TaxTMI 
TaxTMI 
2018 (12) TMI 1684
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....to Rs. 1,70,37,750/- (Rs. 1,34,03,750/- u/s 28(iv) and Rs. 36,34,000/- u/s 68 of the I.T. Act, 1961. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in deleting the addition of Rs. 1,07,77,000/- made by the AO in respect of unproved creditors in respect of Butterfly Properties Pvt. Ltd., Indigo Edutainment Pvt. Ltd., K.K. fintrade, P. Sharma (Infra Infotech) and Database Software Technology Pvt. Ltd. 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in deleting the addition of Rs,20,00,000/-on account of unproved share application money. 4. Whether on the facts and circumstances of the case and in law, the Ld. the Ld. CIT(A) was right in deleting the addition of Rs,10,000/- u/s 14A of the I.T. Act, 1961 observing that disallowance u/s 14A cannot be made if exempt income has not been earned. 5. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the AO be restored. 6. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 4. The brief facts of the case are that the assessee filed its return of income ....
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.... providing the accommodation entries and the assessee company was one of the beneficiary company. After the receipt of the letter, the notice was given and after getting the reply, the credit from said company in sum of Rs. 1,70,37,750/- was added to the income of the assessee but the CIT(A) has accepted the claim of the assessee, therefore, the revenue has filed the present appeal before us. It is contended that the assessee has failed to prove the identity, credit worthiness and genuineness of the transaction in sum of Rs. 1,70,37,750/- but the CIT(A) has wrongly allowed the claim of the assessee, therefore, the finding of the CIT(A) is wrong against law and fact and is liable to be set aside. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the Ld. CIT(A) in question. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record: - "The AO rejected all explanations filed by the appellant with the observation, "In the light of antecedent of M/s Basant Marketing Pvt Ltd, intimation received from the DCIT Central Circle-XXVIII, Kolkata and report of CBI, the undersigned is fully convinced....
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....l courts i. Supreme Court in case of CIT v P. Mohanakala {2007} 291 ITR 278 / 161 Taxman 169 held That [he expression "assessee offers no explanation" means where the assessee offers no proper, reasonable and acceptable explanation as regards the sum found credited in The books maintained by the assessee. IT further held that the opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material & other attending circumstances available on record The opinion of The AO is required to be formed objectively with reference to the material available on record. Application of is the sine qua non for forming the opinion. ii CIT vs Daulat Ram Rawat Mutt (87 ITR 34ty(SC). It was held that assessee was not required to prove the source of the source. iii. 190 ITR 396 (Bom): It was herd that the assessee having discharged the initial burden, by giving complete name and address of the bankers and confirmation letters, it was for the Income-tax Officer to show that (he explanation rendered by the assessee was not true. Iv CIT v Lovely Exports (P.) Ltd [Appln No. 11993 of 2G07, dated 11-1-2008 I....
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....assessee gave the names and addresses of the creditors. It was in the knowledge of the Revenue that the creditors were income-tax assessee. The revenue apart from issuing notices under section 131 did not pursue the matter further. It did not examine the source of income of the alleged creditors to find out whether they were creditworthy. Therefore, it was held that in these circumstances, assessee could not do any further and it had discharged the burden laid on it. ix. Dy. CIT v. Rohini Builders [2002] 256 ITR 360 /[2003) 127 Taxman 523 (Guj): If the identity of the creditors is proved and the amounts are received by account-payee cheques, the initial burden of proving credit is discharged and the source of credits need not be proved. x, CIT v. Samtet Color Ltd 64 DTR 46 In this decision given by the Delhi High Court, it was held that by bringing on record every possible information regarding the depositors included m the application form which included particulars of applicant/depositor, telephone No, particulars of demand draft/cheque Through which the deposit was made, tax status of applicant and other deposit with the assessee, if any, assessee had discharged the ini....
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.... confirmation letters, it was for the income tax officer to show the explanation rendered by the assessee was not true 190 ITR 396 (Bom). 5.3.4 In view of the above, I find no merit in addition of Rs. 36,34,000/- made u/s 68. As regards addition of the opening credit balance of Rs. 1,34,03,750/- in the name of BMPL, I am in agreement with the contention of the appellant extracted above. I do not find the facts of this case are similar to those in the case of M/s. Solid Containers Ltd., 308 ITR 417 (BOM) relied upon by the assessing officer. In the instant case, there is no waiver or remission of the impugned amount by the creditor, BMPL. Therefore, invoking of section 28(iv) is completely misplaced. Accordingly, this ground of appeal is allowed and addition of Rs. 1,70,37,750/- is deleted." 6. On appraisal of the above mentioned finding, we noticed that the AO has raised the addition in sum of Rs. 1,70,37,750/- on account of non-genuine company of M/s. Basant Marketing Pvt. Ltd. The Commissioner appeals has already held in case of group company concerned M/s. Watermark Systems (India) Pvt. Ltd. for the A.Y. 2008-09 in Appeal No. CIT(A)-8/IT-407/14-15 as genuine company. The fi....
