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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
आदेश/ORDER Per Shri A.T.Varkey, JM This is an appeal filed by the revenue against the order of Ld. CIT(A)-XIX, Kolkata dated 17.09.2013 for AY 2009-10.
This appeal of revenue is time barred by 35 days and a condonation petition along with supporting affidavit has been filed by the revenue. After perusing the condonation petition and the concession given by the ld. AR, we condone the delay and admit the appeal for hearing on merits.
The first ground of appeal of revenue is against the deletion of addition of Rs.6,66,78,916/- u/s. 40(a)(ia) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”)
Brief facts of the case are that the AO during the scrutiny proceedings found that M/s. Basu & Co. Road Contractors Pvt. Ltd. (in short M/s. BCRCPL) had executed entire contract work of the assessee and the assessee had made payment to the said company without deducting TDS as mandated by sec. 194C of the Act. The AO confronted the assessee on this issue wherein the assessee replied to the AO that the assessee’s proprietary 2 Pradip Kumar Basu, AY 2009-10 business was taken over by the Private Limited Company M/s. BCRCPL as a going concern, (the assessee is holding majority shares in M/s. BCRCPL). It was brought to the notice of the AO that the proprietary concern’s entire assets and liabilities including plant and machinery and credit limit from the bank along with the entire business of the proprietary business was taken over by the Private Limited Company and, therefore, the question of deduction of TDS does not arise. However, the AO did not believe the contention of the assessee and according to him, it was a cooked up story to avoid disallowance u/s. 40(a)(ia) of the Act and, thereafter taking note from the details of cost of execution of contract work of Rs.6,87,36,528/- that Rs.14,17,247/- and Rs.6,40,365/- is the deduction made by the principal for sales tax and cess respectively and the balance amount of Rs.6,87,36,528/- (Rs.14,17,247 + Rs.6,40,365 = Rs.6,66,78,916/-) was the expenses paid/credited to M/s. BCRCPL and, therefore, the said amount of Rs.6,66,78,916/- was disallowed u/s. 40(a)(ia) of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to allow the claim of the assessee. Aggrieved, the revenue is before us.
We have heard rival submissions and carefully gone through the material available on record. We note that the assessee an individual had a proprietary concern by the name and style of M/s. Basu & Co., and was an enlisted class-I (R&B) contractor vide the Govt. of West Bengal, Public Works Department’s order No. 1A dated 01.01.2002 included at Sl. No.9 in terms of the list of enlistment published under rule 215 of the PWD Code and was executing contract work for the Govt. of West Bengal. Later, a Private Limited Company was formed by the assessee under the Companies Act, 1956 in the name and style of M/s. BCRCPL which was incorporated on 04.07.2002 by the Registrar of Companies which is noted from page 2 of the paper book. As per the Memorandum of Association, the main object of the company was to take over/acquire the existing proprietorship concern M/s. Basu & Co. having its office at 5/1, Gatbala Lane, Kolkata-700 060 as a going concern with all its assets, properties, credentials, goodwill, liabilities, benefits, obligations, pending orders and contracts with or without modification and thus we note that the main object for formation of company was for converting the existing proprietorship concern into a Private Limited Company which we noted from page 3 of the Memorandum of Association of the Company. At page 14 to 27, we note that the takeover agreement by a Deed of Transfer 3 Pradip Kumar Basu, AY 2009-10 made on 12.03.2007 between the assessee and M/s. BCRCPL for transfer of the proprietorship concern of the assessee M/s. Basu & Co. We note that the Notary Certificate also dated 23.04.2007 to authenticate the said Deed of Transfer which is placed at page 13 of the paper book. On a perusal of page 24 reveals the determination of the net worth of the assets as on 01.01.2007 which is rounded off at Rs.1,88,00,000/-. We note that there has been supplementary agreement dated 22.06.2009 between the assessee and the Private Limited Company in respect to take over of the proprietary concern with retrospective effect from 31.03.2008 which proposal was put up before the Govt. of West Bengal and by order dated 14.07.2009 the Principal Secretary, Public Works Department, Govt. of West Bengal was pleased to inform the assessee the Governor’s approval allowing the proprietary concern of the assessee to function thereafter in the name of M/s. BCRCPL which matter has been reproduced by the Ld. CIT(A) at pages 6 and 7 of the impugned order. From the aforesaid facts which are discernible from the documents on records clearly shows that the Private Limited Company i.e. M/s. BCRCPL existed from 04.07.2002 and it was existing for the main purpose of taking over the assessee’s proprietary concern M/s. Basu & Co. and vide the Governor’s approval the Govt. of West Bengal has permitted the assessee’s business to be run through the Private Limited Co. w.e.f. 31.03.2008. In such a scenario, the AO’s conclusion that this was a cooked up story to get rid of the clutches of disallowance u/s. 40(a)(ia) of the Act cannot be accepted and the AO erred in making such a conclusion and the Ld. CIT(A) has rightly appreciated the facts and has found that the entire contract work has been executed by M/s. BCRCPL and w.e.f. 31.03.2008, the proprietary concern has been taken over by the Private Limited Company with all its assets and liabilities, so the question of deducting TDS does not arise. Not only that M/s. BCRCPL has filed its return of income for the relevant assessment year and has also remitted tax on the amount of which the contract was executed and for that the payment was received on which the AO has made disallowance and, therefore, the disallowance u/s. 40(a)(ia) of the Act was not warranted and, therefore, rightly the Ld. CIT(A) has deleted the addition and we confirm the same.
