TaxTMI 
TaxTMI 
2018 (12) TMI 1684
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....n' shown from Basant Marketing Pvt. Ltd. amounting 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." ....
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....formed by Shri Arun Dalmia and Shri Harsh Dalmia, M/s. Basant Marketing Pvt. Ltd. was 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 th....
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.....3.3 In reaching the above decision, I had relied upon the following judgements of various courts including jurisdictional 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 tha....
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....tworthiness of each shareholder and. therefore, no addition could be made under section 68. viii. CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78 /25 Taxman 80F (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 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 part....
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....lead to any inference regarding the non-genuine of 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 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 co....
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....several creditors outstanding since long: M/s. Himachal Futuristic Communications Ltd. (Rs. 1,50,00,000/-, M/s. Butterfly Properties Pvt. Ltd. (BPPL) (Rs. 65,000/-), M/s. Indigo Edutainment Pvt. Ltd. (Rs. 9,00,000), Ms. Database Software Technology Pvt. 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/....
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....tra Infotech) which was carry forwarded to the subsequent A.Y. 2007-08 wherein the assessment order was passed u/s 143(3) of the Act. This controversy has been adjudicated by the CIT(A) in the appeal of the assessee relevant to the A.Y. 2007-08. The credit in sum of Rs. 1.50 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 in....
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.... basis of investment to earn the exempt income in view of the provision u/s 14A r.w. Rule 8D of the Act. The AO raised the addition in sum of Rs. 10,000/- on the basis of the decision M/s. Godrej Boyce Ltd. Vs. DCIT, 328 ITR 81 (Bom). It is not in dispute that in the relevant assessment year, 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 ....
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....y exempt income so no disallowance u/s 14A of the Act can be made. Only investment nowhere require the application of the provision u/s 14 A read with rule 8D.The facts are not distinguishable at this stage also. In view of the said circumstances, we are of the view that the CIT(A) has rightly deleted the addition in sum 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 ....
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....The AO specifically asked for explanation of nature of transactions with HFCL. However, according to the assessing officer, the appellant failed to do so and also did not file any confirmations for any of the above four parties. He treated the amounts as "unapproved" on the grounds that a. No detailed note on transactions was furnished nor any confirmations filed, 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 ....
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....he sum so credited may be charged to Income-tax as the income of the assessee of that previous year. The expression 'the Assessee offers no explanation' means where the Assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the Assessee Accordingly, in order to discharge this burden, Assessee is required to prove the (a) Identity of 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 ....
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....y CIT v. Dolphins Marbles (P.) Ltd. [2011] 129 ITD 163/ 10 taxmann.com 75 (Jab.){TM), Bhartt Syntex Ltd. v. Dy. CIT 52 DTR 73 (Jp.): Assessee-company filed letters of the share applicant companies wrote to the ACIT confirming that they had applied for shares in the assessee-company, giving details of draft, copies of resolutions passed by BOD of applicant-companies besides their bank statement/copies of acknowledgement of returns, certificates and balance sheets of the applicant-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 whethe....
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....explanation as to the said entries, he would be entitled to regard them as representing the undisclosed income of the assessee When these credit entries stand in the name of the assessee himself, the burden is undoubtedly on him to prove satisfactorily the nature and source of these entries and to show that they do not constitute a part of his business income liable to tax When, r, entries stand, riot in the assessee's own name, but in the name of third parties, there has been some divergence of opinion expressed as to the Question 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 cap....
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.... The concept of cessation in section 41(1) implies that liability of the assessee has ceased to exist in the year under consideration, either by operation of law, or by mutual contract between the parties Operation of law would indicate that liability has become unenforceable at law i.e., the limitation prescribed for recovery of the dues by the creditor has expired or there is a court decree or order finally against the creditor thereby he loses his right to recover the money from the debtor i.e , the assessee. Thus it is either expiry of limitation or a decree of a court that would 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 happe....
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....s the limitation of time is not a determining factor in the matter relating to remission or cessation of liability and even in the case of time barred debt which, the creditors would not be able to recover, by enforcing his right in the court, his right as such will not come to an end and, therefore, liability will not cease to exist. Cessation would take place if not only the liability is barred by limitation but also assesses expresses aft unequivocal intention not to own the liability even when or by operation of taw or through a contract between the parties or by discharge of the debt. debtors making 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....
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....A) has decided the matter of controversy 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.2 17. Under this issue the revenue has challenged the deletion of addition of Rs. 20,000/- on account of share application money. The said amount was paid by M/s. Goldman Securities Ltd. priors to 2003 and thereafter shares were allotted on 01.04.2010. Requisite information in Form 2 was filed before ROC. Relevant documents were also produced on record. The AO raised the addition merely on the 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 rec....
