TaxTMI 
TaxTMI 
2010 (12) TMI 830
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....CIT(A) has failed to appreciate that in view of confirmations of 15 depositors filed, the source of cash deposits of Rs.17,48,500/- should not have been treated as unexplained. It is therefore, prayed that entire addition of Rs.3,68,579/- should be deleted. 2. The facts of the case are that assessee is an individual serving with M/s Sheth Metal (P) Ltd. as salaried employee. During the course of assessment proceedings the AO called for the bank statement in respect of his account with Federal Bank Ltd., Ashram Road Branch. On its verification he found total deposits aggregating to Rs.17,48,500/-. When asked to explain that it was submitted to the AO that assessee has borrowed a sum of Rs.7.85 lacs from seven different parties as under:- Sl.No. Name of depositor Amount 1. Shri Pankaj A. Parikh Rs.50,000/- 2. Shri Parin K. Jardosh Rs.1,00,000/- 3. Shri Ashish K. Jardosh Rs.1,25,000/- 4. Shri Arunsig B. Yadav Rs.1,00,000/- 5. Shri Rohit Laljibhai Patadia Rs.1,00,000/- 6. M/s Arihant Steel Industries Rs.1,00,000/- 7. Shri Hasmukh H. Brahmbhatt Rs.1,10,000/ It was submitted that assesse....
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....eposited in the bank account was his unaccounted money and that he has regularly withdrawn the money and redeposited the same in the bank. Theory of peak according to the ld. DR pre-supposes that some money was rotated time and again in deposit and withdrawal and was not used elsewhere as expenditure or investment. The onus to prove this is on assessee if he wants to take the benefit of peak. The ld. DR then referred to the bank statement of the assessee in the Paper Book filed by the assessee annexed on pages 6, 7 and 8 and pointed out that there are only cash deposits and no cash withdrawals. Whatever withdrawals are there, they are to yourself and certain numbers are mentioned which show that cheques were issued to the bank marked yourself which further indicated that assessee has purchased drafts by issuing cheques to the bank. Once they are not withdrawals of cash the assessee cannot get the benefit of peak. The ld. DR referred to the decision in the case of CIT vs. Vijay Agricultural Industries (2007) 294 ITR 610 (All) for the proposition peak credit could be added as unexplained cash credit only when there are transactions of deposits and repayment between the depositors and....
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.... and perused the material on record. In our considered view the ld. CIT(A) has not correctly appreciated the concept of peak. The theory of peak can be applied only when assessee admits to have made withdrawals in cash and redeposits the same in the bank account without there being any outflow in any other expenditure or investment. Firstly there should be withdrawal in cash. If there are withdrawal in cash from the bank account then it cannot be accepted that same money could have been deposited in the bank account. The copy of bank account furnished by the assessee annexed at pages 6-8 of the Paper Book show that there was no cash withdrawal by the except through ATM of Rs.10,000/- on 31.8.2006, of Rs.8,000/- on 4.9.2006 and of Rs.15,000/- on 21.12.2006. In all other cases assessee has issued cheques addressing yourself meaning thereby that money has gone to the bank and apparently for purchase of bank drafts for squaring up in the loan. In any case this aspect has not been explained by the ld. AR. For our purpose, the only relevant inference is that assessee did not withdraw any money in cash and, therefore, it cannot be said available to redeposit in the bank account. Secondly ....
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....eak credit be raised. Held, that as the amount of cash credits stood in the names of different persons which all along the assessee had been claiming to be genuine deposits, withdrawals/payments to different persons during the previous years, the assessee was not entitled to claim the benefit of peak credit. Almost similar view was taken by Hon. Allahabad High Court in CIT vs. Neemar Ra, Badlu Ram (1980) 122 ITR 68 (All) wherein assessee admitted that his unaccounted money was used in the business and balance sheet excess of assets over liabilities represented his own money and, therefore, even it was used in different names or in different manner would not make it acceptable by bifurcation and hence it is so that benefit of peak could be given. Hon. High Court in that case held as under:- "The books of account of the assessee-firm for the years 1960-61 to 1963-64, revealed irregularities. The Income-tax Officer included various amounts as income from undisclosed sources for these years. The Appellate Assistant Commissioner upheld the orders of the Income-tax Officer. On further appeal, the Tribunal observed that there was no dispute about figures of d....
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.... assessee that money deposited in the bank account represented his unaccounted money. Secondly, there are no withdrawals in cash from the bank account. Thirdly, there is no evidence of any source of money claimed to have been paid back to the depositors on different dates during the accounting year as per confirmations. Such repayment was shown to have been made in cash and there is no source of money of such repayment. Fourthly, alleged confirmations from the depositors cannot be relied upon because identities of the depositors are not verifiable, they are not available at the given addresses as in several cases, summons could not be served, onus is always on the assessee to produce the depositors to prove his case unless all the necessary ingredients of cash credit as per section 68 are primarily satisfied by the assessee which in this case has not been done. Assessee has to show that money has been transferred through banking channels from the bank account of creditors to the bank account of the assessee, identity of the depositors/creditors is beyond shed of doubt and money has also been repaid or interest has been repaid during the year and also subsequent year and also gone b....
