2012 (7) TMI 102 - AT - Income Tax

Tax Appeals Granted for Multiple Years; Emphasis on Documentation & Precedents

Param Polypack Pvt. Ltd. Versus ITO Baroda

Param Polypack Pvt. Ltd. Versus ITO Baroda - TMI Issues Involved:1. Addition of share application money.2. Addition on account of deposits under Section 68 of the Income Tax Act.3. Disallowance of repair expenses.4. Disallowance of factory expenses.5. Disallowance of interest paid to SIDBI under Section 43B.6. Addition of notional interest on advances.7. Disallowance of bad debts and advances written off.Detailed Analysis:1. Addition of Share Application Money:The primary issue revolves around the addition of share application money received by the assessee. The Assessing Officer (A.O.) added Rs. 35,00,000/- for the assessment year 2002-03, Rs. 37,00,000/- for 2003-04, and Rs. 31,55,000/- for 2004-05, citing the failure to establish the identity, creditworthiness, and genuineness of the transactions. However, the assessee argued that all relevant details, including PAN, bank statements, and confirmations, were provided. The Tribunal referred to the judgments of the Hon'ble Supreme Court in the cases of Lovely Exports Pvt. Ltd. and Divine Leasing & Finance Ltd., which state that if the share application money is received from alleged bogus shareholders whose names are provided, the department can reopen their individual assessments but cannot add the amount in the hands of the company. Hence, the Tribunal deleted the additions for all the years in question.2. Addition on Account of Deposits Under Section 68:For the assessment year 2002-03, the A.O. added Rs. 85,740/- as unsecured loans, citing the absence of proper address, identity, creditworthiness, and genuineness of the transaction. The Tribunal upheld this addition as the assessee failed to provide confirmations, addresses, or PAN of the loan creditor. For the assessment year 2004-05, the A.O. added Rs. 80,45,000/- as unsecured loans. The Tribunal deleted this addition, noting that the assessee provided confirmations, addresses, PAN, and bank statements, fulfilling the requirements of Section 68.3. Disallowance of Repair Expenses:The A.O. disallowed Rs. 2,12,112/- out of the total repair expenses claimed, citing a significant increase compared to the previous year without any adverse material. The Tribunal deleted the disallowance, stating that repair expenses can vary yearly and no evidence was provided to show the expenses were bogus or capital in nature.4. Disallowance of Factory Expenses:The A.O. disallowed Rs. 1,52,198/- out of the total factory expenses claimed, citing a significant increase compared to the previous year. The Tribunal deleted the disallowance, noting that the increase in production and sales justified the higher expenses and no evidence was provided to show the expenses were bogus or capital in nature.5. Disallowance of Interest Paid to SIDBI Under Section 43B:The A.O. disallowed Rs. 8,48,715/- as interest on term loans from SIDBI, citing non-payment before the due date of filing the return. The Tribunal remanded the issue back to the A.O. to verify the assessee's claim that the disallowable portion of interest was already added back in the computation of income to avoid double disallowance.6. Addition of Notional Interest on Advances:The A.O. added Rs. 21,533/- as notional interest on advances given by the assessee, citing the absence of details and purpose of the advances. The Tribunal deleted the addition, referring to the judgment of the Hon'ble Gauhati High Court in the case of B & A Plantations and Industries Ltd., which states that notional interest cannot be added if there is no finding that the loan was granted on interest or interest was actually collected.7. Disallowance of Bad Debts and Advances Written Off:The A.O. disallowed Rs. 5,95,768/- as bad debts written off and Rs. 59,080/- as advances written off, citing the failure to explain the nature of advances. The Tribunal allowed the claim for bad debts, referring to the judgment of the Hon'ble Supreme Court in the case of TRF Ltd., which states that bad debts written off in the books are allowable. However, the Tribunal upheld the disallowance of advances written off, noting the assessee's failure to explain the nature of the advances.Conclusion:The appeals for the assessment years 2002-03 and 2004-05 were partly allowed, while the appeals for the assessment years 2003-04 and 2005-06 were fully allowed. The Tribunal provided detailed reasoning for each issue, emphasizing the need for proper documentation and adherence to legal precedents.