TaxTMI 
TaxTMI 
2019 (12) TMI 1550
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....the following month of hearing, which is against the principle of due natural justice. 3. That the Ld' CIT (A), Ghaziabad and the Ld' Dy. Commissioner of income Tax, Circle - 1, Ghaziabad have erred in law and on facts in making the addition of Rs. 1,15,00,000/- u/s 68 of Income Tax Act, 1961 in share capital only by making a reference of RBI Inspection Report, despite and ignoring the facts that the assessee had submitted all the evidence to prove their credit worthiness. After providing all the related documents the Ld' Assessing Officer neither raised any query for the same nor objected on any submitted documents. It is also worthwhile to mention here that the RBI Inspector had no role to justify the credit worthiness of the shareholder. They have only to give the report on financial discipline of the Bank according to rules and regulations of the RBI. 4. That the learned Dy. Commissioner of Income Tax, Circle - 1, Ghaziabad has erred in law and on facts in making the addition of Rs. 29,50,000/- u/s 68 of income Tax Act, 1961 in share capital made by three companies despite and ignoring the facts that the assessee had submitted all the evidence to p....
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....Tribunal ("ITAT", for short) in connection with the present appeal. In the absence of any Authorization from the assessee's side, the letter seeking adjournment lacks legitimacy. Moreover, as nobody was present at the time of hearing before us from assessee's side, we had no assistance at the time of hearing, in fully understanding and in obtaining clarity regarding reason stated for seeking adjournment, vaguely worded as "...some personal reason". In cumulative consideration of these facts and circumstances, we proceed to decide this appeal in accordance with Rule 24 of Income Tax (Appellate Tribunal) Rules, 1963. (C) Vide Assessment Order passed under Section 143(3) of the I.T. Act, income of the assessee was assessed at Rs. 5,53,11,095/- as against returned income of Rs. 1,90,65,466/-. The relevant portion of the Assessment Order is reproduced as under: "3. The assessee, Mahamedha Urban Co-operative Bank Ltd. is a Co-operative Bank which has been registered under the Co-operative Societies Act, 1965 and possess license for functioning as Bank from RBI and doing the following activities. Accepting the deposits from the members/public, Granting the secured and unsecure....
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....the paragraph is being reproduced below:- Paid-Up Share Capital 2.1The paid-up share capital (at book value) of the bank stood at Rs. 535.65 lakh as on the date of present inspection, position an increase of Rs. 126.76 lack (31.00%) from Rs. 408.89 lakh since the date of last inspection, i.e. March 31, 2011. The bank had raised Rs. 303.43 lakh of fresh share money during the year under review. During the yer 34 members contributed more than Rs. 1.00 lakh each. The major individual contributors during the year included Sunita Bhati, wife of Raj Singh Bhati, Chairman of the bank (Rs. 45.00 Lakh) ; Anita Bhati, Director (Rs. 35.00 Lakh); Raj Singh Bhati, Chairman (Rs. 30.00 Lakh); Udaiveer Singh, Director (Rs. 15.00 Lakh) etc. The source of the contribution was not ascertainable. The bank was charging 10% share money from the borrower as against the norm of 2.5% & 5% from the secured and unsecured borrowers respectively. The bank had not prepared the share certificates of the members ice February 11,2007, further, 47 Share certificates issued during January 2, 2002 and April 5, 2002 had not been handed over / dispatched to the members. Share certificate bearing numbe....
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....ding of the RBI report along ;with other serious diversion / book fudging instances ;which have also been noted by the RBI investigating team clearly establishes, on the basis of factual audit / investigation of the working of the Bank, that the above mentioned amount of Rs. 1530.55 lacs has been diverted which if interpreted with respect to the provision of the Income-tax Act, 1961, renders the cost of obtaining these funds of Rs. 1530.55 Lacs as nor - business expenditure and hence should be disallowed U/s 37 of the Income Tax Act, 1961. The Bank has deposits of Rs. 138,06,37,294,7/- during the year and direct the indirect expenses on these deposits in Rs. 19,60,08,132/-. If we take this proportion, the cost of diverted fund of Rs. 15,30,55,000/- comes to Rs. 2,17,95,628,5/-. You are requested to show-cause why this proportionate cost of fund should not be disallowed for being an expenses not related to business. (C.1) The assessee filed appeal before the Ld. CIT(A). Vide impugned appellate order dated 31.03.2017, the Ld. CIT(A) dismissed the assessee's appeal. The relevant portion of the order of the Ld. CIT(A) is reproduced as under: "3. Aggrieved by the or....
