TaxTMI 
TaxTMI 
2012 (8) TMI 183
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.... in law and merit of the cash in deleting the disallowance made by the AO of Rs. 78,37,586/- out of total addition of Rs. 81,80,651/- on account of interest payable. 2. On the facts and circumstances of the case the ld. CIT(A) erred in law and merit of the case in deleting the disallowance of interest amounting to Rs. 5,47,596/- made by the AO u/s 40A(2)(b) of the Income-tax Act, 1961. 3. he appellant craves to amend, modify, alter, add or forgo any ground of appeal at any time before or during the hearing of the appeal." I.T.A. No. 2936/D/2011-Assessee [AY 2007-08] "1. The assessee having furnished confirmations and related documents in respect of such persons and trade creditors from whom it has raised loans aggregating to Rs. 8,52,40,000/-, the CIT(A) erred in not accepting the total confirmations filed and further erred in disallowing confirmations aggregating to Rs. 17,00,000/- and the consequential interest of Rs. 18,559/- in respect thereof. 2. That the CIT(A) erred in rejecting confirmations aggregating to Rs. 17 lacs merely because the related parties failed to mention their respective PAN No. with complete disregard to the fact that the assessee could not b....
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....essee submitted as under:- "As regards unsecured loans we enclose statement of unsecured loan account. In respect of unsecured loan from trade deposit and shareholders we enclose confirmation received." 2.1 On perusal of the details, the AO pointed out that a list showing opening and closing balance in respect of 44 parties was filed whereas confirmations from three parties namely The classic, K.B. Mathur and Meera Mathur were filed from whom no fresh unsecured loans were taken during the year; rather only interest was credited. No confirmation or other document in respect of remaining 41 parties was filed. Since the assessee did not establish genuineness of the credits, the AO again reminded the assessee vide order-sheet entry dated 23.11.2009 and the case was adjourned to 30th November, 2009. Despite seeking further adjournment, the assessee did not establish genuineness of the creditors even until 14th December, 2009 ,when the assessee merely stated as under:- "1. Detailed statement of unsecured loans is enclosed. As regards loans received from the following person their confirmations are enclosed: Mrs. Roma Khanna (Rs. 25,43,362), Mrs. Neera Sehgal (Rs. 20 lacs). The C....
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....00 5,00,000 2,219 21 Tags Global 08.01.07 5,00,000 5,00,000 6,740 22 Amit Khanna 05.09.06 10,00,000 10,00,000 90,205 9,57,40,000 81,80,651 2.3 Besides, the AO disallowed interest of Rs. 81,80,651/- in relation to the aforesaid creditors. 3. On appeal, the learned CIT(A) reduced the addition to Rs. 17 lacs in the following terms: "5.2 At the appellate stage the appellant moved an application under Rule 46A and furnished the confirmation from 16 persons out of the 22 persons on account of whom addition were made as 'unexplained cash credit'. These 16 person are mentioned here under: S.No Name Nature Total Amt. Total interest Remarks 1 Sh.A.P. Sehgal Unsecured loan 20,000,000 22,04,110 Confirmation attached 2 Sh. Amit Mathur Unsecured loan 25,00,000 1,85,188 Confirmation attached 3 Anjum Unsecured loan 2,90,000 14,808 Confirmation attached 4 Anshul Kumar Unsecured loan 2,00,000 18,959 Confirmation attached 5 Arvind Kr. HUF Un....
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....confirmation filed. Further, at this stage also, the assessee has submitted that they have sent letter for confirmation and the same is still awaited which shows that the assessee is not able to obtain the confirmation from the persons from whom unsecured loans were taken. This shows doubt in the genuineness in the unsecured loans. In view of this, the addition needs to be sustained. In respect of other additions, the Assessing Officer given detailed finding in the assessment order and therefore, the same also needs to be sustained" 5.4 The submission given by the Assessing Officer has been perused and the contention that had the assessee filed the confirmation during the course of assessment proceedings the genuineness of the same would have been verified is not acceptable for if the assessee could manage all the confirmations during the assessment proceedings there was no necessity of filing them as additional evidence under Rule 46A at the Appellate Stage. Since these confirmations are crucial to the adjudication of the appellant proceedings they are admitted on the ground that it took the appellant sometime to collect the confirmation. 5.5 Moreover, nothing prevented the ....
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....ing the addition of Rs. 8,35,40,000/ on account of unsecured credits besides interest of Rs. 78,37,586/- thereon while the assessee is in appeal before us, in respect of confirmation of addition of Rs. 17,00,000/- and interest of Rs. 18,559/- thereon. The ld. DR while carrying us through the impugned order contended that the assessee did not establish either creditworthiness of the aforesaid creditors or genuineness of the transactions. Even the ld. CIT(A) while reducing the addition did not record any findings on the creditworthiness of the creditors and genuineness of the transactions. While referring to decision in CIT v. Biju Patnaik [1986] 160 ITR 674/26 Taxman 324 (SC), the ld. DR argued that the AO was not confronted with the confirmations filed before the ld. CIT(A). 5. On the other hand, the ld. AR on behalf of the assessee while carrying us through the impugned order and page 18 of the paper book, contended that the assessee filed confirmation of M/s Malhotra Enterprises, reflecting their PAN. Therefore, the ld. CIT(A) was not justified in upholding the addition in respect of amount received from Malhotra Enterprises. 6. We have heard both the parties and gone throu....