The second ground of appeal
of revenue is against the action of the Ld. CIT(A) deleting the addition of Rs.1,99,22,800/- towards undisclosed investment on account of shares claimed to have been allotted by M/s. BCRCPL. The AO during the assessment
4. Pradip Kumar Basu, AY 2009-10 proceedings noted that M/s. BCRCPL has allotted 1,99,288 shares valued at Rs.1,99,28,800/- to the assessee. Since, according to the AO, assessee could not explain the share application money introduced into the company by him he treated it as undisclosed investment u/s. 69 of the Act and made the addition. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete the same. Aggrieved, the revenue is before us.
We have heard rival submissions and gone through facts and circumstances of the case. At page 16 of the impugned order, we note that the assessee had made the disclosure of its share capital as on 31.03.2008 relevant for AY 2008-09; and as on 31.03.2009 relevant for AY 2009-10 which is under consideration, which is reproduced as follows:
Share Capital (in the Audited Balance Sheet of M/s. Basu & Co. Road Contractors Pvt. Ltd.) (Annexure-B)
Previous Year ending Current Year ending On 31.03.2008 (AY 2008-09) On 31.03.2009 (AY 2009-10) 31,88,800 Share Capital 2,29,58,800 1,97,70,000 Share Application Money -- __________ ___________ 2,29,58,800 2,29,58,800 The Ld. AR drawing our attention to the above share capital holding as on 31.03.2008 relevant for AY 2008-09 has stated that the transfer of the proprietary concern along with its assets and liabilities w.e.f. 31.03.2008 and the net value was converted into share capital by the company in the name of assessee and, therefore, there was no transfer of any real money/cash and which was only a mere book entry in the books of M/s. BCRCPL. In any way, according to him, the amount of Rs.1,97,70,000/- was introduced in AY 2008-09 and has been reflected in the audited Balance Sheet as on 31.03.2008. Therefore, the question of making any addition u/s. 69 of the Act in AY 2009-10 does not arise because the net value of the assets and liabilities was brought on book by a book entry as on 31.03.2008 for AY 2008-09 and not in the relevant assessment year under consideration i.e. AY 2009-10 and, therefore, the Ld. CIT(A) has rightly deleted the addition and he does not want us to interfere in the impugned order. We also take note of the fact that the M/s. BCRCPL has taken over the proprietary concern of the assessee as a going concern and it was a genuine take over. We note that the shares were allotted to the assessee after computation of its net 5 Pradip Kumar Basu, AY 2009-10 value of its assets and liabilities which was converted into share capital by the company in the name of assessee and there was no monetary transaction in respect to the allotment of shares by the Private Limited Company. In exchange of takeover of the proprietary concern of the assessee, the assessee was allotted 1,97,700 equity shares of Rs. 100/- each in the Private Limited Company. Thus, the assessee who was already holding 1588 shares of the said company after the business conversion assessee was holding 199288 shares (197700+1588) which was 86% of equity shares of the Private Limited Company. The shares were allotted by the Private Limited Company to the assessee after valuation of the assets and liabilities taken over by the Private Limited Company which was valued at their book value and the shares were allotted to the assessee in his individual capacity as a proprietor of the erstwhile proprietary concern. Since no shares were issued in the name of the proprietary concern M/s. Basu & Co. which did not exist after the takeover by Private Limited Company, no investment in shares were reflected in the Balance sheet of the proprietary concern M/s. Basu & Co. We take note that the takeover account was settled through mere book entry by debiting or crediting the amount of either person in their books. This is a mere book entry and no real monetary transaction has taken place. It should be noted that nothing changed on ground i.e. the assets and liabilities of the proprietary concern was taken over by the Private Limited Company along with its assets and liabilities, and the shares allotted on the book value of the assets, so nothing changed except that the business will be run by the Private Limited Company from 31.03.2008 and no money changed hands or any new investment made by the assessee in the form of share application amount in the company. The AO has not understood this aspect and, therefore, has erroneously made the addition which has been rightly deleted by the Ld. CIT(A) and warrants no interference and, therefore, we confirm the action of the Ld. CIT(A) and dismiss the appeal of the revenue. In the result, appeal of revenue is dismissed.