THE ITO, WARD-1(1)(4) NOW WARD- 1(1)(1), VADODARA vs. M/S. EVEXIA LIFECARE LIMITED ( EARLIER KNOWN AS KAVIT INDUSTRIES LIMITED), VADODARA
Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: DR. B.R.R. KUMAR, VICE-MS. SUCHITRA KAMBLE
PER DR. B.R.R. KUMAR, VICE-PRESIDENT:-
This appeal has been filed by the Revenue against the order of the learned
Commissioner of Income-tax (Appeals-3), Vadodara (in short ‘the CIT(A)’) dated
28.08.2019 passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as "the Act" for short], for Assessment Year (AY) 2014-15. 2. The solitary grievance of the Revenue is as follows:-
“On the facts and in the circumstances of the case and in law, the Ld.
CIT(Appeals) erred in deleting the additions of Rs.48,52,75,000/- made u/s 68 of the Income-tax Act, 1961 without appreciating the findings of Assessing
Officer and not considering the fact that the assessee has failed to establish the identity and creditworthiness of the share applicants as well as the genuineness of transactions during the assessment proceedings.”
Asst. Year : 2014-15
- 2–
3. The brief facts of the case are that the assessee-company is engaged in the business of various trading activities. During the year under consideration, the assessee company has shown net loss of Rs. 5,76,478/- from business as against turnover of Rs. 74,33,691/-. The assessee had filed return of income on 06.10.2014 declaring total income at Rs. 85,710/-. The case was selected for scrutiny assessment under CASS. The Assessing Officer thereafter completed the assessment u/s 143(3) of the Act vide order dated 30.12.2016, determining the total income of the assessee at Rs.48,53,60,710/-, making addition of Rs.48,52,75,000/- u/s. 68 of the Act on account of share application money received from nine different parties during the year under consideration. The Ld.
CIT(A) deleted the entire addition of Rs.48,52,75,000/-.
1 During the year under consideration, the assessee issued 40000000 convertible equity warrants on preferential basis @15 (Rs. 10 face value and Rs.5 premium) per warrant to be converted into equivalent number of equity shares of the company of Rs. 10 each within 18 months from the date of allotment of warrants. Against the issue of share convertible equity warrants, the assessee received share application money from nine companies with aggregate amount of Rs.48,72,50,000. Preferential warrants issued by the company was converted on 23.07.2014 i.e. in FY 2014-15. The said equity shares converted from warrants have lock in period of 3 to 1 year from date of allotment.
2 The Assessing Officer received information from Investigation Wing of the Department that above said companies are managed and controlled by a person named Shri Shirish Chandrakanth Shah and the enquiry conducted by the investigation wing of the Income-tax Department revealed that the group of companies belonging to the above said person are providing only accommodation entries and hence there was no genuine business activity. Hence, in order to examine the genuineness of transactions, the Assessing Officer issued notices u/s ITO Vs. Evexia Lifecare Ltd Asst. Year : 2014-15 - 3– 133(6) of the Act to both the parties specified above. The parties responded to the notices and furnished copy of bank statements, income tax acknowledgement, audited financial statements, ledger account of the assessee, copies of share certificates. They explained their sources as receipts on sale of shares and securities. The Assessing Officer examined the bank statements of all the parties and noticed that they have entered into transactions amongst their group concerns only. Further, the funds were seen received from other group concerns only. Accordingly, the Assessing Officer held that the creditworthiness of these share applicants was not found to be proved. Accordingly, the Assessing Officer held that the share application transactions are not genuine transactions. The Assessing Officer concluded that the investors and investee both are paper companies and funds invested by these companies are merely accommodation entries.
3 The Ld. CIT(A) deleted the addition holding that the assessee-company as well as investors were conduit companies. The Ld. CIT(A) relied on the judgement of the Hon'ble High Court of Delhi in the case of Pr.CIT v. Vijay Conductors India Pvt. Ltd., wherein the Hon'ble Court has held that no addition u/s 68 shall be made in the case of conduit companies. Before the Ld. CIT(A), the assessee itself relied on the statement of Shri Shirish C Shah who stated that the entire conduit companies were controlled by him. The Ld. CIT(A) held that the assessee- company acted as conduit and real income was earned in the hands of Shri Shirish C. Shah, the entry operator.
4 With regard to the assessee-company, now known as Evexia Lifecare Limited, formerly known as Kavit Industries Ltd, has received monies on account of convertible preferential shares from the following companies:- Asst. Year : 2014-15 - 4– Sr. No. Name of the share applicants No. of shares applied during the year. Value of shares Receipt during the year. 1 Raghuvir International Pvt. Ltd. 9000000 13,50,00,000 13,56,00,000 2 Shree Sai baba Exim Pvt. Ltd. 7000000 10,50,00,000 7,55,75,000 3 SiIvercade Trading Pvt. Ltd. 4000000 6,00,00,000 6,48,00,000 4 Krystalklear Properties Pvt. Ltd. 3900000 5,85,00,000 3,52,00,000 5 Aprateem Trading Pvt. Ltd. 3600000 5,40,00,000 4,68,00,000 6 Ethan Construction Pvt. Ltd. 3300000 4,95,00,000 2,08,00,000 7 Saint Infrastructure Pvt. Ltd. 3200000 4,80,00,000 3,25,00,000 8 Gill Entertainment Pvt. Ltd. 3100000 4,65,00,000 2,70,00,000 9 Indivar Traders Pvt. Ltd. 2900000 4,35,00,000 4,70,00,000
4000000060,00,00,000 48,52,75,000
Before us, the Ld. DR argued that under the amended provisions of Companies Act, i.e. section 100, the public/listed company can call ordinary meeting. Lest to say, the decision of allotment of preferential shares was made in extra ordinary meeting without going for public issue. However, the assessee company ought to have prepared a report of such meeting and it should have filed with the