TaxTMI 
TaxTMI 
2017 (6) TMI 481
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....tion as called for were provided. During the assessment proceedings assessee was asked to explain the cash credits of Rs. 1,45,77,661/- but assessee failed to provide proper explanation to the satisfaction of Ld.Assessing Officer (in short ''Ld.AO'') in order to prove the identity, genuineness and creditworthiness. As a result addition u/s.68 of the act for Rs. 1,45,77,661/- was made by the Ld.AO. Similarly with regards to the trade deposit assessee could not prove the genuineness of Rs. 3,20,000/- in the name of Shri Preyash M. Zaveri due to which addition u/s.68 of the Act for Rs. 3,20,000/- was made. Disallowance u/s.40(a)(ia) of the Act was made for Rs. 1,37,745/- for not deducting and depositing tax at source on interest paid to non banking finance company. Addition of Rs. 25,500/- was made u/s.40A(2)(b) of the act on the interest paid to the relatives being at the rate of 18% as against 12% paid to other parties. In all, after making addition of Rs. 1,50,60,906/- income was assessed at Rs. 1,51,92,757/- 3. Aggrievedassessee went in appeal before the Ld.CIT(A) against all the addition except disallowance u/s.40A(2)(b) of the Act and got partly succeeded as Ld.CIT confirmed ....
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....acts and in the circumstances of the case, the learned CIT(A) erred in confirming disallowance of interest expenditure of Rs. 1,37,745 u/s.40(a)(ia) of the I.T. Act. 6. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal. 6. Revenue has raised following grounds of appeal: 1a). The Ld.Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition of Rs. 67,87,465/- out of total addition of Rs. 1,45,77,661/- made u/s.68 of the Act on the basis of peak credit in respect of depositors, whose, neither identity nor genuineness of transaction has been proved before Assessing or Appellate Authority. 1b). The Ld.Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has errer in law and facts in admitting additional evidence in violation of Rule 46A of the I.T. Rules and to ignore the fact that Assessee failed to submit the additional evidences before the AO, without any reasonable casue. 2). On the facts and in the circumstances of the case, the Ld.Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad ought to have upheld the order of....
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.... 9.1 Further Ld.counsel relied on the decision of Co-ordinate Bench in the case of S.R. Enterprises V/s. ITO in ITA no.2429/Ahd/1999 pronounced on 20/07/2000 in respect of his contention of applying cumulative peak theory. 10. On the other hand Learned Departmental Representative vehemently argued supporting the order of Ld.AO and also challenged the action of Ld.CIT(A) for admission of additional evidences under Rule 46A of the Income Tax Rule and also against application of peak credit in respect of depositors for which assessee couldn't supply the basic details of identity, genuineness and creditworthiness before the Assessing authority. Ld.DR also submitted that peak credit should not be applied because at the paper book of page 133 and 134 showing working of peak credit of five depositors, there are various entries which are not bank/cash transfer but merely journal entries. 11. We have heard the rival contention and perused the records place before us and gone through the decision referred by Ld.Counsel. Issue raised by both the parties in various grounds as discussed above revolves round the issue of addition u/s.68 of the Act at Rs. 1,45,77,661/- made by the Ld.AO.....
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....- being total peak credit of these five parties. We would like to summarize the figures of the following five parties containing the details of unsecured loan in the name of each parties and the peak credit confirmed by Ld.CIT(A). Sr.No. Name of Depositors Amount of Deposit Peak Credit confirmed 1. M/s.Swastik Corporation Rs.42,94,139/- Rs.18,38,139/- 2. M/s.Shankheswar Corporation Rs.17,39,294/- Rs.2,86,235/- 3. M/s.SunCoporation Rs.21,62,000/- Rs.8,83,294/- 4. M/s.Sun Shine Corporation Rs.32,40,000/- Rs.16,40,000/- 5. M/s.J.P. Corporation Rs.14,61,700/- Rs.14,61,700/- Total Rs.1,28,97,133/- Rs.61,09,368/- 13.1 We further observe that Ld.DR has pleaded about non application of peak theory in the case of assessee which we find not to be correct in the given facts and circumstances because the basic about opening balance of such cash credit, how much cash/fund had come from known and accept sources where the fund has flow are not on record. It is only the negative figure i.e shortage of fund which is unexplained needs to be added to the income of assessee. 13.2 We find it pertinent to re....
