6. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTIE S. WE HAVE ALSO PERUSED THE ORDERS OF THE AUTHORITIES BEL OW AND THE JUDGEMENTS/ORDERS REFERRED TO BY THE A.R. THE AR H AS FILED A PAPER BOOK RUNNING INTO 362 PAGES. THE A.R HAS CERT IFIED THAT THE PAPER BOOK CONTAIN THE DOCUMENTS, TRUE COPIES OF WHICH WERE FILED BEFORE THE ASSESSING OFFICER. THE PAPER BOOK FILED BY THE ASSESSEE CONTAINS DETAILS OF THE PERSONS WHO HAVE MADE INVESTMENTS IN THE ASSESSEE COMPANY BY WAY OF SHARE APPLICATION MONEY AND/OR SHARES. THE PAPER BOOK HA S BEEN DIVIDED INTO THREE PARTS. PART I CONTAINS SWORN AFF IDAVITS OF 46 INVESTORS CONFIRMING INVESTMENTS IN SHARES OF THE A SSESSEE COMPANY. PART II CONTAINS THE RETURNS OF THE INCOME AND THE STATEMENTS FOR THE ASSESSMENT YEAR 2006-07 OF THE I NVESTORS AND PART III OF THE PAPER BOOK CONTAINS SWORN STATE MENTS OF ITA NO.868/MDS/2012 8 36 INVESTORS RECORDED BY THE ASSESSING OFFICER. THE A.R FOR THE ASSESSEE HAS STATED THAT THE STATEMENTS WERE RE CORDED DURING THE PENDENCY OF THE APPELLATE PROCEEDINGS BE FORE THE CIT(A). THE INVESTORS HAVE GIVEN STATEMENT THAT THE Y HAVE INVESTED IN THE SHARES OF THE ASSESSEE COMPANY. THE ASSESSEE HAS DISCHARGED HIS ONUS OF PROVING THE SOU RCE OF SHARE APPLICATION MONEY AND AN INCREASE IN SHARE CA PITAL OF THE ASSESSEE COMPANY. 7. THE ASSESSING OFFICER AS WELL AS CIT(A) HAS DISC ARDED THE EVIDENCE FURNISHED BY THE ASSESSEE ON THE GROU ND THAT CREDITWORTHINESS OF THE INVESTORS IS NOT PROVED. T HE CIT(A) HAS RAISED DOUBT OVER THE INCOME-TAX RETURNS FILED BY THE INVESTORS. WE AGREE THAT MERE FILING OF THE RETURN S DOES NOT PROVE THE GENUINENESS OF THE PERSONS. BUT, IN THE I NSTANT CASE, THE INVESTORS HAVE NOT ONLY FURNISHED INCOME -TAX RETURNS BUT HAVE APPEARED IN PERSON BEFORE THE ASSE SSING OFFICER AND HAVE MADE STATEMENT ADMITTING THE FACT THAT THEY HAVE INVESTED IN THE SHARES OF THE ASSESSEE COMPANY . A PERUSAL OF THE PAPER BOOK FILED BY THE ASSESSEE SHO WS THAT THE ASSESSEE HAS GIVEN PERMANENT ACCOUNT NUMBERS (P AN) ITA NO.868/MDS/2012 9 OF AS MANY AS 45 INVESTORS AND 36 INVESTORS HAVE GI VEN STATEMENT UNDER SECTION 131 OF THE ACT. SO FAR AS THE GENUINENESS OF THE INVESTORS ARE CONCERNED, WE ARE OF THE OPINION THAT THE ASSESSEE HAS DISCHARGED ITS LIABIL ITY TO PROVE THE SOURCE OF SHARE APPLICATION MONEY. AS REGARDS THE SOURCE OF FUNDS OF THE INVESTORS IS CONCERNED, THE DEPARTMENT IS AT LIBERTY TO VERIFY THE SAME BY INITIATING APPR OPRIATE STEPS UNDER THE PROVISIONS OF THE INCOME TAX ACT. 8. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. STELLAR INVESTMENT LTD., REPORTED AS 192 ITR 287(DE L), HAS HELD THAT EVEN IF IT BE ASSUMED THAT THE SUBSCRIBERS TO THE INCREASED SHARE CAPITAL WERE NOT GENUINE, UNDER NO CIRCUMSTANCES, THE AMOUNT OF SHARE CAPITAL COULD BE REGARDED AS UNDISCLOSED INCOME OF THE COMPANY. THE DECISION OF THE HONBLE DELHI HIGH COURT HAS BEEN CONFIRMED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. STELLAR INVEST MENT LTD., REPORTED AS 251 ITR 263(SC). THE HONBLE MADRAS HI GH COURT IN THE CASE OF CIT VS. ELECTRO POLYCHEM LTD., (SUPRA) FOLLOWING THE RATIO LAID DOWN IN THE SAID DECISION OF THE ITA NO.868/MDS/2012 10 HONBLE DELHI HIGH COURT DISMISSED THE APPEAL OF TH E REVENUE. 9. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF CIT VS. GOBI TEXTILES LTD. (SUPRA) HAS AGAIN REITERA TED THE SIMILAR VIEW AND HAVE DISMISSED THE APPEAL OF THE R EVENUE. 10. THE A.R. HAS ALSO RELIED ON THE DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF MIDAS GOLDEN DISTILLERIES P.LTD. VS. CIT (SUPRA), WHEREIN IT HAS BEEN CONCLUDED THAT THE ASSESSEE COMPANY HAVING BROUGHT ON RECORD COMPLETE IDENTITY OF ITS SHAREHOLDERS BY PRO VIDING THEIR ADDRESSES AND DETAILS OF INCOME-TAX ASSESSMENTS AND CONFIRMATION AND THE ASSE\SSING AUTHORITY HAVING NO T BROUGHT ANY POSITIVE MATERIAL OR EVIDENCE TO INDICATE THAT THE SHARE APPLICATION MONEY REPRESENTED ASSESSEES OWN UNDISC LOSED MONEY, THE SHARE APPLICATION MONEY CANNOT BE TREATE D AS DEEMED INCOME UNDER SECTION 68 OF THE ACT. 11. IN VIEW OF THE ABOVE STATED FACTS AND CIRCUMSTA NCES OF THE CASE AND THE JUDGEMENTS/ORDER CITED BY THE A. R., WE ARE OF THE VIEW THAT THE CIT(A) HAS ERRED IN BRUSHING ASIDE THE ITA NO.868/MDS/2012 11 EVIDENCE BROUGHT IN BY THE ASSESSEE TO SUPPORT ITS CONTENTIONS WITH REGARD TO SHARE APPLICATION MONEY AND INCREASE IN SHARE CAPITAL. THE ORDER OF THE CIT(A) IS THUS SET ASIDE AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY, THE 28 TH DAY OF FEBRUARY, 2013 AT CHENNAI. SD/- SD/- (ABRAHAM P.GEORGE ) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 28 TH FEBRUARY, 2013. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.