Case Law Details
Brief of the Case
ITAT Chandigarh held In the case of M/s Lotus Integrated Taxpark Ltd. vs. The DCIT that the assessee on the basis of the documentary evidence on record has been able to prove that Non Resident Company i.e. M/s Glacis Investment Limited was an existing company and the shareholder company made investment in the assessee company would prove that assessee received genuine share application money from this non-resident company. Thus, assessee had established the identity of the shareholder company and that transaction was genuine. The assessee has also proved the credit worthiness of the shareholder company; therefore, authorities below were not justified in making the huge addition against the assessee.
Facts of the Case
ITA 1138/2014
The assessee has allocated 740000 shares to M/s Glacis Investment Limited at premium. The Assessing Officer asked for the Income Tax Return, assessee’s PAN number, mode of acceptance of money with date, bank account of M/s Glacis Investment Limited to prove identity, credit worthiness and genuineness of the transactions. The assessee contended that M/s Glacis Investment Limited is non resident company at Mauritius. It was also submitted that amount was received through bank and Reserve Bank of India has confirmed the inflow of the amount invested. The Assessing Officer thereafter contended that these documents do not prove the credit worthiness of the party and genuineness of the transaction in the matter and make the addition.
Expenditure on up-gradation of Sub Station
The assessee in the Schedule of Fixed Assets has shown the addition of Rs. 3 Cr as expenditure on up-gradation of Sub Station owned by the company. When confronted, the assessee, during the course of assessment proceedings submitted that the assessee company has developed Textile Capital with a cluster of units so as to ensure power supply and MOU was made between Abhishek Industries and the assessee company for uninterrupted supply of power by Abhishek Industries assessee’s company. The assessee agreed to bear cost of Rs.3 crores for up gradation of existing power station of Abhishek Industries Ltd. and the same amount was amortized over a period of 10 years @ of 10% on straightline basis. The assessee relied on various decisions, however, Assessing Officer did not accept the submission of the assessee contending that expenditure is incurred for up-gradation of the Sub Station and therefore, it is a capital expenditure. The expenditure has also not been shown in the Profit & Loss Account meaning thereby that it is not revenue expenditure.
Contention of the Assessee
ITA 1138/2014
The ld counsel of the assessee filed application for admission of the additional evidence under
Rule 29 of the Income Tax Appellate Tribunal Rules and submitted that during the proceedings before the authorities below, assessee was not able to obtain copy of the balance sheet of M/s Glacis Investment Limited, a non resident company incorporated in Mauritius. Now the assessee has been able to obtain copy of the same. The ld. counsel for the assessee, by referring to the balance sheet of the subscriber submitted that the principal activity of the company is that of investment holding and has sufficient assets to make investment in the assessee company and also submitted that the balance sheet of M/s Glacis Investment Limited shows that subscriber company has made investment in assessee company M/s Lotus Integrated Taxpark ltd.
He further submitted that the initial onus upon assessee to prove genuine transaction in the matter has been discharged. The credit worthiness of the subscriber is proved being the amount received through banking channel with approval of the Reserve Bank of India. No evidence has been brought on record that it was the money of the assessee which is routed through the subscriber. He has relied upon following decisions in support of his contention – CIT V Steller Investment Ltd. 192 ITR 287, CIT V Divine Leasing & Finance Ltd. 299 ITR 268, CIT V Lovely Exports P.Ltd. 216 CTR 195, CIT V GP International Ltd. 325 ITR 25, CIT V Real Time Marketing (P) Ltd. 306 ITR 35, CIT V Value Capital Services (P) Ltd. 307 ITR 334, CIT V Orbital Communication (P) Ltd. 327 ITR 560, CIT V Dwarkadhish Investment (P) Ltd. 330 ITR 298, CIT vs. Winstral Petrochemicals (P) Ltd. 330 ITR 603, CIT V Fair Finvest Ltd. 357 ITR 146, CIT V Gangeshwari Metal P.Ltd. 361 ITR 10.