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....oans during remand proceedings which were duly verified by A.O. After such verification, the A.O. in the remand report considered only 5 parties from whom appellant stated that loan of Rs. 1,28,97,133/- was received during impunged previous year. (ii) The A.O. in the remand report examined and verify various transactions with these five parties including the transaction which were not reflected in appellant's bank account being Journal entry. It is therefore it will be in the fitness of facts to deal with each such party independently as follows: (a) (i) M/s. J.P. Corporation : As per the details of unsecured loans given in tabular form with opening balance, Addition /repayment and closing balance as filed by appellant with affidavit of Sh. Sanjay Shah, director of the appellant company dt. 09/02/2012 there is NIL opening balance, during the year Rs. 14,61,700/- were received from this party while Rs. 13,17,177/- were repaid leaving the closing balance of Rs. 1,44,523/-. The appellant in the paper book dt. 09/02/12 (page 1 to 103) as per index discussed at para 4B above has not submitted any ledger account, address or PAN for this party. The appellant submitted copy of hi....
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....re is no such entry in appellant's details), (v) On 18/05/2007 vide cheque no. 0756648 an amount of Rs. 79250 got cleared in the name of J. P. Corporation. (vi) On 21/05/2007 vide cheque no. 0756653 an amount of Rs. 1,79,250 got cleared in the name of J. P. Corporation (there is no such entry in appellant's detail) (vii) On 11/07/2007 vide cheque no. 0756786 an amount of Rs. 5,07,000/- got cleared in the name of Shashank and not of J. P. Corporation. (viii) On 25/09/2007 vide cheque no. 197587 an amount of Rs. 2,92,761/- got cleared in the name of Radha swami and not of J. P. Corporation. (a)(v) It is therefore, the appellant neither given PAN, confirmation, address of this party nor submitted correct & credible details. The appellant failed to discharge its onus of establishing identity, genuinity and creditworthiness. It is undisputed that appellant admitted to receive Rs. 14,61,700/- from this party during previous year and failed to substantiate its contention that it received back loan given to this party. In the absence of any possibility of verification from this party, the A.O. is justified in arriving at conclusion to treat Rs. 14,61,700/- as unexpla....
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....ncipal officer of the subscribing companies, the assessee developed cold feet and said it cannot help if those companies did not appear and that it was for the assessing officer to enforce their attendance. It needs to be remembered that the AO did not merely stop with issuing summons; he followed it up with a visit by the inspector who confirmed that no such companies functioned from the addresses furnished by the assessee. Let us see the attitude of the assessee towards discharging its onus in such circumstances. It says that the AO may get the addresses from the ROC's website. We do not think that an assessee can take such an unreasonable attitude towards his onus u/s. 68, little realizing that when the finding is that the subscribing companies have not been found existing at the addresses given by the assessee, it is open to the AO to even hold that the identity of the share-subscribers has not been proved, let alone their creditworthiness and the genuineness of the transactions. It was not open to the assessee, given the facts of this case, to direct the AO to go to the website of the company law department/ROC and search for the addresses of the share-subscribers and then....
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....particulars and details about the resources of the creditor or the share subscriber, but the minimum required of him would be, in our opinion, information that will prima face satisfy the AO about the creditworthiness mere furnishing of the copies of the bank accounts of the subscribers is not sufficient to prove their creditworthiness. There must be, in our opinion, some positive evidence to show the nature and source of the resources of the share subscriber himself and therefore it is necessary for him to come before the AO and confirm his sources from which he subscribed to the capital." (a)(vii) The ratio of this judgment was followed by Delhi High Court in the case of CIT Vs. Titan Securities Ltd. (2013) 215 Taxman 164. It is therefore all the three ingredient viz. identify, genuinity and credit worthiness has to be proved by assessee independently. Here in the case of appellant all the three ingredients are unsubstantiated therefore, the addition so made of Rs. 16,61,700/- is upheld and confirmed. (b)(i) M/s Swastik Corporation and M/s Sun Shine Corporation: The A.O. in the remand report submitted that in reference to sum received of Rs. 42,94,139/- from M/s Swastik Corpor....