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....vt. Ltd. (Rs. 69,21,000/-), M/s. K.K. Fintrade (Rs. 3,75,500/-) and M/s. P. Sharma (Rs. 25,15,500) Citing the intimation received from DCIT, Kolkata/CBI, the AO concluded that all the entries remain unproved. He added the total amount of outstanding balance against the said party of Rs. 2,57,77,000/- relying on the decision of Hon'ble High Court in M/s. Solid Containers also cited in the previous ground of appeal. 5.4.2 It can be assumed from the order that the assessing officer has made the above addition u/s 2B(iv) of the Act. The rationale for my decision at ground No. 2 above also applies to these additions as there is no remission or waiver of any amount and they are being carried forward in the books of the appellant. Credits appearing in the names of M/s/. HFCL, M/s BPPL, M/s. KX Fintrade and M/s. P Sharma (Intra Infotech) were carried forward to the subsequent assessment year 2007-08 as well where an assessment order u/s 143(3} r.ws 147 of the Act was passed earlier. The addition in respect of these credits has been repeated and the appellant is in appeal for the same addition m AY 2007OB, which is being simultaneously disposed by me. 5.4.3 Based on the submissions ma....
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.... crores belonging to M/s. HFCL was returned by assessee in the A.Y. 2012-13 and in this regard the entry has duly been record in the account of assessee as well as in the account of M/s. BPPL. Remand report also substantiated this fact. The credit with the name of the M/s. Indigo Edutainment Pvt. Ltd. (9,00,000/-) and M/s. Database Software Technology Pvt. Ltd. (Rs. 69,21,000/-) was outstanding and was duly record in the books of account. The identity, credit-worthiness, genuineness has been proved by assessee by furnishing confirmations, PAN numbers etc. and other documents accordingly discussed by the CIT(A) in his order. The claim of the assessee has allowed. The facts are not distinguishable at this stage also. No new evidence has been produced. Taking into account, all the facts and circumstances, we are of the view that the CIT(A) has decided the issue judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue. ISSUE NO.3 9. Issue no. 3 is in connection with the deletion of the addition of Rs. 20,00,000/- on account of unproved share application. No doubt the ....
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...., the assessee did not earn any exempt income. The CIT(A) has deleted the addition on the basis of this fact that the assessee has no exempt income. The finding of the CIT(A) is hereby reproduced for ready reference: - "5.6.1 This ground of appeal relates to disallowance of Rs. 10,000 u/s 14A. The assessing officer has summarily dismissed all explanation offered by the appellant and made the disallowance relying on the decision of Hon'ble Bombay High Court in the case of M/s Godrej Boyce Ltd vs DCIT, 328 ITR 81 (BOM). 5.6.2 During the year under consideration, the appellant has not received any dividend income exempt from tax nor has it claimed any exempt income. The assessing officer has not considered the fads of the case and made the disallowance u/s. 14A in a routine and automatic manner 5.6.3 The Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg Co. Ltd. vs. DCIT (328 ITR 81) (Bom) has held that Rule 6D is not automatic to invoke Rule 8D, The assessing officer should, after considering the accounts of the appellant give a finding that he is not satisfied with the correctness of the claim of the appellant in respect of such expenditure in relation: to....
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....of Rs. 10,000/- in view of the provisions u/s 14A of the Act. This issue has been decided by the CIT(A) judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue. In the result, appeal filed by the revenue is hereby ordered to be dismissed. ITA. NO.1499/M/2017 13. The Revenue has filed the present appeals against the order dated 29.11.2016 passed by the Commissioner of Income Tax (Appeals)-8, Mumbai [hereinafter referred to as the "CIT(A)"] relevant to the A.Y. 2007-08. 14. The Revenue has raised the following grounds: - "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in deleting the addition of Rs. 29,55,500/- made by the AO in respect of unproved creditors. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in deleting the addition of Rs. 20,00,000/- on account of unproved share application money. 3. whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in deleting the addition of Rs. 26,00,000/- being loss on share trading o....
