TaxTMI 
TaxTMI 
2020 (8) TMI 593
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....pplication money of Rs. 5,53,46,000/- even when the assessee failed to prove creditworthiness of the shareholders / share applicants and the genuineness of the transactions. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in admitting additional evidence in contravention of Rule 46A(1) and deleted the disallowances of bogus depreciation of Rs. 5,38,417/- and bogus expenses of Rs. 58,00,077/-. 3. The brief facts of the case are that the assessee company was incorporated in Financial Year [FY] 1994-95 and belongs to the Revati group of Companies. The main promoters and persons controlling the affairs of various companies were its two directors namely, Shri. Girish Shah and Shri Manish Shah, the later is being the son of the former. A search and seizure action u/s 132 of the I.T.Act, 1961 was conducted on 28/04/1998 on the residential and business premises of Shri. Girish Shah and Shri. Manish Shah. During the course of search, it was alleged that the group had utilized their unaccounted income to bring into the books of accounts of the group companies by public issue of shares. Consequent to search, the cases were taken up for assessment and d....
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.... merits. The assessment order for A.Y. 1995-96 furnished by the A.R in this regard does not support the assessee's claim that the said share capital has been exhaustively verified. In fact, it does not mention anything about the share capital. Further, as regards the receipt of share application money through cheque for which the assessee had relied only on the bank statement, it is pertinent to note that the assessee has failed to discharge its primary onus by not proving - 1) identity of the share holder 2) Credit worthiness of the share holder 3) Genuineness of the transactions. In the special audit report dt. 21/1/2003 received on 28/1/2003, the auditors have observed as under :- Financial Year 1994-95 Sr.No. List of Books Remarks 1. Cash Book No vouchers available 2. Bank Book Vouchers available partly without supportings 3. Journal Register Vouchers available without supportings and narration 4. General Ledger Financial Year 1995-96 1. Cash Book Vouchers available without supportings 2. Bank Book Vouchers available with few having proper supporting 3. Journal Register Vouchers available without supportings and na....
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....6,000 7. Income through stock invest (Relevant for AY 97-98) During the discussion with the AR, it was admitted that since the company had failed to start the project, it decided to deploy its funds in various financial activities. One of such activity was the (mis)use of stock invest instrument. However, the assessee being a company could not legally make use of stock invest instrument. Therefore, it lent money to Shri Girish Shah and his various family members who invested in public issue of various companies through stock invest instrument and earned a total of 30% interest on such transactions made through stock invest instrument. The fund was lent to an individual family who would keep the money in the Fixed Deposit and take the stock invest against. It is important to note here that the stock invest instrument was backed by the guarantee of the fixed deposit. Through this stock invest the individuals earned interest income @ 11% on the amount of fixed deposit backing the stock invest while the assessee company received Issue Marketing Charges @ 19%, another name for interest income, from the company which had brought out the public issue and made use of the funds of the....
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....pital work-in-progress were furnished either before the special auditors or during the course of block assessment. This only suggest that there was no capital expenditure. As regards the revenue expenditure, the special auditors have clearly specified in the special auditor report that bills and vouchers and for some years even books of accounts (as already elaborated in earlier para) were not produced. If one goes by the nature of sources of assessee's income, it is clear that the assessee had no locus standi to claim any expenses as the only activity carried out throughout the block was financing. The assessee had deployed its own sources i.e share capital, in its financial activities, It had not borrowed funds and therefore, there was no interest payable. However, as can be seen that from various balance sheets, for the block assessment years, the assessee has claimed Depreciation, huge administrative and other expenses against the interest and bill discounting income earned. As it has failed to substantiate, justify and furnish supportive evidence towards the said expenditure the same is being disallowed except the directors' remuneration and sitting fees. The asses....
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....High Courts, including the decision of Hon'ble Delhi High court in the case of CIT vs Balaji Wire Pvt.Ltd. ( 2007) 212 CTR 35 (Del.) that in a block assessment undisclosed income is required to be computed on the basis of evidence gathered during the course of search. In this case, nothing incriminating was found and addition was made on the statement of the Vice President and that too after the search and behind the back of the assessee. He, further, noted that even, otherwise, the assessee has furnished all evidences to prove the identity of the shareholders has also, their respective share holdings, genuineness of transactions and creditworthiness of the parties. The Ld. AO has made additions purely on a mechanical manner based on conjunction and surmise only without there being any incriminating evidences were found in the course of search proceedings, and accordingly, deleted additions made by the Ld. AO. The relevant findings of the Ld.CIT(A) are as under:- 5.5 Evidently, no addition was trade in the order in this respect. It may p be stated here that in the course of appeal proceedings, the appellant had contested the addition by claiming that during the search, no incrimi....
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....s furnished go to prove the identity the share holder^ as also their respective shareholders, The Assessing Officer s failed to prove that the shareholding was bogus by any cogent evidence or a result of any enquiry worth the name. The addition has been made purely in mechanical manner based on conjectures and surmises only and no incriminating evidence were found in the course of search proceedings which could prove the conclusion drawn by the AO. Accordingly, the addition being devoid of any merits is, hereby, deleted. 7. As regards, additions towards alleged claim of bogus expenditure and bogus depreciation, the Ld.CIT(A) noted that although, the assessee has not commenced its manufacturing activity during the block period, but the business activity was being carried out and accordingly, the claim of depreciation on office equipments, furniture and fixtures etc., which were evidently put to use appears to be correct. Further, the Ld. AO has disallowed depreciation only on the ground that no manufacturing activity is commenced during the block period, without appreciating the other evidences filed by the assessee. Accordingly, direct the Ld. AO to verify the claim of the assesse....
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.... additions could be made in the block assessment. 11. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. It is an admitted fact that the Ld. AO has failed to link any incriminating material found during the course of search to the additions made towards share capital in the block assessments. It is a well settled proposition of law that in a block assessment undisclosed income is required to be computed on the basis of evidences gathered during course of search. This legal proposition is supported by the decision of Hon'ble Delhi High court in the case of CIT vs Balaji wire Pvt.Ltd. (supra). This proposition is further supported by the decision of Hon'ble Delhi High Court, in the case of CIT vs Ravikanth Jain 250 ITR 141 (Del.) and CIT vs Elegant Homes Pvt.Ltd. 259 ITR 232 (Rajasthan). Further, in case of ACIT vs K.L. Jolly & Sons 18 SOT 501 (Delhi), it was held that once the income or the transactions were already disclosed by the assessee in the regular return of income, no block assessment was permissible, unless some incriminating or adverse material was found during the search and further, there should be....
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....by holding that additions made by the Ld. AO is not supported by any seized material found as a result of search. 14. The Ld. DR submitted that the Ld.CIT(A) has erred in admitting additional evidences in contravention of Rule 46A(1) and deleted the disallowances of bogus depreciation and bogus expenses, even though, the assesse has not filed any evidences and adduced any reasons for claiming huge expenses without there being any manufacturing activity for the period under consideration. 15. The Ld. AR for the assessee, on the other hand strongly supporting order of the Ld.CIT(A) submitted that first of all, additions made by the Ld. AO in block assessment is not supported by any incriminating material found as a result of search and secondly, the said expenditure was disclosed in the regular books of accounts and was subjected to verification from the Ld. AO during regular assessment proceedings u/s 143(3) of the Act. The Ld.CIT(A) after considering relevant facts has rightly deleted additions made by the Ld. AO and his order should be upheld. 16. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. As regard....