Expenditure on up-gradation of Sub Station
The ld counsel of the assessee submitted that issue ‘whether the expenditure was revenue or capital in nature’ has been decided against the assessee by Hon’ble Punjab & Haryana High Court in the case of CIT V Shreyans Industries Ltd. 303 ITR 393. He has further submitted that the matter is remanded back to the High Court in the matter reported in 314 ITR 302. He has, however, submitted that depreciation on the capital expenditure is liable to be allowed by the authorities below.
He has submitted that the incentive/grant-in-aid could not be considered as a payment directly or indirectly to meet any portion of the actual cost and thus, had fell outside the provisions of Section 10 to Section 43(1) of the Act. Therefore, the depreciation is allowable to the assessee and the grant-in-aid amount could not be reduced from the cost of the capital asset. In support of his contention, he has relied upon following decisions – CIT V Standard Fireworks P.Ltd. 326 ITR 498, CIT V P. Glass Works 333 ITR 355, Sasisri Extractions Ltd. V ACIT 122 ITD 428 (307 ITR (AT) 127, Inventaa Chemical Ltd. V ACIT 42 SOT 249 and Soham Electroplast Pvt. Ltd. V ITO in ITA No. 1578/PN/2008 dated 28.10.2008.
Contention of the Revenue
ITA 1138/2014
The ld counsel of the revenue submitted that the subscriber company was not having any income in assessment year under reference and that the entire amount has been invested in the assessee company creates a doubt. He has, therefore, submitted that additional evidence may not be admitted.
Further he submitted that copy of the bank account of Subscriber Company was not filed, therefore, credit worthiness of the creditor is not proved. The subscriber company did not do any business in this year and was established on 05.02.2009. There is no full signature on the confirmation. The entire money have been given by the creditor, therefore, it was not a genuine transaction in the matter.
Expenditure on up-gradation of Sub Station
The ld counsel of the revenue submitted that Explanation 10 to Section 43(1) applies in the case of the assessee, therefore, no depreciation is allowable.
Held by CIT (A)
ITA 1138/2014
The CIT (A) upheld the order of the AO. It was held that in this case, identity of the shareholder is proved by way of certificate of incorporation. However, the assessee has failed to produce the bank statements or balance sheet etc. of the subscriber company as submitted by the Assessing Officer in the counter comments also. The CIT (A), therefore, noted that assessee has failed to prove credit worthiness of the subscriber. Therefore, addition was rightly made under section 68. The CIT (A) further noted that even if additional evidence i.e. confirmation of the subscriber is admitted, it would not make any difference because the confirmation would not justify the credit worthiness of the party.
Expenditure on up-gradation of Sub Station
The CIT (A) noted that assets credited are shown as owned by the Company and, therefore, Assessing Officer has rightly disallowed the same considering it to be capital expenditure. Further, depreciation has been rightly disallowed because; the expenditure is made through the grants in aid. The appeal of the assessee on this ground was accordingly dismissed.
Held by ITAT
ITA 1138/2014
In the opinion of the ld. CIT (A), the filing of the balance sheet was necessary to prove credit worthiness of the subscriber company. Therefore, the balance sheet of the subscriber company is relevant document and goes to the root of the matter. The assessee has explained the reasons that at the proceedings before authorities below, the balance sheet could not be obtained which is now available to the assessee, therefore, same was filed for consideration.
The Hon’ble Supreme Court in the case of Tek Ram 262 CTR 118 admitted the additional evidence being the same relevant and required to be looked into. The Hon’ble Punjab & Haryana High Court in the case of Mukta Metal Works 336 ITR 555 held that “the report of Forensic Science Laboratory was the relevant material and so was the affidavit of the searched persons. The additional evidence was necessary for just decision of the matter. The Tribunal was not justified in declining to consider additional evidence comprising the opinion of the laboratory of the Government Examiner and also the affidavit of the author of the diary. Though the documents had a direct bearing on the issue”.