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.... b. Appellant failed to establish that these amounts were really outstanding c. The length of outstanding balance was not established, d. There were adverse reports of ACB/CBI in the case. 7.3.3 In the course of appeal proceedings, it was contended that the information desired by the assessing officer could not be furnished at the time of assessment as the records of the company were under siege of CBI/ACB, the largest amount pertains to HFCL being Rs. 1,50,00,000/- for assessment year 2007-08. The appellant submitted confirmation, ITR and balance sheet of HFCL vide letter dated 24/11/2014. It is noted that the impugned balance is existing from April 2004. This fact has also been recorded by the assessing officer in his reasons for reopening the assessment. 7.3.4 As regards the remaining 3 parties, the appellant submitted Ledger balance for financial year 2006-07 and confirmations from the parties. Two of those balances appeared in books prior to 2003 whereas amount of Rs. 25,15,500/- appears from financial year 2005-06. The appellant filed confirmations of all the four parties Being additional evidence, the details filed were forwarded to the assessing officer for a repor....
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.... Shareholder (b) Genuineness of transaction and (c) Credit worthiness of creditors. 7.3.7 Various courts have discussed the aspects of burden of proof that lies on assessee. Inference can be drawn about the nature of evidence offered, the explaining the credit and the actions of an assessee that would constitute reasonable discharge of that burden of proof Some of those cases are mentioned hereunder. i. Supreme Court in case of CIT v. P. Mohanakala {2007J 291 ITR 278 / 161 Taxman 169 held that the expression "assessee offers no explanation" means where the assessee offers no proper, reasonable and acceptable explanation as regards the sum found credited in the books maintained by the assessee. It further held that the opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material & other attending circumstances available on record. The opinion of the AO is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion. ii. CIT vs Daula RamRawat Mull (87' ITR 349}(SC) It was held that assessee ....
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....licant-companies wherein investment made in the asses see-company was shown, PAN, ROC certificate, it had discharged The onus which lay upon it under section 68 by establishing the identity and creditworthiness of each shareholder and, therefore, no addition could be made under section 63. CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78 /25 Taxman 8QF (SC): In this case assessee gave the names and addresses of the creditors. IT was in the knowledge of the Revenue that the creditors were income-tax assessees. The revenue apart from issuing notices under section 131 did not pursue the matter further. It did not examine the source of income of the alleged creditors to find out whether they were creditworthy. Therefore, it was held that in these circumstances, assessee could not do any further and it had discharged the burden laid on it. ix Dy. CIT v. Rohini Builders [2002] 256 ITR 360 /[20Q3] 127 Taxman 523 (Guj.) If the identity of the creditors is proved and the amounts are received by account-payee cheques, the initiate burden of proving credit is discharged and the source of credits need not be proved. x. CIT v. Samtel Color Ltd. 64 DTR 46: In this decision g....
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....uestion of the burden of proof. The income-tax Officer's rejection not of the explanation of the assesses, but of the explanation regarding the source of income of the depositors, cannot by itself lead to any inference regarding the non-genuine or fictitious character of the entries in the assessee 's books of account." xiii. The assessee having discharged the initial burden, by giving complete name and address of the bankers and confirmation letters, it was for the Income-tax Officer to show that the explanation rendered by the assessee was not true 190 ITR 396 (Bom). 7 3.8 As regards applicability of s. 41(1) is concerned, the caption heading of section 41(1) is 'Profits Chargeable to tax'. In business there are circumstances where a person might have incurred a liability but later on he need not have to pay j| for one or other reason The Income Tax Act brings to tax such liabilities which are no more payable The section brings in to its ambit benefit in cash or in kind obtained by a person by remission or cessation of liability. The only condition is that the person must have obtained a deduction or allowance in his computation of income for the said liabil....
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....ld make the liability ceased to exist. However, a further condition is imposed where limitation is expired. It is that the debtor i.e., the assessee should unequivocally declare his intention not to honor his liability when payment is demanded by the creditor. Further, if there is a contract between the "and the creditor discharges the debtor of the debt either fully or partly then to the extent the debt is discharged by the creditor without payment by the assessee, liability would cease to exist. Thus, there has to be an event for cessation of liability to lake place. However, nothing like that has happened in the case of appellant company during the relevant assessment year and as such liability in respect of such creditors cannot be considered as ceased to exist. 7.3.12 Credit amount outstanding for several years cannot be held as cessation of trading liability on the ground That assessee could not prove genuineness of the transactions, where assessee had acknowledged its (lability successively over several years. For this conclusion, reliance is placed on [he judgment of Delhi High Court in the case of GtT, Delhi-H vs Gen Exports Pvt Ltd. [2013] 35 Taxmann.com 540 and CfT- I....
