MPG INTERNATIONAL (P) LTD.,DELHI vs. ITO, NEW DELHI

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ITA 6347/DEL/2014Status: DisposedITAT Delhi18 February 2016AY 2004-057 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the disallowance of Rs. 1,38,500/- for filing fees paid to the ROC for increasing authorized capital is confirmed, following the decision in Punjab State Industrial Development Corporation Ltd. vs. CIT. The disallowance of Rs. 57,000/- as bank interest is also confirmed, as the assessee's counsel did not advance arguments on this point. Regarding the addition of share capital under Section 68, the Tribunal noted that the identity of the share applicant and the routing of funds through banking channels were not doubted. The assessee had provided substantial documentation, including board resolutions, confirmations, and bank statements, to establish the genuineness of the transaction. The Tribunal found that the revenue had not brought any contrary evidence to disprove the genuineness. Following the jurisdictional High Court's decision in CIT vs. Five Vision Promoters Pvt. Ltd. (380 ITR 289), which held that similar documentation was sufficient to prove genuineness, the Tribunal deleted the addition of Rs. 8 lakhs and Rs. 10 lakhs. Consequently, the consequential addition of Rs. 16,000/- (2% of share application as commission) was also deleted. The Tribunal expressly left no issue undecided.

What were the facts?

The assessee, M/s. MPG International (P) Ltd., filed appeals against the orders of the CIT(A) for assessment years 2003-04 and 2004-05. The appeals concerned disallowances and additions made by the Assessing Officer (AO). Specifically, ground no. 4 related to a disallowance of Rs. 2,05,779/- in AY 2003-04, comprising filing fees for increased authorized capital (Rs. 1,38,500/-) and bank interest (Rs. 57,000/-). Ground no. 2 pertained to additions of Rs. 8 lakhs in AY 2003-04 and Rs. 10 lakhs in AY 2004-05 under Section 68 on account of share capital. The AO had reopened assessments under Section 147 based on information from the Directorate of Income-tax (Inv.). The CIT(A) had confirmed these additions.

What were the issues?

1. Whether the disallowance of Rs. 1,38,500/- paid as filing fees to the Registrar of Companies for increasing authorized capital is justified. (Question of law) 2. Whether the disallowance of Rs. 57,000/- as bank interest is justified. (Question of law) 3. Whether the addition of Rs. 8 lakhs in AY 2003-04 and Rs. 10 lakhs in AY 2004-05 on account of share capital under Section 68 of the Income-tax Act, 1961, is justified. (Question of mixed law and fact) Assessee's contentions: Regarding issue 1 & 2: The assessee's counsel did not advance arguments on these issues, except for ground no. 1 which was not pressed. The assessee relied on the documents submitted to prove the genuineness of the share capital transaction, including board resolutions, confirmations, bank statements, and balance sheets of the share applicant. The assessee argued that the revenue had not provided contrary evidence and that the onus shifted to the revenue after the assessee discharged its initial burden. Revenue's contentions: The revenue contended that the filing fees for increasing authorized capital were not allowable. The revenue also argued that while the identity of share applicants and banking channels were not doubted, the genuineness of the share capital transaction was doubtful, relying on decisions like CIT vs. Neelkanth Ispat Udyog (P) Ltd. and CIT vs. Nipun Builders and Developers Pvt. Ltd.

Which sections of the Income-tax Act were involved?

Section 68,Section 147,Section 148(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-I’ : NEW DELHI

Before: SHRI P.K. BANSAL

For Appellant: Shri Rajesh Jain, Advocate
For Respondent: Shri Robin Rawal, Senior DR
Hearing: 17.02.2016Pronounced: 18.02.2016

Both these appeals filed against the respective order of the CIT (A) dated 23.09.2014. Since the common issue involved, therefore, both the appeals are decided together on the basis of facts involved in the assessment year 2003-04 as has been agreed by both the parties.

2.

