BHUSHAN HOTEL RESORT P.LTD,MUMBAI vs. ITO 6(1)(4), MUMBAI

The present appeal has been preferred by the assessee against the order dated 20.04.2015 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13.

The ground raised

The only issue raised by the assessee is against the confirmation of addition of Rs.10.20 lakhs by Ld. CIT(A) as made by the AO under section 68 of the Act towards the investments creditworthiness whereof is not proved and notices under section 133(6) were not served.

The facts in brief are that in the assessment proceedings, the AO after perusing the balance sheet of the assessee noticed that assessee has received Rs.2,90,00,000/- on account of premium on shares issued during the year. The AO noticed that during the year the assessee issued 10,73,500 equity shares at face value of Rs.1,07,35,000/- at a premium of Rs.2,90,00,000/- to four parties details whereof are given on page No.2 of the assessment order. The AO also noted that the assessee company is intending to carry on business of lodging and boarding, hotels, motels, resorts and restaurants. However, no such activities were carried out during the year. The AO also issued notices under section 133(6) of the Act to the said parties in order to verify the genuineness of these investments. However, notices in the case of First and Ideal Trading Pvt. Ltd. and Balbir Steel Pvt. Ltd. remained unserved and assessee was asked to provide the correct address again which was supplied by the assessee but again notices under section 133(6) remained unserved. Thereafter, a show cause notice was issued to the assessee as to why the share premium amounting to Rs.2,90,00,000/- should not be treated as income of the assessee under section 68 which was replied by the assessee vide letter dated 16.03.2015 which is reproduced by the AO in 3 M/s. Bhushan Hotel Resort Pvt. Ltd. para 8 of the assessment order. The assessee submitted before the AO the copies of PAN details, CIN, Master data, confirmation of accounts, share application forms, IT returns, audited balance sheets, bank statements, replies to notices under section 133(6) of the Act and returns of allotment etc. However, the AO added the amounts subscribed by two parties namely First and Ideal Trading Pvt. Ltd. Rs.5,10,000/- and Balbir Steel Pvt. Ltd. Rs.48,00,000/-. Similarly, in the case of Cute Productions Pvt. Ltd. who invested Rs.5,10,000/- in the assessee company did not respond to the notice issued under section 133(6) of the Act and finally AO treated all these investments as being devoid of any creditworthiness and added the same under section 68 of the Act by framing assessment under section 143(3) of the Act dated 25.03.2015.

In the appellate proceedings, Ld. CIT(A) deleted the addition made in respect of Balbir Steel Pvt. Ltd. of Rs.48,00,000/- by holding that the party has sufficient sources and creditworthiness and thus deleted the addition whereas in respect of the remaining two the addition was sustained by holding and observing as under: “6.4 With respect to First & Ideal Trading Pvt Ltd, it is seen that the investor company has no business activity, the company has credited the profit and loss account on account of other income of Rs.1,98,573/- and profit is shown at Rs. 3578/-, The balance sheet reflects that there was a heavy security premium received by the company amounting to Rs 19,52,00,310/-. The amount received as a securities premium was not utilised for its business activity but invested in non-current investment. There was no reason found in M/s First & Ideal Trading Pvt Ltd to receive the share premium as there was no reason for the investor to invest in such a company where no opportunity of earning any income appears. The bank statement reflects various deposits and withdrawals which is not sufficient to explain as to why such fund were received as there was no business activity in the company. Therefore, there is no creditworthiness of the subscriber. Therefore, addition made by the AO of Rs. 5,10,000/- is confirmed.

After hearing both the parties and perusing the material on record including the decision of the Ld. CIT(A), we observe that in this case the addition was made under section 68 of the Act when the AO doubted the creditworthiness of the parties. During the assessment proceedings as well as appellate proceedings, the assessee filed the various information/details such as PANs, CINs, master data, confirmation of accounts, share application forms, IT returns of the investors, annual audit accounts of the investors, bank statements of the investors, replies to notice under section 133(6) of the Act besides filing own bank statement and returns of allotment. We have also examined the bank statements and balance sheets of the investors and observed that the investors have sufficient sources to invest in the assessee company. Moreover it is very strange that the only basis of doubt of the AO is that the assessee company was hardly carrying any business as proposed. After examining the records, we observe that the doubt of the lower authorities as to the creditworthiness of these parties is without basis as we observe that both these investors have sufficient sources in their bank accounts and these investments were also disclosed in the annual accounts. The case of the assessee is supported by the decision of Hon’ble Bombay High Court in the case of Pr. CIT vs. Nitya Birla Telecom

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