DCIT, NEW DELHI vs. M/S D.R.S. ROOF-TECH & INFRASTRUCTURAL PVT. LTD.,, NEW DELHI

ORDER PER H.S. SIDHU : JM

The Revenue has filed this Appeal against the impugned Order dated 11.5.2012 of the Ld. CIT(A)-XIII, New Delhi relevant to assessment year 2009-10.

2. The grounds raised in this Appeal read as under:-

1. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the addition of Rs.4,38,48,000/- made by the AO u/s. 68 of the I.T. Act, 1961?

2. Whether the CIT(A) under the facts and circumstances of the case and in law was justified in deleting the disallowance of interest u/s. 36(11)(iii) of the I.T. Act

amounting to Rs. 69,07,310/- out of total disallowance of Rs. 69,49,060/- made by the AO?

3. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing.

The return was processed u/s. 143(1) of the Income Act, 1961 (hereinafter referred as the Act). The case of the assessee was selected for scrutiny under CASS. Notice u/s. 143(2) of the Act was issued on 20.8.2010 which was duly served upon the assessee.

Subsequently a notice u/s. 142(1) of the Act alongwith detailed questionnaire was issued on 15.7.2011 and duly served upon the assessee. In response to these notices, the Assessee’s AR attended the proceedings from time to time and filed the books of accounts and the relevant details as required by the AO. In this case the assessee company was engaged in the business of construction of warehouses and other structures as civil contractor. During the year under consideration, the assessee company has received fresh share capital of 31,32,000/- alongwith the share premium of Rs. 4,07,16,000/- from a company namely Tarun Vanizya & Co., Kolkata. AO observed that this company was not having sufficient sources of income, therefore, the share capital as well as share premium received from the said company was treated as unexplained cash credits and amount of Rs. 4,38,48,000/- was added to the total income of the assessee. Further, the AO also disallowed the claim of interest u/s. 36(1)(iii) of the Act of Rs.69,49,060/- on the ground that the assessee company has diverted interest bearing loans to its sister concern and relatives of the Directors and also added Rs. 10,69,202/- as expenditure pertaining to earning of exempt income. Accordingly, the AO assessed the total taxable income of Rs. 7,72,06,212/- of the assessee vide order dated 25.12.2011 passed u/s. 143(3) of the Act. Against the aforesaid assessment order, assessee appealed before the Ld. CIT(A)-XIII, New Delhi, who vide his impugned order dated 11.05.2012 has partly allowed the appeal of the assessee.

Aggrieved with the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.

4. Ld. DR relied upon the Order of the AO and reiterated the contentions raised in the grounds of appeal. She also argued that despite on various occasions the Assessee was directed to produce Directors of the Company but assessee failed to produce the same.

She further argued that in the bank statement of the lender company there were cash deposits to the tune of Rs. 13 lacs and our specific attention was invited to paper book page 47. It was further argued by the Ld. DR that the profits of the lender company were only Rs. 3376/- and the total turnover was Rs. 39624.

Therefore, the amount invested by the investee company was not genuine and hence, AO had rightly made the addition. She placed the reliance on the following case laws.

- CIT vs. Nova Promoters & Finlease (P) Ltd. (2012) 18 taxmann.com 217 (Delhi) (Hon’ble Delhi High Court) - CIT vs. Nipun Builders and Developers (P) Ltd. (2013) 30 taxmann.com 292 (Delhi) (Hon’ble Delhi High Court).

5. On the contrary, Ld. Counsel of the assessee has relied upon the order of the Ld. CIT(A) and stated he has passed a well reasoned order which does not need any interference. As regards the argument of the Ld. DR that despite various show cause notices the Assessee did not produce Directors, the Ld. A.R. of the assessee submitted that in none of the notices the AO required assessee to produce Directors. Our attention was invited to CIT(A)’s order where he had referred to show cause notice and has held that Assessee was not required to produce Directors.