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....dispute that in the relevant assessment year, the assessee did not earn any exempt income. The finding of the CIT(A) on this issue 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 income- which does not fo....
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....f section 14A read with rule 8D. 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. ITA. NO.1500/M/2017 21. 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. 2009-10. 22. 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. 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 narrat....
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....e been considered and decided by me in appellant's appeals for AYs 200607 to 2008-09. The nature of transactions, the evidences submitted and the observations of the assessing officer in remand report were similar to those in the instant appeal. In my order for AY 2006-07, I have examined in detail applicability of section 68 on similar facts and circumstances and relied on several case laws for arriving at a decision. In my appellate order for AY 2007-08. I had observed; "in the instant case, not only did the appellant discharge its onus of establishing identity and creditworthiness of creditors and genuineness of transactions, the assessing officer has admitted that ail the balances were very old. It is settled taw that such old balances 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 controvers....
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....on (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 expenditure incurred in relation to income which not form part of the total income under the Act, that he can proceed to make a determination under the Rules;" 5.6.4 In Union Bank of India v. ACIT, ITA. No. 5347/M/2007, Hon'ble ITAT following the decision in the case of Wimco Seedling Ltd. v. DCIT 107 ITD 267 Delhi TM, held that only expenditure 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 ex....
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....wance U/S.14A of the IT Act, 1961 has to be computed as per Rule 8D of the I.T. Rules 1962 as held in the order of the Hon'ble High Court in the case of M/s Godrej & Boyce Manufacturing Co. Ltd. 5. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 6. The appellant craves have to amend or alter any ground or add a new ground which may be necessary." 30. The facts of the present case are quite similar to the facts of the case narrated above while deciding the appeal bearing ITA. No. 1498/M/2017, therefore, there is no need to repeat the same. However the figure is different. ISSUE NO.1 31. Under this issue the revenue has challenged the deletion of the addition of Rs. 10,00,00,000/- on account of unsecured loans u/s 68 of the I.T. 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 t....
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....ground relates to addition of Rs. 15,20,700/- as unexplained credit The Assessing Officer has discussed this issue on page 3-4 of his order. He observed that during the year, there is augmentation of credit balance by Rs. 30,000/-in respect of M/s Basant Marketing Private Limited (BMPL) and list of sundry creditors includes Rs. 14,90,700/- in Ihe name of M/s Consultshah Financial Services Private Limited (CFSPL). The Assessing Officer has dismissed explanation and evidences submitted by the appellant vide fetter dated 30/03/2014, "Having regard to assessee's indulgence in scrupulous activities in the light of findings of investigating agencies". 5.3.2 It is noted that the appellant had filed confirmation of M/s BMPL and CFSPL, audit reports, audited balance sheets, JTR etc. had discharged initial onus to establish identity, creditworthiness and genuineness 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. ....
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....ule 8D of the Act. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record.:- "5.5.1 This relates to disallowance of Rs. 4,50,537/- u/s 14A Rule 8D. The AO has discussed this at para iv./pg.5-6 of his order. He observed that the appellant has made long term investments in shares and during the year it has earned dividend of Rs. 994,000/- claimed as exempt. He has rejected submissions of the appellant and applied Rule 8D(2)(iii) to disallow 0.5% of average investments and inventory. 5.5.2 It is noted that the appellant is in the business of share trading and holds shares as stock in trade. Further, during the year, the appellant has received the entire divined on shares of just one company. Hon'ble Bombay High Court has settled the issue as regards dividend earned from shares kept as stock in trade in CIT V India Advantage Securities 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 ....
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....n the Assessing Officer is riot satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure having been incurred in relation to exempt income, that the mandate of rule 8D will operate in the instant case, the authorities below have directly gone to the second stage of computing disallowance under section 14A as per rule 8D without rendering any opinion on correctness or otherwise of the assessee's claim in this regard". 5.56 In the decision in the case of Yatish Trading Co. Pvt. Ltd. Vs. ACIT (456/M/2009), the Hon'ble Mumbai Tribunal held that there must be a live nexus between the expenditure incurred and the taxfree income The assessing officer has not established that. 5.5.7 In view of the above decisions and in the facts and circumstances of the case, addition of Rs. 4,50,537/- u/s 14A r.w.r. 8D is deleted. This ground of appeal is allowed." 38. On appraisal of the above mentioned finding, we noticed that the AO nowhere examined the claim of the assessee. Undoubtedly, the assessee earned the dividend income to the tune of Rs. 994,000/-. The assessee nowhere showed the expenditure to earn the exempt in....