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....y appellant of Rs. 5,00,000/- dt. 13/03/08 vide ch. No. 0197861, Rs. 5,00,000/- dt. 17/03/08 vide ch. No. 0197863 and Rs. 6,00,000/- dt. 17/03/08 vide ch. No. 0197862. (iii) The entry of Rs. 4,00,000/- dt. 03/01/08 vide ch. No. 197689 as stated to be payment by appellant is in the name of Shri S. T. Desai. (b)(v) It is therefore, the contra account & confirmation so submitted by appellant are not proper and examination of such party becomes important & relevant. The A.O. in the remand report certified that loan receipt entry through Journal entry was claimed to be payment made by M/s Nandan Trading Co. for which appellant filed contra a/c, PAN, Confirmation and discharged the onus casted and hence not to be disbelieved. There is no discrepancy as far as receipt of loan except one as that of in M/s Swastik Corporation. It is therefore, I am inclined with the contention of A.O. that appellant by not producing these parties. By simply alleging the A.O. to find whereabouts of these parties the appellant has not discharged its burden as casted u/s 68 of the Act in view of ratio of case laws discussed earlier. However, considering both loan extending entries and loan received entries thr....
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....o the extent Rs. 6109368/- are upheld. It is therefore the A.O. is directed to delete the balance addition of Rs. 84,68,293/- (1,45,77,661 - 51,09,368). The appellant gets part relief. This ground is partly allowed. 13.3 In the given case Ld.CIT(A) has discussed at length about the five parties as referred above and comes to the conclusion that as there were no details about journal entries, mismatch of name and assest bank statement entries and those reflected in the book. In this situation Ld.CIT(A) has rightly adopted peak credit theory. We confirm the action of Ld.CIT(A) of applying peak credit theory. 13.4 Further as regards to the issue as to whether the peak credit theory should have been applied to each party individually or cumulatively. We find it pertinent to reproduce findings of Co-ordinate Bench in the case of SR Enterprises V/s ITO(Supra) wherein fact are quite similar so much so that in this case assesse failed to file confirmation before Ld.AO and some of parties stated that cash was not given by them to the assesee. Ld.AO made an addition on each cash credit whereas Tribunal held peak of the credit should be applied. In deciding so Co-ordinate Bench observe ....
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....e Assessing Officer has not been mentioned dates of credits. It is also not available on record as to what was the opening balance with the assessee and how much cash he had from known and accepted sources. In the absence of above material, the addition for unexplained cash could not be worked out. What has been introduced beyond the available cash could only be treated as "unexplained". It is. therefore, necessary to work out the peak of the credits as also details of available funds with the assessee and then see how much unaccounted for cash has been introduced in the books of accounts. The peak of such amounts is to be added; in the hands of the assessee as "deemed income" and in accordance with law. To enable the Assessing Officer to carry out the above exercise, the impugned orders are set aside and matter is restored to the file of Assessing Officer for passing a fresh order after affording reasonable opportunity of being heard to the assessee. The matter is, accordingly, restored to the file of Assessing Officer for passing a fresh order in the light of above observations. 14. Respectfully following the decision of Co-ordinate Bench we observe in the case of assessee als....
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....through Finance Act 2012 is declaratory and curative in nature and should be given retrospective effect from 01/04/2005. Ld.Counsel accordingly requested for setting aside the issue to the file of Ld.AO to examine that the interest payment has been offered as income by respective non banking finance company in their regular return of income and if they have paid due taxes thereon, assessee should not be treated in default u/s.40(a)(ia) of the Act as the Revenue has obtained due taxes on the interest income. 17. On the other hand Ld.DR raised no objection for setting aside to the file of Ld.AO. 18. We have heard the rival contention and perused the record placed before us and gone through the decision relied by Ld.Counsel. From perusal of the record we observe that assessee has not deducted income tax u/s. at source 194A of the Act on the interest paid at Rs. 87,508/- to Cholamandalam Finance and Rs. 50,245/- to GE Money. As a result Ld.AOdisallowed the expenditure of Rs. 1,37,745/- u/s.40(a)(ia) of the Act which was further confirmed by Ld.CIT(A). 18.1 We further observe that Hon'ble Hight Court of Delhi in the case of CIT V/s Ansal Land Mark Township (P) Ltd.(supra) dealt wi....
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....come in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income; And the person furnishes a certificate to this effect from an accountant in such form as may be prescribed." 11. The first proviso to Section 201(1) of the Act has been inserted to benefit the Assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfilment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a)(ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in defau....
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....s we see it, is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40(a)(ia), as they existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it....