N N DETONATORS PVT LTD,HYDERABAD vs. ITO., WARD-16(1), HYDERABAD

We have heard both the parties and perused the petition and affidavit filed by the assessee seeking condonation of delay of 87 days in filing the appeal before the Tribunal. We find that, the reasons explained by the assessee appear to be genuine and bonafide and come under reasonable cause. We further find that, the Hon’ble Supreme Court in the case of Collector, Land Acquisition Vs. MST Katiji [1987] 167 ITR 471 (SC) has laid down certain principles for condoning the delay and directed that, a lenient approach should be followed to avoid dismissal of meritorious cases on technical grounds. Going by the principles laid down in MST Katiji (supra) and also considering the submissions of the assessee, we condone the delay of 83 days in 4 N N Detonators Pvt. Ltd. filing the appeal before the Tribunal and admit the appeal for adjudication.

The brief facts of the case are that, the assessee company filed its return of income for A.Y. 2017-18 on 23.03.2018, declaring nil income. The case was selected for scrutiny and during the course of assessment proceedings, the A.O. noticed that, the assessee had made substantial cash deposits in its bank account during the demonetization period. The A.O. called upon the assessee to file relevant evidences through which the source for cash deposit could be explained. In response, the assessee has submitted copies of balance sheet and profit and loss account, but has not furnished any details in support of source for the cash deposits. Therefore, the A.O. issued a show-cause notice dated 22.11.2019 and called upon the assessee to file relevant details of source for cash deposit. Since there was no response from the assessee, the A.O. passed the order under Section 143(3) of the Income-tax Act, 1961 on 04.12.2019 and determined the total income at Rs. 64,15,000/- by making addition towards cash deposit into bank account during the demonetization period, on the ground that, the 5 N N Detonators Pvt. Ltd. assessee has not explained the source for cash deposit by filing relevant evidences.

Aggrieved by the order of the A.O., the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has explained the source for cash deposit of Rs. 64,15,000/- out of previous cash withdrawals of Rs.4,15,000/- from the very same bank account and amount declared under the PMGKY Scheme for Rs. 3,00,000/-, and further sum of Rs. 57,00,000/- as receipts from shareholders for allotment of equity shares. The Ld. CIT(A), after considering the relevant submissions of the assessee, accepted the source explained by the assessee out of previous withdrawals of Rs.4,15,000/- and also amount declared under the PMGKY Scheme. However, the Ld. CIT(A) rejected the explanation of the assessee with regard to receipt of share application money from shareholders on the ground that, although the assessee has filed affidavits and claimed that, shareholders have paid share application money in cash, but fact remains that upon perusal of the relevant financials of the assessee, the assessee company had authorized share capital of Rs. 1 crore, out of which a sum of Rs. 76,00,000/- was already subscribed. Therefore, it was not 6 N N Detonators Pvt. Ltd. accepted that the sum of Rs. 57,00,000/- was received as share application money, pending allotment of shares, as no company is authorized to receive share application money beyond its authorized share capital. Further, the assessee claimed to have received such cash during the demonetization period, i.e., November 2016 till 31.03.2017. The assessee did not take any measures to increase its authorized share capital. Therefore, the Ld. CIT(A) held that the action of the assessee to claim the deposit made in its bank account as receipts from shareholders towards share application money is considered nothing but a colourable device to give credence to its possession of unaccounted money as legitimate cash. Therefore, the Ld. CIT(A) sustained the additions made towards cash deposit of Rs. 57,00,000/- under Section 69A of the Act.

Aggrieved by the order of Ld. CIT(A), the assessee is now in appeal before us.

The learned counsel for the assessee, Shri Pavan Kumar Gorti, C.A. submitted that, the Ld. CIT(A) erred in confirming the addition made by the A.O. towards cash deposit of Rs. 7 N N Detonators Pvt. Ltd. 57,00,000/-, even though, the assessee has filed affidavits from shareholders to prove the receipt of cash from shareholders towards allotment of equity shares. The learned counsel for the assessee, referring to the affidavits filed by the Directors along with annexure of cash withdrawals from their bank accounts, submitted that, the Directors have withdrawn sufficient cash from their bank accounts and out of such withdrawals have paid share application money into the assessee company and the same has been deposited into bank account during the demonetization period. Although the assessee has explained the source, but the A.O. and the Ld. CIT(A) made the addition only on the ground that, the cash received by the assessee towards share application money was in excess of the authorized share capital, however, fact remains that it is not a relevant criterion to disbelieve the explanation of the assessee. Therefore, he submitted that, the addition made by the A.O. should be deleted or in the alternative, the matter may be remanded to the file of the A.O. for further verification.

The learned Senior A.R. for the Revenue, Ms. Krithika Jaiswal, on the other hand, supporting the order of the Ld. CIT(A), 8 N N Detonators Pvt. Ltd. submitted that, the assessee has failed to file any evidences to support source for cash deposit except filing affidavits from the so called Directors without any supporting evidences. Further, the assessee has failed to file relevant details of directors from whom share application money was received, including their income-tax returns filed for the assessment year to prove creditworthiness and also relevant bank account statements to show withdrawal of cash from the bank accounts of the Directors. In the absence of relevant details and also taking note of the fact that, the assessee claimed to have received share application money in excess of the authorized share capital, the Ld. CIT(A) has rightly sustained the addition made by the A.O. Therefore, she submitted that, the order of the Ld. CIT(A) should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. We have also considered the relevant financials of the assessee company filed for the relevant assessment year under consideration. Admittedly, the assessee is a balance sheet company without there being any actual business activities for the year under consideration. The assessee company claims to have 9 N N Detonators Pvt. Ltd. received a sum of Rs. 57,00,000/- from five Directors towards share application money, pending allotment of equity shares and the same has been deposited into the bank account of the assessee company during the demonetization period. To support its contentions, the assessee has filed affidavits from the Directors and claimed that, they have sufficient source of income to explain the share application money given to the assessee company. Except the affidavits from the Directors, no other evidence has been furnished to prove the credence of the arguments of the assessee, including the relevant particulars of the Directors from whom share application money is claimed to have been received by the assessee company and their income-tax returns filed for the relevant assessment years to prove the creditworthiness. Further, the assessee company has also failed to file the relevant bank account statements of the Directors to support its arguments that the Directors had withdrawn sufficient cash from their bank accounts. In the absence of any evidences, the arguments of the assessee that the Directors have subscribed to the share capital of the company by paying cash, that too during the demonetization period, cannot be accepted. Moreover, the Ld. 10 N N Detonators Pvt. Ltd. CIT(A) has brought out clear facts in the light of the financial statements of the assessee company that the authorized share capital was Rs. 1 crore, out of which a sum of Rs. 76,00,000/- was already subscribed. The balance authorized share capital of the assessee company was Rs.24,00,000/-, as against the claim of Rs. 57,00,000/- for allotment of equity shares. From the above, it is undisputedly clear that, the explanation of the assessee with regard to the source for cash deposit is only an afterthought to circumvent the application of the provisions of Section 69A of the Act, towards cash deposit into the bank account of the assessee company. Since the assessee has failed to file relevant evidences to prove the source of cash deposit into the bank account by filing the details of share application money received from the Directors, in our considered view, there is no error in the reasons given by the A.O. to make the additions towards cash deposit in bank as unexplained money under Section 69A of the Act. The Ld. CIT(A), after considering the relevant facts, has rightly sustained the addition made by the A.O. Thus, we are inclined to uphold the findings of the Ld. CIT(A) and dismiss the appeal filed by the assessee.

In the result, the appeal filed by the assessee is dismissed.