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....That kindly stay the demand during the pendency of the appeal. It is 'therefore., prayed, that the above addition may kindly be deleted and the appeal of the & appellant assessee may be allowed. 4. Appellant had earlier vide letter dt. 17.02.2015 requested for early fixation of the case. However, this appeal was fixed for hearing on number of times, the details of which are given below, but no compliance was made to any of the notices issued. All these notices were sent to the appellant through Speed Post on the address given in the appeal petition i.e. Form No. 35: SI. No. Date of notice Date fixed for hearing Remark 1. 06.04.2016 25.04.2016 None Attended 2. 27.04.2016 05.05.2016 An application filed for adjournment on the ground that counsel is out of station and the case fixed for hearing on 3. 18.05.2016 An application filed for adjournment for time to file written submission and the case fixed for hearing on 09.06.2016 4 17.03.2017 28.03.2017 An application filed for adjournment counsel out of station adjourned to 30.03.2017 5 30.03.2017 not attended 5. From the above it is cl....
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....ppellant failed to discharge the primary onus u/s 68. An addition of Rs. 2,1795,629/- was made by AO after considering the statutory report of RBI. In view of above facts since appellant failed to substantiate maintainability of appellant's claim regarding addition to share capital and incurrence of business, expenses u/s 37 at assessment stage as well as during appellate stage. Thus, the additions made by AO are upheld and accordingly appellant's grounds of appeal are dismissed." (D) This present appeal has been filed by the assessee against the aforesaid impugned appellate order dated 31.03.2017 of the Ld. CIT(A). At the time of hearing, Revenue was represented by Ms. Rakhi Vimal, the learned Senior Departmental Representative (in short 'Ld. Sr. DR'). However, as mentioned earlier, none was present from the assessee's side. In the absence of any representation from assessee's side, at the time of hearing before us, we heard the Ld. Sr. DR. The Ld. Sr. DR relied upon the order of the Assessing Officer and the aforesaid impugned order dated 31.03.2017 of the Ld. CIT(A). After perusal of the order of the AO and the aforesaid impugned order dated 31.03.2017 of the Ld. CIT(A), ....
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.... "With due respect we are submitting the following:- 1. Your notice is based on the inspection report of the RBI Inspectors. In this respect we have to state that:- a. They have to inspect at the Bank whether the norms of RBI is adhering or not. b. Whether the proper records/registers are being maintained properly or not according to guidelines of the RBI and other regularity authorities. c. Whether proper classifications of Assets (Granted Loans) has been done according to IRAC norms. d. They have to verify only that whether share capital received by the Bank is under RBI norms or not. e. They have only to verify the nature of expenses incurred whether they are under the budget or not or there is abnormal variance. f. Whether proper financial ratios as prescribed by the RBI are adhering or not. g. Whether the bank invested its fund in approved securities or not. The copy of B.R. Act, 1949 u/s 35 of the R.B.I. Act, 1949 is enclosed herewith as annexure-I for your kind perusal. 2. We have already given the source of funds of the following share holders:- a. Mrs. Sunita Bhati b. Mrs. Anita Bhati c. Shri Raj Si....
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....e Bank has divergence in classification of the Assets not diversion of the fund. They only reported that the Bank has not properly classified the Loan Assets of Rs. 961.04 Lacs according to RBI IRAC Norms and a total provision for Bad and Doubtful Debts Reserve of Rs. 569.51 Lacs on the above said amount of Rs. 961.04 Lacs has to be made to reduce the profits of the Bank. They had also stated at the Bank is showing > overstated profit Rs. 569 51 lacs of provision of BDDR was part of Rs. 961 04 Lacs of loans and advances to which has be declared NPA craig to the new the Bank hes made. Stóri previsions for BDDR to milated the profit, as sme, Bank has booked interest on the above loan accounts of Rs. 961.04 Lacs and not make the provision of BDDR by Rs. 569.51 Lacs No where the RBI Inspectors mentioned at the report that the Books of Account maintained by the Bank was not proper, so questioning of disallowance of expenditure 2.17 crs could not be arised. All the expenses incurred by the Bank were business related and should be allowed." Document 4 The reply of Ld. AR was carefully considered but does not carry any force for following reasons....
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.... of below taxable limit, for example the copies ITR for A.Y. 2006-07 and 2007-08 were submitted which showed income of Rs.1,50,000 and Rs.1,51,400 respectively. The creditworthiness of the persons of such low means is not established. ii. In the case of Pushpanjali Buildwell Pvt. Ltd.:- No evidence of creditworthiness of this alleged investor was produced and hence the investment can not be treated as genuine. The amount of alleged investment during the year is Rs.4,80,000/-. R. Document 5 in the case of Gain Infrastructure Py: LidThis company has allegedly invested an amounte of Rs.19,20,000/- during the year but no evidence of genuineness including that of creditworthiness was furnished and hence this amount of investment is also liable to be added back U/s 68 of the L.T. Act, 1961. As per reasons discussed above at point 8.1 8.2 and 8.3, the amount of Rs.29,50,000/- is being added in the income of assessee for the AY: 2012-13 U/s 68 of the I.T. Act, 1961. Initiate penalty proceedings separately Us 271(11) for furnishing inaccurate particulars. (Addition: 29,50,000/-) 9. The assessess's reply regarding query no. 2 of the show caus....