Ground No.1 in both the appeals is not pressed, therefore, the same stands dismissed as not pressed.

3.

Ground No.4 in assessment year 2003-04 relate to the disallowance of Rs.2,05,779/- which consist of Rs1,38,500/- incurred by the assessee for filing fees for increase of the authorized capital from Rs.20 lakhs to Rs.1.50 crores in the office of the Registrar of Companies and Rs.57,000/- as bank interest.

4.

I heard the rival contentions and carefully considered the same along with the orders of the authorities below. I agree with the ld. DR that so far the issue in respect of filing fees paid to ROC amounting to Rs.1,38,500/- is concerned, the same has been paid for increase in the authorized capital and this issue is no more res integra in view of the decision of Punjab State Industrial Development Corporation Ltd. vs. CIT reported in 225 ITR 792.

I accordingly confirm the order of the CIT (A) sustaining the disallowance of Rs.1,38,5000/- out of the sum of Rs.2,05,779/-.

5.

So far as the sum of Rs.57,000/- is concerned, I noted that this has been shown by the assessee as bank interest paid but the same has been disallowed as no stock-in-trade or business asset was appearing in the balance sheet. Before me, ld. AR appeared but did not advance any argument in this regard as well as the balance expenses. I accordingly confirm the disallowance. Thus, ground no.4 taken by the assessee stands disallowed.

6.

Ground No.2 in both the assessment years 2003-04 and 2004-05 relate to the addition of Rs.8 lacs in AY 2003-04 and Rs.10 lacs in AY 2004-05 u/s 68 of the Income-tax Act, 1961 (hereinafter ‘the Act’) on account of the share capital.

7.

The facts relating to this ground are that the assessee received share capital for Rs.8 lakhs from M/s. Finwiz Capital Services Private Ltd. through banking channel on 04.12.2002 and Rs.10 lakhs i.e. Rs.5 lakhs form Fair ‘N’ Secure Exports Pvt. Ltd. and Rs.5 lakhs from Rabik Exports Ltd. through banking channel in the assessment year 2003-04 and 2004-05 respectively. The AO after receiving the information from the Directorate of Income-tax (Inv.), New Delhi and after recording reasons, reopened the assessment in each of the assessment year by issuing the notice u/s 148(2) after recording the reasons to believe. The ld. AR even though before me challenged the validity of the initiation of the proceedings u/s 147 in each of the assessment year by way of ground no.1 but did not press the same when his attention was drawn towards the decision of Hon’ble Supreme Court in the case of ITO vs. Purushottam Das Bangur – 224 ITR 362 in which the Hon’ble Supreme Court has clearly taken the view that the letter of Deputy Director of Investigation giving information that company prospering at the relevant time and no stock exchange quotation was only for manipulation is the information from which ITO could have received to believe about the income escaped the assessment. The AO completed the assessment after making the addition of the share capital in each of the assessment year amounting to Rs.8,00,000/- and Rs.10,00,000/- respectively. The assessee went in appeal before the CIT (A) and the CIT (A) confirmed the addition.

8.

I heard the rival contentions and carefully considered the same along with the orders of the tax authorities below. I noted that in this case under para 6.4, the CIT (A) has taken a finding that the identity of the share applicant company, M/s. Finwiz Capital Services Pvt. Ltd. is not doubted in any manner. The amount is routed through banking channel is also not doubted. The doubt has been raised about the genuineness of the transaction. Whether the money has been given by the share applicant company and, therefore, he confirmed the addition relying on the decision of CIT vs. Neelkanth Ispat Udyog (P) Ltd. - 81 DTR 214 (Delhi), CIT vs. Nipun Builders and Developers Pvt. Ltd. - 350 ITR 407 and .CIT vs. N.R.