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....part payment thereof to its creditor. However, there is no such finding by the assessing officer in the case of the assessee and, hence, the liability does not cease to exist. 7.3.16 The facts that the impugned liabilities towards these creditors which were brought forward from earlier years were outstanding and none of these creditors have been written off in the books of accounts are not in dispute. Further the appellant has the intention to make the payment to such creditors is evident from the fact that they are still reflected in the books of accounts. However, the AO had neither disproved the appellant's claim relating to the impugned liability nor discharged his onus to prove that the appellant has obtained the benefit in respect of such trading liability by way of remission or cessation thereof. Merely because the appellant obtained benefit of reduction in earlier years and balance is carried forward in the subsequent year, it would not prove that the trading liabilities of the appellant have become nonexistent Further, when the appellant continues to reflect or record the liabilities as still payable and appellant decided to not to write them off unilaterally, the A....
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....basis of the documents tendered by CBI/ACB investigation. The CIT(A) has after examining the relevant record arrived at this conclusion that the identity has been proved and genuineness of transaction has been proved and creditworthiness is also on record. Applying the same ratio of finding which has applied by the CIT(A) while deciding the issue no. 1, the claim of the assessee has been allowed. No doubt this issue has not been described and discussed but CIT(A) has mentioned the principle which he had already applied while deciding the issue no. 1. The relevant record and remand report etc has been considered. Nothing new evidence came into notice to which it can be assumed that the finding of the CIT(A) is perverse. Finding no distinguishable material to interfere with the finding of CIT(A) we affirm the finding of the CIT(A) on this issue at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue. ISSUE NO.3 18. Under this issue the revenue has challenged the deletion of addition of Rs. 26,00,000/-being loss on share trading on sale of shares. The assessee showed the loss of Rs. 26,00,000/- on account of sale of shares of Tirup....
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....ncome. The assessing officer has not considered the fads of the case and made the disallowance u/s. 14A in a routine and automatic manner 5.6.3 The Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg Co. Ltd. vs. DCIT (328 ITR 81) (Bom) has held that Rule 6D is not automatic to invoke Rule 8D, The assessing officer should, after considering the accounts of the appellant give a finding that he is not satisfied with the correctness of the claim of the appellant in respect of such expenditure in relation: to income- which does not form part of the total income under this Act and such 'satisfaction' must be a objective satisfaction. This is evident from the following' observations of the Hon'ble High Court. "Subsection (2) of Section 14A does not enable the Assessing Officer to apply the method prescribed by Rule BO without determining in the first instance the correctness of the claim of the assessee. having regard to the accounts of the assessee Subsection (2) of Section 14A mandates that it is only when having regard to the accounts of the assessee. the Assessing Officer is not satisfied with the correctness of the claim of the in respect of expenditur....
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..... 1,11,85,000/- made by the AO on account of unproved credits. 2. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) was right in deleting the addition of Rs. 26,409/- u/s 14A of the Act, 1961 observing that disallowance u/s 14A cannot be made if exempt income has not been earned. 3. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the AO be restored." 23. The facts of the present case are quite similar to the facts of the case as narrated above while deciding the appeal above in ITA. No. 1498/M/2017, therefore, there is no need to repeat the same.However, the figure is different. ISSUE NO.1 24. Under this issue the revenue has challenged the deletion of addition of Rs. 1,11,85,000/- made by the AO on account of unproved credits. The Ld. Representative of the revenue has argued that the CIT(A) has wrongly deleted the addition of Rs. 1,11,85,000/-, therefore, the finding of the CIT(A) is not justifiable and is liable to be set aside. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deemed it nec....
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....nces cannot be added u/s 68 for the current year' 7.3.5 Following the reasoning for my earlier decisions on similar grounds, looking into the submissions of the appellant and the remand report of the assessing officer in the instant appeal, I am of the opinion that the above additions deserve to be deleted. These grounds of appeal are allowed." 25. On appraisal of the above said finding, we noticed the matter of controversy has been adjudicated by the CIT(A) on the basis of the finding for the A.Y. 2006-07 to 2008-09 in which it has been established that the identity, genuineness of transaction and creditworthiness of the creditors has been duly proved. Merely the transaction is very old, cannot be the base of the addition. Moreover, the remand report substantiated the claim of the assessee also. The facts are not distinguishable at this stage and finding no justifiable ground to be interfere with at this stage, we decide this issue in favour of Assessee. ISSUE NO.2 26. Under this issue the revenue has challenged the deletion of the addition of Rs. 26,409/- u/s 14A of the I.T. Act, 1961. No exempt income was received by Assessee. The AO raised the addition on the basis....
