M/S. KING ENTERTAINMENT PRIVATE LIMITED,NAWANSHAHR vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - II, JALANDHAR

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ITA 523/ASR/2017Status: DisposedITAT Amritsar19 December 2019AY 2005-064 pages
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What did the Tribunal hold?

The Tribunal held that penalty under Section 271(1)(c) could be sustained on the Rs. 90,000/- addition related to share application money, as the assessee had not established its creditworthiness. However, no penalty was leviable on the Rs. 45,852/- expenses, which were statutorily allowable.

What were the facts?

The Assessing Officer made additions to the assessee's income, but the CIT(A) deleted most of them, confirming only Rs. 90,000/- related to share capital and Rs. 45,852/- for expenses. The assessee appealed against the penalty imposed on these confirmed additions.

What were the issues?

The key issues were whether penalty could be levied on share application money and on expenses that were statutorily allowable, considering the amendments to Section 68.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 68,Section 35D

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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR

Before: SH. N. K. CHOUDHRY & SH. O. P. MEENA

Hearing: 19.12.2019Pronounced: 19.12.2019

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. N. K. CHOUDHRY, JUDICIAL MEMBER AND SH. O. P. MEENA ACCOUNTANT MEMBER I.T.A. No. 523/Asr/2017 Assessment Year: 2005-06

M/s King Entertainment Pvt. vs. Deputy Commissioner of Income Ltd., K.C. tower, Chadigarh Tax, Central circle-II, Jalandhar Road, Nawanshaahar [PAN: AAGFK 9842E] (Appellant) (Respondent)

Appellant by : Written Submissions Respondent by: Sh. Alok Kumar CIT-DR Date of Hearing: 19.12.2019 Date of Pronouncement: 19.12.2019

ORDER Per O. P. Meena, AM: This appeal filed by the Assessee is directed against the order of learned Commissioner of Income Tax (Appeals)-5, Ludhiana dated 03.05.2017 for the Assessment Year 2005-06.

2.

The grounds of appeal raised by the assessee is a under:

“1. That the learned CIT(A) erred in confirming penalty of Rs.1,10,000/- on introduction of share capital to the tune of Rs.2,50,000/-. Whereas, CIT(A), in quantum appeal order only confirmed Rs.90,000. The order of CIT(A) could not be interpreted correctly while passing penalty order. It is prayed that keeping in view the

2 ITA No. 523/Asr/2017 (AY 2005-06) M/s King Entertainment P. Ltd. v. Dy. CIT judgment of Lovely Exports Private Limited, no addition can be made in the hands of the company. It is prayed penalty may be deleted.

2.

The CIT(A) error in confirming penalty on disallowance of expenses like preliminary expenses w/off which are allowable u/s 35D. The other expenses Rent, Bank Charges are self-explanatory. Hence no penalty can be imposed. It is prayed penalty may please deleted.

3.

The appellant craves leave to add or amend ground of appeal.”

3.

Briefly stated the facts of the case are that the AO made addition of Rs.23,95,852/- (page 9 of assessment order). The Ld. CIT(Appeal) vide order dated 29.01.2013 deleted all the additions and confirmed only addition of Rs.90,000/-. However, the CIT(A) did not gave clear findings about the addition of Rs.1,60,000/- made on account of share capital/share application money paid by Prem Pal Gandhi. The AO made the addition because creditworthiness of Sh. Prem Pal Gandhi was not established. The Ld. counsel in his written submissions stated that as per the decision in the case of CIT v. Lovely Exports Ltd. [2009] 319 ITR 5 (ST) (SC), share application money cannot be put to test of section 68 of the Income Tax Act and added to the total income of the assessee. First proviso to section 68 was inserted by Finance Act, 2012, w.e.f. 01.04.2013. Even according to clause (xvi) of section 2(24) of the Act, this consideration received for issue of shares as exceeds the fare market value of the shares referred to in clause (viib) of sub-section 2 of section 56 could be treated as income. However, no such exercise was done and addition was made. The Ld CIT(A) did not give any clear findings that the addition was deleted but from the order it is cleared that addition was deleted or intended to be deleted because he only confirmed addition of Rs.90,000/- and Rs.45,852/-. As per the written submissions the AR contended that

3 ITA No. 523/Asr/2017 (AY 2005-06) M/s King Entertainment P. Ltd. v. Dy. CIT the penalty of addition of Rs.90,000/- can be levied. Even that issue is highly controversial because that amount was on account of share application with regard to the expenses of Rs.45,852/- relating to rent, bank charges and preliminary expenses are statutory allowable u/s 35D of the Act. The bank charges were paid to bank which are statutory obligations and clearly no penalty is leviable on the expenses.

4.

We have heard the Ld. DR and perused the written submission of the assessee and find that the penalty u/s 271(1)(c) can be sustained in respect of addition of Rs.90,000/- being share application which has not been established by the assessee. With regard to expenses of Rs.45,852/- no penalty is leviable, therefore penalty relating to expenses of Rs.45,952/- is deleted and penalty is in respect to addition of Rs.90,000/- is sustained. The AO is therefore directed to recalculate the penalty on the impugned addition of Rs.90,000/-. Accordingly this ground of appeal is partly allowed.

5.

In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open court on December 19, 2019

Sd/- Sd/- (N. K. Choudhry) (O. P. Meena) Judicial Member Accountant Member Date: 19.12.2019 /GP/Sr. Ps. Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals), (4) The CIT concerned (5) The Sr. DR, I.T.A.T.

4 ITA No. 523/Asr/2017 (AY 2005-06) M/s King Entertainment P. Ltd. v. Dy. CIT True Copy By Order

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