Portfolio Pvt. Ltd. – 214 taxman 408 (Del.). In this case, I noted that the assessee has submitted the following documents:-

(i) Application for allotment of Equity shares which shows the PO dated 4.12.2002 drawn on the Ratnakar Bank for an amount of Rs.8,00,000/- being the amount of share application money.

(ii) Copy of Board Resolution (dated 2.12.2002) passed by the Directors of M/s. Finwiz Capital Services Pvt. Ltd., wherein Shri Rajesh Jha Director of the company is authorized to apply for 80000 shares of Rs. 101- per share, on behalf of the said company, in the appellant company.

(iii) Copy of Confirmation filed (without date) confirming the amount of Rs.8,00,000/-, Pay Order Number, PAN and assessment particulars.

(iv) Copy of affidavit not attested by any authority.

(v) Signature verification dated 5.12.2002 from Bank of Mr. Rajesh Jha, the then director of MIs. Finwiz Capital Services Pvt. Limited.

(vi) List of directors of the company as on 4.12.2002. (vii) Form No. 32 dated 24.5.2002

(viii) Copy of ITR for AY 2002-03, and copy of Balance sheet as on 31.3.2002.

(ix) Copy of Order u/s 143(3) for AY 1996-97.

(x) Copy of the one page Bank statement of the Ratnakar Bank Limited, showing the transaction for issued of Pay order for Rs.8,00,000/- against debit of Rs.8,00,800/-.

(xi) Copy of Balance sheet as on 31.3.2013 of M/s. Finwiz Capital Services (P) Limited.

On the basis of these documents, the ld. AR before me contended that the genuineness of the transaction is apparent from the fact that Board Resolution was passed by the Director of M M/s. Finwiz Capital Services Pvt. Ltd. for making the application for 80,000 shares at Rs.10 per share.

This fact has been confirmed by the said company that they paid Rs.8 lakhs as share application money. The amount has duly been shown in the balance sheet by M/s. Finwiz Capital Services Pvt. Ltd. It is not a case of issuance of shares at a premium or discount; shares have been issued at the face value. The revenue has not brought any contrary evidence except holding that the genuineness of the transaction is doubtful even though the identity of the share applicant as well as the payment through banking channel was not doubted. I noted that similar issue has arisen before the Hon’ble jurisdictional High Court in the case of CIT vs. Five Vision Promoters Pvt. Ltd. - 380 ITR 289 (Del.) in which the assessee has submitted similar type of documents to prove the genuinity of the transaction. The Hon’ble High Court ultimately confirmed the order of the Tribunal deleting the addition. In my opinion, once the assessee has submitted the documents, the onus gets shifted on the revenue to prove that the transaction is not genuine. The share applicant has confirmed the transaction. Copy of the Resolution dated 02.02.2012 for investment in 80,000 shares of Rs.10/- each in the assessee company was passed, confirmation giving the pay order number, PAN number and assessment particulars of the applicant company was filed. The revenue has not taken any action against the share applicant company but the CIT (A) simply took the view that the said share applicant company has given the money as share application is not established. The finding given by the CIT (A) under para 6.4 in this regard might not be supported by the evidence brought on record in this regard. Hon’ble Delhi High Court in the case of CIT vs. Five Vision Promoters Pvt. Ltd. - 380 ITR 289 (Del.) took the view that the shares of the assessee were subsequently sold at a reduced price which indeed was not germane to the question of the genuineness of the investment in the share capital of the assessee. I am bound to follow the aforesaid decision of Hon’ble Delhi High Court reported in 380 ITR

289.

I accordingly delete the said addition.

9.

As regards Ground No.3, both the parties are agreed that it is consequential. The AO made the addition which was reduced by the CIT (A) to 2% of share application amounting to Rs.16,000/- as commission paid by the assessee. Since I have allowed ground no.2 by deleting the addition in respect of share capital received, I accordingly delete the said addition. Ground No.3 is also allowed.

10.

In the result, both the appeals are partly allowed. Order pronounced in open court on this 18th day of February, 2016.

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