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.... Akshay Bhan, Adv., for the Respondent JUDGEMENT Adarsh Kumar Goel: 1. This order will dispose of I.T.A. Nos.176 to 181 of 2003 as it is stated that all the appeals involve common question of law. 2. I.T.A. No.176 of 2003 has been preferred by the revenue under Section 260-A of the Income Tax Act, 1961 (for short, "the Act") against the order of the Income Tax Appellate Tribunal, Chandigarh dated 18.11.2002 in I.T.A. No.81/2001 proposing to raise following substantial question of law:- "Whether on the facts and circumstances of the case, the Hon'ble ITAT is right in law in upholding the decision of the C.I.T.(A) that interest under sec.234B and 234C cannot be charged in the cases where income of the assessee is computed as per provisions of Section 115JA of the Income Tax Act, 1961?" 2. The Assessing Officer invoked the provisions of Section 115JA and computed tax on the book profit of the assessee. It was also held that the assessee was liable to pay interest under Sections 234B and 234C of the Act. On appeal, the CIT(A) deleted the demand of interest on the ground that under Section 143(1), the Assessing Officer could no....
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....tion saying that all other provisions of the Act shall apply to the MAT Company (Section 115JA(4) and Section 115JB(5)). Similarly, amendments have been made in the relevant Finance Acts providing for payment of advance tax under Sections 115JA and 115JB. So far as interest leviable under Section 234B is concerned, the section is clear that it applies to all companies. The pre-requisite condition for applicability of Section 234B is that assessee is liable to pay tax under Section 208 and the expression "assessed tax" is defined to mean the tax on the total income determined under Section 143(1) or under Section 143(3) as reduced by the amount of tax deducted or collected at source. Thus, there is no exclusion of Section 115J/115JA in the levy of interest under Section 234B. The expression "assessed tax" is defined to mean the tax assessed on regular assessment which means the tax determined on the application of Section 115J/115JA in the regular assessment. 9. The question which remains to be considered is whether the assessee, which is a MAT Company, was not in a position to estimate its profits of the current year prior to the end of the financial year on 31st March. I....
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....ase of Jindal Thermal Power Company Ltd. v. Dy. CIT reported in (2006) 154 TAXMAN 547 distinguished its own decision in case of Kwality Biscuits Ltd. (supra) and held that Section 115JB, with which we are concerned, is a self-contained code pertaining to MAT, which imposed liability for payment of advance tax on MAT companies and, therefore, where such companies defaulted in payment of advance tax in respect of tax payable under Section 115JB, it was liable to pay interest under Sections 234B and 234C of the Act. Thus, it can be concluded that interest under Sections 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable under Section 115JA/115JB. For the aforestated reasons, Circular No.13/2001 dated 9.11.2001 issued by CBDT reported in 252 ITR (St.) 50 has no application. Moreover, in any event, para 2 of that Circular itself indicates that a large number of companies liable to be taxed under MAT provisions of Section 115JB were not making advance tax payments. In the said circular, it has been clarified that Section 115JB is a self-contained code and thus, all companies were liable for payment of advance tax under Section 115JB and consequently pr....
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....en by the learned CIT(A) and restore the action of the Assessing Officer. This ground is allowed. 4. Second ground is against the deletion of disallowance of Administrative expenses admitted to have been incurred for F and O transactions amounting to Rs.4,94,649. The facts apropos this ground are that the assessee debited a sum of Rs.46,48,955 to its Profit and loss account towards administration and general expenses excluding the expenses of Rs.15.68 lakhs incurred on rented property. The assessee's business consisted of share trading, investment and dealing in future and options. In view of the decision taken by him about the loss of Rs.2.04 crores from derivatives as speculation loss, the A.O. opined that expenses relating to such F and O transactions could not be allowed against the income of non speculation business income. Taking the figure of total turnover of the assessee from share trading at Rs.75.50 crores and from F and O transactions at Rs.8.99 crores totaling to Rs.84.49 crores, the AO found out the percentage of turnover of F and O transactions to total turnover at 10.64%. Applying this percentage to the administrative expenses of Rs.46,48,955 he determined....
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....d on some reasonable basis and not on ad hoc basis. In our considered opinion the splitting of expenses on the basis of turnover, in the absence of other reasonable measure suggested by the learned A.R., is reasonable and does not call for any interference. We, therefore, hold that the Assessing Officer was right in determining general administrative expenses as relatable to speculation business at Rs.4,94,649. The impugned order is set aside and this ground of the Revenue is allowed. 7. Last effective ground of the appeal is against the deletion of addition of Rs.1,25,00,000 made to the book profit, being diminution in the value of shares of "RFB Latex Limited". The Assessing Officer called upon the assessee to explain as to why the provision for diminution in the value of investments of Rs.1.25 crores should not be added to the book profit u/s.115JB. The assessee submitted that it made investment in unquoted shares of RFB Latex Limited on 11.08.2000 which was included in the earlier balance sheet under the head 'Investment'. As RFB Latex Limited had discontinued the operation, the assessee filed an application before the Company Law Board alleging that the affairs of th....
