ITO, MUZAFFARNAGAR vs. M/S G.S> PHARMACEUTICALS PVT. LTD.,, MUZAFFARNAGAR

Brief facts of the case are that the assessee is a private limited company deriving income from manufacture and sale of pharmaceutical products. For the assessment year 2011-12 they have filed the return of income on 30/9/2011 declaring an income of Rs. 93, 92, 700/-. Assessment under section 143(3) of the Act was complete by order dated 31/3/2014 at an income of Rs. 2, 19, 74, 866/-by making addition of Rs. 2 crores under section 68 of the Act, Rs. 1, 36, 163/- by disallowing the benefit of section 80 IC of the Act and Rs. 5, 11, 401/- under section 35 AC of the Act.

In the appeal preferred by the assessee, by way of impugned order, Ld. CIT(A) granted relief to the assessee by deleting the addition of Rs. 2 crores made under section 68 of the Act and also Rs. 5 Lacs under section 35AC of the Act. Hence the Revenue is aggrieved by such an action of the Ld. CIT(A) and preferred this appeal.

Insofar as the addition of Rs. 2 crores under section 68 of the Act is concerned, according to the learned Assessing Officer, though the assessee was required to submit documentary evidence in respect of proof of share application money in relation to four entities, namely, Popular Mercantile, Axiom Commode, PlazmaTradecand M/s SalasarTracomand though the assessee submitted conformations, copy of bank account and copy of ITR’s in respect of individuals and HUF’s, but no confirmation and copy of Balance Sheet was submitted in respect of such companies. During the course of the first appellate proceedings, assessee submitted certain documents by way of additional evidence and such documents were sent to the learned Assessing Officer for his comments. Since the learned Assessing Officer expressed his difficulty to oppose the receipt of additional evidence, Ld. CIT(A) received the same.

It could be seen from the impugned order that during the remanded proceedings, at the instance of the assessee, the assessing officer verified and found that the copies of conformations which the assessee submitted as additional evidence during the first appellate proceedings, were found to have been submitted by the assessee during the assessment proceedings. Learned Assessing Officer observed that the assessee specifically indicated towards the desire of the impugned shareholders ranging from more than Rs. 12 crores to Rs. 17 crores in order to prove their capacity and on a per usual of the balance sheets, learned Assessing Officer found that the reasons to the stated extent were being depicted in the Balance Sheet of the said entities forwarded by way of additional evidence to him and it was a verifiable fact from the record during the assessment proceedings and the bank statements of a few days were provided.

Insofar as the identity, creditworthiness of the share applicants and the genuineness of the transactions is concerned, learned Assessing Officer found that the share subscribers one identifiable entities as they are assessee to tax and the transactions were genuine as the share application money was received through undisputed banking channels, which shows regular inflow and outflow of substantial money in the investor companies’ bank account; that not in a single case, cash has been deposited prior to the issue of cheques to the assessee for investment in shares application money; and that the assessee had furnished copies of ITR’s, PAN card, balance sheets, copies of confirmation and a piece of rank accounts.

It could be seen from the impugned order that the learned Assessing Officer, in the remand report, as a matter of fact, found that the reserves of the impugned share applicants range from more than Rs. 12 crores to Rs. 17 crores. Ld. CIT(A), on a perusal of the balance sheets of the investor companies found that the companies having substantial finances at their command and as such these companies or entities of means and the learned Assessing Officer could not controvert the documentary evidences permitted by the assessee. While placing reliance on the decision of the Hon’ble Allahabad High Court in the case of CIT, Meerut vs. Nav Bharat Duplex Ltd in and the decision of the Hon’ble Bombay High Court in the case of CIT vs. M/s creative world telefilms Ltd, Ld. CIT(A) returned a fact-finding that the addition under section 68 of the Act is not justified and deleted the same.

None of these observations and findings of the Ld. CIT(A) could be controverted before us and as a matter of fact the remand report submitted by the learned Assessing Officer clinches the issue that there is no dispute in respect of the identity and creditworthiness of the share applicants not about the genuineness of the transactions. The finding of facts and the application of law by the Ld. CIT(A) do not warrant any interference at the end of this Tribunal. We therefore, uphold the same and dismiss ground No. 1 of the Revenue’s appeal.

Now coming to the addition of Rs. 5, 11, 401/-being the disallowance of expenses shown under the head “donation”, it comprises of 2 amounts, namely, Rs. 5 Lacs paid to Shirdi SaibabaSansthan and a Rs. 11, 401/-paid to other local organisations. On a perusal of the remand report of the learned Assessing Officer and the rejoinder of the assessee in the light of the submissions made by the assessee, Ld. CIT(A) observed that the copy of donation account and the photostat copy of the cheque dated 13/10/2010 to a sum of Rs. 5 Lacs issued to Sai Baba Sansthan Trust, Shirdi and information regarding donation being 100% exempt under section 35AC of the Act, the same is allowable as per law and accordingly deleted the same. Ld. CIT(A), however, confirmed the disallowance of Rs. 11, 401/-. Insofar as the deletion of Rs. 5 Lacs disallowance is concerned, nothing contrary is brought to our notice to take a different view from the view taken by the Ld. CIT(A). We therefore decline to interfere with such a finding of the Ld. CIT(A) and dismiss ground No. 2.