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....re which has been proved to have been incurred in relation to the earning of tax free income, can be disallowed, and the section cannot be extended to disallow even expenditure which is assumed to have been incurred for the purpose of earning the tax free income. In delite Enterprises (ITA. No. 2983/M/2005 (BOM) wherein it was held that if there is no income earned by the assessee which is claimed to be exempt, no disallowance u/s 14A can be made. 5.6.5 In facts and circumstances of the case, the disallowance u/s 14A cannot be upheld. This ground of appeal is allowed." 27. On appraisal of the above mentioned finding, it is quite clear that the CIT(A) has deleted the addition on the basis of this fact that the assessee did not earn the exempt income in the relevant assessment year and also relied upon the decision of the Hon'ble ITAT Mumbai Bench in case of Union Bank of India Vs. ACIT, ITA. No. 5347/M/2007 and in view of the decision of Bombay High Court in case of Delite Enterprises (ITA.No.2983/M/2005). It is specifically held that the assessee did not earn any exempt income so no disallowance u/s 14A of the Act read with rule 8D can be made. The facts are not distinguishabl....
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.... Act, 1961. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record: - " 5.2.1 This ground relates to addition of Rs. 10 crores on account of share purchase transaction and treating the same as unexplained credit. The AO has discussed this issue at page 3 of his order. He has observed that the appellant had taken the impugned amount as fresh secured loan from M/s. Satya Securities ltd., which is a group company. The appellant filed submission dated 10.03.2014 which has been summarily rejected by the AO on the basis of intimation received from DCIT Central Circle-XXVIII, Kolkata and report of CBI. 5.2.2 It is noted that the appellant had filed confirmation of M/s. Satya Securities ltd. audit report of M/s. Satya Securities Ltd. audited balance sheet, ITR etc. thus, the appellant had discharged initial onus to establish identity, creditworthiness and genuineness in the context of section 68 of the Act. Similar additions in respect of group companies have been made by the AO for assessment years 2006-07 to 2009-10 u/s 68 by relying on investigation being conducted by CBI. Applicability of section 68 such circumstances has been discussed and exa....
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....enuineness in the context of section 68 of the Act. All the facts and circumstances, nature of evidences filed and submissions made are similar to those at ground no. 1 above. Accordingly, addition of Rs. 15,20,700/- is deleted. This ground of appeal is allowed." 34. In fact the credit balance of Rs. 30,000/- in respect of M/s. Basant Marketing P. Ltd. and credit balance in sum of Rs. 14,90,700/- with the name of M/s. Consultshah Financial Services P. Ltd were discussed by the AO as non genuine. The appellant filed the confirmation of M/s. CFSPL, audited report, auditors balance-sheet, ITR etc. The assessee initially discharged the onus, therefore, the finding no application of the provision u/s 68 of the Act, the CIT(A) has deleted the said addition. The facts are not distinguishable at this stage also. Therefore, we found no illegality and infirmity in the order passed by the CIT(A) in question. Accordingly, we decide this issue in favour of the assessee against the revenue ISSUE NO.3 35. Issue no. 3 is in connection with the deletion of the addition of Rs. 10,32,138/- being unproved credit balances in respect of loans & advances given u/s 68 of the Act. The CIT(A) has give....
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....rities Ltd. (ITA. No.1131 of 2013 dated 13042015). This principle has been reiterated m HDFC Bank Ltd vs DC/7; Writ Petition No. 1753 of 2016 dt.25/02/2016- Moreover, the Assessing Officer has also not explained his dissatisfaction with the claim of the appellant that no disallowance u/s 14A is required but has applied R.8D(iii) in a routine and mechanical manner 5.5.3 In Pukhraj Chunilal Bafna v. Dy. CIT [2014] 65 SOT 187/47 taxmann.com 238 (Mum. -Trib.) it was held that the Assessing Officer to trigger rule 3D had not to be satisfied with the correctness of claim of the assessee as regards expenditure in relation to exempt income. Hence, without examining the nature of expenditure disallowed by the assessee or correctness of allowance/disallowance, the Assessing Officer could not invoke rule 3D 52.4 The Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co Ltd. vs. DCIT (328 ITR 81) (Bom) has held that Rule 8D is not automatic, To invoke Rule BD, the AO should, after considering the accounts of the Appellant give a finding that he is not satisfied with the correctness of the claim of the Appellant in respect of such expenditure in relation to Income which does....