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....talks of : "the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities". It was held that clause (c) would be applicable only if the amount is set aside as provision for meeting a liability other than ascertained liability. As the provisions for bad and doubtful debts was made to cover up the probable diminution in the value of asset, that is, debt which was an amount receivable by the assessee and hence an asset, the Hon'ble Apex Court held that such a provision could not be characterized as a provision for liability because even if a debt is not receivable, no liability could be fastened upon the assessee. It was further noted that the debt was the amount receivable by the assessee and not liability payable and hence any provision made towards nonrecoverability of the debt could not be said to be a provision for liability. In the final analysis it was held that clause (c) of Explanation to section 115JA was not attracted and the provisions for doubtful debts could not be added to the net profit. It is vital to note that the Finance (No.2) Act, 2009 inserted clause (g) to Explanation to section 115JA(2) which reads : "the amount ....
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....t and as such no figure of provision was appearing in the liability side. Reference was made to the judgment of the Hon'ble Supreme Court in the case of Vijaya Bank vs. CIT [(2010) 323 ITR 166 (SC)] in which the question for consideration was deductibility of the provision for bad debt u/s.36(1)(vii). He read out the relevant parts of this judgment to show that the Hon'ble Supreme Court has entitled the assessee to deduction u/s.36(1)(vii) by holding that since the provision for bad and doubtful debt was reduced from the value of debtors in the balance sheet it should be construed as writing off of bad debt. It was, therefore, put forth that there was difference in two situations, viz., firstly, in which the assessee debits the amount of doubtful debts to its Profit and loss account and credits the asset account like sundry debtors which would constitute a write off of an actual debt and, secondly, in which the assessee debits provision for doubtful debts to the Profit and loss account and makes a corresponding credit on the liability side of the balance sheet, in which case it would constitute provision for doubtful debts. Drawing analogy from this judgment, the learned A.R. conte....
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....nt, which implies that the amount of net profit as per profit and loss account is after the amount of such provision, then such amount will be added back to the net profit for computing 'book profit' as per Explanation 1 to section 115JB(2). There is no other requirement in the language of the section for the addition or non-addition of the amount of provision for diminution in the value of any asset to the amount of net profit as shown in the profit and loss account, depending on the way in which such provision has been shown in the balance sheet. The reflection of the amount of provision for diminution in the value of investment separately on the liability side of the balance sheet or by way of reduction from the figure of investment on the asset side of balance sheet is totally alien for computing book profit. What is relevant for this purpose is to find out if any provision for diminution in the value of any asset has been debited to the profit and loss account. If it is so debited, the same will automatically stand added to the amount of net profit for working out the amount of book profit. 12. The judgment of the Hon'ble Supreme Court in the case of Vijay Bank (supr....
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....e of an asset before diminution and another lower value of the same asset after diminution. Referring to the meaning of word "diminution" in the Webster's Dictionary and Shorter Oxford English Dictionary, the learned A.R. contended that it represents "the condition of being diminished" or "to make smaller or less". He emphasized on the meaning of word "diminution" as suggesting having some lower value of the asset other than zero as a precondition for the attractability of clause (i) of Explanation 1 to section 115JB. As the assessee created provision in respect of Shares of RFB Latex Limited for Rs.1.25 crores, being the full value of investment itself, he submitted that after reduction of the provision, the amount of investment qua these share came to Nil. It was thus argued that it was not a case of diminution in the value of any asset and hence application of clause (i) of Explanation 1 was ousted. Countering this submission, the learned Departmental Representative contended that the word "zero" has been defined in Concise Oxford Dictionary to mean 'lowest possible value'. He argued that reduction in the value of shares of RFB Latex Limited to zero also amounted to diminution i....
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....r diminution in the value of any asset, the amount of provision for diminution in the value of any asset debited to the profit and loss account before the determination of net profit has necessarily to be added. We, therefore, reject this contention raised on behalf of the assessee. 15. The learned A.R. still attempted to strengthen his case from still another angle by pointing out there are certain amounts, enumerated in clauses (i) to (viii), which are required to be reduced from the net profit as shown in the profit and loss account. He referred to clause (i), as per which the amount withdrawn from any reserve or provision, if credited to the profit and loss account, shall be reduced if the creation of the provision was by way of debit to the profit and loss account. It was argued that here is a case in which provision has been made at 100% of the value of investment. He submitted that when, at a later stage, this amount becomes bad and irrecoverable, the value of investment as well as provision to that extent will be reduced to the extent of Rs.1.25 crores and there will not be any debit or credit to the profit and loss account at that point of time. In his opinion th....