Considering the facts of the case in the light of the above decisions, it is clear from the findings of the ld.
CIT (A) that balance sheet of the subscriber company was relevant document to prove the credit worthiness of the subscriber company and would go to the root of the matter. Therefore, the additional evidence in the form of balance sheet of the subscriber company is admitted for hearing. The application of the assessee for admission of the additional evidence is allowed.
The decisions relied upon by ld. counsel for the assessee clearly support the contention of the assessee that assessee has proved the credit worthiness of the shareholder company and genuineness of the transaction in the matter. The documentary evidences produced on record also support the contention of assessee that the shareholder company M/s Glacis Investment Limited, Mauritius has made investment in assessee company in 740000 equity shares by investing Rs. 3,70,00,000/-. The shareholder company also filed confirmation to that effect which is supported by Tax Residence Certificate, allotment of share certificates and Global Business License granted by Republic of Mauritius and the bank statement of the assessee.
In the case of Lovely Exports Pvt. Ltd. 216 CTR 195, Hon’ble Supreme Court held that if share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of the assessee company. The other decisions relied upon by ld. counsel for the assessee support the fact that assessee has received genuine share application money from the shareholder company. The ITAT Indore Bench in the case of Peoples General Hospital Ltd. in ITA 57/2007 vide order dated 28.09.2007 considered the identical issue.
In the present case, assessee company had received money on allotment of shares from M/s Glacis Investment Limited through banking channel and furnished complete details of the shareholder, no addition would be made under section 68, in the absence of any positive material or evidence to indicate that the shareholder company was benamidar or fictitious company or that any part of the share capital represented the assessee’s own income from undisclosed sources. The assessee on the basis of the documentary evidence on record has been able to prove that Non Resident Company i.e. M/s Glacis Investment Limited was an existing company and that the shareholder company made investment in the assessee company would prove that assessee received genuine share application money from this non-resident company. Thus, assessee had established the identity of the shareholder company and that transaction was genuine. The assessee has also proved the credit worthiness of the shareholder company, therefore, authorities below were not justified in making the huge addition against the assessee.
Expenditure on up-gradation of Sub Station
It is not in dispute that in the Schedule of Fixed Assets, assessee has shown the addition of Rs. 3 Cr as expenditure on upgradation of sub-station owned by the assessee company. The assessee made agreement with M/s Abhishek Industries for uninterrupted supply of power and met the cost of the upgradation of existing Power Station. The amount was also amortized in the books of account. The expenditure has also not been shown in the Profit & Loss Account, would mean that assessee did not claim it to be revenue expenditure. The authorities below were, therefore, justified in holding it to be capital expenditure and the similar claim of assessee has already been disallowed by Hon’ble Punjab & Haryana High Court in the case of Shreyans Industries Ltd. in which also ld. counsel for the assessee accepted that the issue has been decided against the assessee. Therefore, we confirm the orders of authorities below that expenditure involved on this issue is capital in nature.
The ld. counsel for the assessee has explained the scheme formulated by Ministry of Textiles, Government of India, the aim of the scheme of Integrated Textile Parks was to encourage group of entrepreneurs to come together and establish Integrated Textile Parks with world class infrastructure under a public private partnership frame work. Therefore, the scheme in the case of the assessee was intended to encourage the group of entrepreneurs to come together and establish Integrated Textile Parks with world class infrastructure under a public private partnership frame work and the grant-in-aid was given for setting up of the industries/textile parks in the State, therefore, the grant-in-aid could not be considered as a payment directly or indirectly to meet any portion of actual cost and thus, it would fall outside the purview of Explanation 10 to Section 43(1) of the Act. All the decisions relied upon by ld. counsel for the assessee is on identical point and support the contention of the assessee that assessee is entitled for depreciation on the same amount.
Accordingly appeal of the revenue partly allowed.