As regards merits of the case the Ld. AR submitted that Assessee had substantial investments to the tune of Rs. 4.59 crores which were liquidated and out of funds of such investments the investee had invested in the assessee company. In this respect our attention was invited to paper book page no. 52 where copy of the balance sheet depicting investments during the earlier year and present year were placed. As regards the profitability of the investee company was concerned the Ld. AR submitted that the ITAT, Delhi in the case of ACIT vs. Bahubali Dyes Ltd. reported (2014) 34 ITR (Trib) 487 (ITAT-Del), has held that even if there was low profits but investee company had sufficient funds addition u/s. 68 cannot be made. As regards case laws relied on by the Ld. DR is concerned, the Ld. AR submitted that these are distinguishable on facts.

6. We have heard both the parties and perused the relevant records, especially the impugned and the Paper Book filed by the Assessee. With regard to ground no. 1 relating to deletion of addition of Rs. 4,38,48,000/- made u/s. 68 of the Act is concerned, we find that assessee company has received share capital of Rs. 31,32,000/- alongwith share premium of Rs. 4,07,16,000/- from M/s Tarun Vainizya Pvt. Ltd. During the assessment proceedings, the AO has mentioned that company was not having its own source of income in as much as that it has declared as Rs. 3,376/- as his income and does not have the sources of income, therefore, the said receipt of share capital and share premium has been treated as unexplained cash credits in the hands of the assessee company. We further find that AO observed that M/s Tarun Vanizya Pvt. Ltd. has been acquired by the management of assesseee company. The AO further asked the assessee to produce the Directors of the said company for explaining the, source of the money and to examine the genuineness of transaction made under the nomenclature of share premium vide show cause letter dated 05.12.2011. In this regard, the assessee has submitted in the submission that during the course or assessment proceedings in compliance to the directions issued by the AO, the assessee had furnished following information before the AO.

3. Copy of the IT Return of the above named shareholder

for AY 2009-10

relevant to the above assessment year showing transfer of money from the bank account to the appellant's bank account.

Sheet, Profit & Loss Account along with the report of auditors obtained u/s 227 of The Companies Act.

6. Form no. 2, the return of allotment submitted with the Registrar of Companies, New Delhi.

6.1 As regard the source of the funds in the hands of Tarun Vanizya Pvt. Ltd. it was explained by the assessee vide its letter dated 15.12.2011 before the AO that the funds have been generated by the sale of past investments appearing in the balance sheet in schedule-IV of the said company. As per the said balance sheet the investment worth Rs. 4,58,95,000/- have been shown as on 31.03.2008, which have been realized to make investment in the share capital and share premium of the assessee company. The assessee has also filed copy of the bank statement of M/s Tarun V Anizya Pvt. Ltd. with Axis Bank Ltd., Karol Bagh, West Delhi. It is seen from the bank account that amount have been transferred from this account on various dates to M/s DRS Roof-tech & Infrastructure Pvt. Ltd. during the F.Y. 2008-09. The assessee has also placed the copy of the return of income of M/s Tarun Vanizya Pvt. Ltd. for A Y 2009-10 filed with Incorfie Tax Department. The assessee has also filed conformation of M/s Tarun Vanizya Pvt. Ltd. for having paid money for share capital and share premium during F.Y. 2008-09 to the appellant company. By filing these evidences, the assessee has discharged its burden cast upon it u/s 68 of the IT Act. It is seen from the assessment order that AO kept on harping on the income declared by the assessee company and did not see the sources of the investment declared in the balance sheet by the investor company. Nothing adverse has been brought on record by the AO, which can prove that money received from M/s Tarun Vanizya Pvt. Ltd. was not its own money and that same was received as accommodation entry. The assessee has filed its copy of bank account where from the money was transferred to the appellant company. From the said bank account, the assessing officer has not proved that the money transferred was received through accommodation entry and it was asssessee’s own money.

The documentary evidences filed by the assessee before the AO satisfactorily establish that M/s Tarun Vanizya Pvt. Ltd. had applied for share capital and share premium out of its own money which was realized from sale of its investments reflected in the balance sheet. The Assessing officer has also mentioned in the assessment order that it had issued a show cause notice vide its letter dated 05.12.2011 to the assessee company for production of Director of the investor company before him. From the reading of the order it is observed that the AO has issued two show cause notices both on same date i.e. 05.12.2011 for production of the Director. During the course of appellate proceedings, the assessee has filed copy of the show cause notice dated 05.12.2011. It is seen that there is only one show cause notice received by the assessee of dated 05.12.2011 and there cannot be other show cause notice of the same date 05.12.2011. On going through the show cause notice it is seen that the AO has asked vide point No.1 about the sources of the money for investing its share capital and vide point No.6 of the said show cause notice the AO asked the complete list of the Directors of M/s Tarun Vanizya Pvt. Ltd. The relevant points in the show cause notice regarding Share Capital were reproduced here under:-

“Pl refer to the income tax proceedings for A Y 2009-10, you are required to furnish the following:

Please explain the source of this company for investing in share capital, particularly when the company does not have its own income. Please explain from where the company has received the amount.