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....dentity of the creditor is not enough as held in Shankar Industries v. CIT [1978] 114 ITR 689 (Cal.); C. Kant & Co. v. CIT [1980] 126 ITR 63/[1981] 5 Taxman 64 (Cal.); Prakash Textile Agency v. CIT [1980] 121 ITR 890/4 Taxman 323 (Cal.); Oriental Wire Industries (P.) Ltd. v. CIT [1981] 131 ITR 688 (Cal.); CIT v. United Commercial & Industrial Co. (P.) Ltd. [1991] 187 ITR 596/56 Taxman 304 (Cal.); and CIT v. Korlay Trading Co. Ltd. [1998] 232 ITR 820 (Cal.). Even mere filing of confirmatory letters does not discharge the onus that lies on the assessee as held in Bharati (P.) Ltd. v. CIT [1978] 111 ITR 951 (Cal.); CIT v. W.J. Walker & Co. [1979] 117 ITR 690 (Cal.) and CIT v. United Commercial & Industrial Co. (P) Ltd. [1991] 187 ITR 596/56 Taxman 304 (Cal). Moreover, mere furnishing of the particulars or payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine as concluded in CIT v. Precision Finance Co. (P.) Ltd. [1994] 208 ITR 465/[1995] 82 Taxman 31 (Cal.); Nizam Wool Agency v. CIT [1992] 193 ITR 318/[1991] 59 Taxman 187 and CIT v. United Commercial & Industrial Co. (P.) Ltd. [1991] 187 ITR 596/56 Taxman 304 (Cal.). Hon'ble Apex Court in ....
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....lyzing as to how the creditworthiness of each of the sixteen creditors or genuineness of the transactions with them, is established particularly when despite sufficient opportunity allowed by the AO, the assessee did not even care to submit their confirmations. The impugned order on the issue involved, is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi-judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues/points raised before it. The application of mind to the material facts and the arguments should manifest itself in the order. Hon'ble Delhi High Court in their decision in Vodafone Essar Ltd. v. Dispute Resolution Panel-II [2011] 196 Taxman 423 held that when a quasi judicial authority deals with a lis, it is obligatory on its part to ascribe cogent and germane reasons as the same is the heart and soul of the matter and further, the same also facilitates appreciation when the order is called in question before the superior forum. The requirement of recording of reasons and communication thereof has been read as an integral part of the ....
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....2007-08. 8. Similarly, in the AY 2008-09, the AO disallowed an amount of Rs. 10,64,461/- in terms of provision of section 40A(2)(a) of the Act, considering interest @ 12% as reasonable. 9. On appeal, the learned CIT(A) deleted the disallowance in the AY 2007-08 in the following terms:- "6.3 The submission given by the appellant and the objections of the Assessing Officer have been considered. In order to make a disallowance u/s 40A(2)(b) it is necessary that the Assessing Officer should establish that the benefits given to the related parties are more than the fair market value. If the appellant is making payments to other persons @ 15% then there is no special favour which is being given to the related parties. Further, the Assessing Officer has not been able to establish as to what was the market rate of interest. It is further seen that the appellant has paid an interest of 14.5% to the bank, thus, there is no justification in making a disallowance of Rs. 5,47,596/- u/s 40A(2)(b) the addition of Rs. 5,47,596/- is hereby deleted." 10. Similarly in the AY 2008-09, the ld. CIT(A) deleted the disallowance, holding as under:- "4.3 The submission given by the appellant ....
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....market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to the assessee therefrom. Hon'ble Gujarat High Court observed in Coronation Flour Mills v. Asstt. CIT [2010] 188 Taxman 257 that in relation to the disallowance under the provisions of section 40A(2)(a) of the Act, a plain reading of the provision reveals that where an assessee incurs any expenditure in respect of which payment is required to be made or has been made to any person referred to in clause (b) of section 40A(2) of the Act and the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to (a) fair market value of the goods, services or facilities for which the payment is made; or (b) the legitimate needs of the business of the assessee; or (c) the benefits derived by or accruing to the assessee on receipt of such goods, services or facilities, then the Assessing Officer shall not allow as a deduction so much of the expenditure as is so considered by the Assessing Officer to be excessive or unreasonable. Therefore, it becomes apparent that t....
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....eciation @ 15% and disallowed the excessive claim of Rs. 1,27,558/-. 14. On appeal, the CIT(A) allowed the claim in the following terms: "5.1 The appellant on the other hand has stated that Printer and Scanners are integral part of the computer and therefore claimed depreciation @ 60%. The submission given by the appellant has been considered, printer and scanners are integral part of the computers and the appellant is allowed to claim depreciation @ 60%. Reliance is placed on the following two decisions. ITO v. Samiran Majumdar (208 ITR [AT] 74) (TKol) and ACIT v. Container corporation of India (ITA No 2859 and 36801 De1. l07). 5.2 It is further seen that the appellant has purchased UPS and has claimed depreciation @ 60%, though depreciation on Printers and Scanners is allowable @ 60%. UPS is not an integral part of the computer system as observed by Hon'ble Tribunal in the case of Nestle India Ltd. v. DCIT (ITAT, Del) 111 TTJ 498. Therefore the appellant is entitled to depreciation on computer peripherals except UPS @ 60%.Thus, this ground is decided as above." 15. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. DR s....