2……. 3……. 4……. 5……..

Company P Ltd, Kolkatta

7 …….to 12…….

Your case is fixed for hearing in my office Room No. 406, CR building, IP Estate, New Delhi on 15.12.2011 at 11.30 A.M.

Please note that there is none compliances on the earlier date you are required to ensure compliance.”

6.2 On going through the above points of the show cause letter, it is seen that no where Assessing officer has asked about the production of the Directors of the investor company before AO.

There is no other letter or summons issued by the Assessing officer for attendance of the directors of the investor company. Therefore, the observations made by the AO in the assessment order are not correct and no credence should be given to such observations. In the absence of any specific directions or summons for producing the directors of the investor company, the assessee cannot be held responsible or faulted for not doing so and therefore no adverse view can be taken against the assessee.

6.3 After having detailed discussions, as aforesaid, we are of the considered view that in this case the 03 ingredients required to be established u/s. 68 of the Act are identity of the lenders, genuineness of the lenders and genuineness of the transactions. As regards identity of the lenders is concerned, the Lender is a Private Limited Company incorporated under the Companies Act, 1956 and is having its Permanent Account Number which proves the identity of the lender. As far as the genuineness of the lenders is concerned, we find from the Balance Sheet of the Lender placed at Paper Book of Page no. 48-53 that this Company had its own funds to the tune of Rs. 4.61 crores, out of which the amount invested in the assessee company is to the tune of Rs. 4,38,50,000/-. These facts are verifiable from Paper Book page No.

“9. The second point made by the AO was that these share holder companies were having negligible profit but in the balance sheet, they have shown huge share premium reserve. However, this aspect needs to be examined in the case of those companies and not in the case of the assessee-company. As we have already mentioned, all these companies are separately assessed to Income-Tax, they have filed their income tax returns 13 alongwith their balance sheet which indicated their share capital as well as share premium. That merely because they have substantial share capital or substantial share premium, would be no ground to doubt either their identity or their creditworthiness. On the other hand, substantial share capital / share premium would only support the case of the assessee that these companies have substantial worth to invest the shares of the assessee company.”

6.3.1 In view of the facts and circumstances as explained above, the creditworthiness of the lender company is proved.

6.3.2 Now coming to the genuineness of the transaction of having issued shares at a premium of Rs. 130/- per share. In this respect, we find that assessee company is an existing company engaged into infrastructure activities and its net profit during the year before taxation was Rs. 2,46,79,833/- and which fact is verifiable from Paper Book Page No. 9 where the copy of profit and loss account is of the assessee company is placed. The assesee had filed its income of return declaring the taxable income Rs. 2,53,39,948/- which fact is verifiable from the assessment order itself. The assessee company has share capital to the tune of Rs. 41.09 lacs and reserves and surpluses excluding share premium received during this year to the extent of Rs. 2,91,00,000/-. The assessee had turnover of Rs. 51.90 crores. These facts and figures depict that assessee is an existing profit making company and therefore, issuance of shares at a premium is justified. In view of the above facts and circumstances of the case, in our opinion, all the 3 ingredients required to be established u/s. 68 of the Act are established. We further find that the case laws cited by the Ld. DR are distinguishable to the facts of the present case and therefore are not applicable at this juncture. Therefore, the addition made by the AO treating the share capital and share premium as unexplained cash credit u/s 68 of the IT Act was not justified, hence, the same was rightly deleted by the Ld. CIT(A), which does not need any interference on our part, therefore, we uphold the action of the Ld. CIT(A) on this issue and reject the ground no. 1 raised by the Revenue.

dismissed.

Order pronounced in the Open Court on 04/01/2018.