TaxTMI 
TaxTMI 
2023 (1) TMI 163
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts and in the circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs.4,65,031/- made by the AO u/s 36(1)(iii)." 2. When the case was called for hearing, none appeared on behalf of assessee. On perusal of records, it is found that during earlier hearing also, nobody appeared on behalf of assessee, hence the notice of hearing was served through the office of Ld. DR. Vide letter F. No. CIT(DR)/ITAT/ IND/2022-13 dated 21.11.2022, the office of DR has filed a service-report accompanied by a copy of the notice of hearing duly acknowledged by sign and seal of the director of assessee-company wherein the hearing fixed on today i.e. 12.12.2022 is duly notified to assessee. Still when the matter was called for hearing today, none appeared on behalf of assessee. But the Ld. DR representing the revenue was ready to argue. In view of this, the matter is being decided after hearing the Ld. DR and considering the material held on record ex-parte qua the assessee. Ground No. 1: 3. This ground relates to the disallowance of Rs. 1,30,729/- u/s 14A read with Rule 8D on account of expenses incurred for earning exempted income. 4. During assessment-proceeding, the Ld. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce was required in the situation and that he agreed with the disallowance made by Ld. AO. Being so, we hardly need to mention anything further, suffice it to say that we too agree that the impugned expenses are incurred for normal functioning of the company and therefore incurred for entire business consisting of agricultural as well as nonagricultural activities. Therefore, the Ld. AO is quite justified in making 40% disallowance while framing assessment. Upholding the same, we dismiss the Ground No. 1. Ground No. 2: 7. This ground relates to the addition of Rs. 3,75,00,000/- made by AO on account of bogus cash credit u/s 68. 8. During assessment-proceeding, Ld. AO observed that the assessee had shown a short-term borrowing of Rs. 3,75,00,000/-. When the Ld. AO /confronted the assessee about the nature and source of this borrowing, the assessee submitted that it had received an advance / security deposit from M/s Rajat Consumers and Services Private Limited ["RCSPL"] under an agreement of land to be used for herbal purpose. The assessee further submitted an unregistered agreement dated 07.11.2012 entered with RCSPL executed on a stamp-paper of Rs. 100/-. The terms of agreement....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntity by responding to the notices issued u/s 133(6) as also summon issued u/s 131 of the DDIT Investigation Kolkata. Therefore, addition of Rs.3,75,00,000/- is being made to the total income of the assessee on account of credit from unexplained sources for which genuineness is not established. Penalty proceedings under section 271(1)(c) are being initiated for concealing the particulars of income and furnishing inaccurate particulars of income." 9. During appellate proceeding, Ld. CIT(A), however, deleted the addition by observing and holding thus: "10. Ground No. 4:- Through this ground of appeal the appellant has challenged the addition of Rs. 3,75,00,000/- on account bogus cash credit. 10.1 The Appellant has entered into a JV Agreement with Rajat Consumers and Services Private Limited ('RCSPL'). The said agreement was duly submitted during the course of assessment proceedings. As per the terms of the agreement, the Appellant was eligible to receive an advance of Rs. 8 crores, which was to be adjusted against the profits arising in the future years from the agricultural activities, envisaged as per the terms of the agreement. The advance of Rs. 3.75 crores h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tisfactory. In other words, the said section applies to instances of "unexplained" credits. In the present case, the action of the AO in invoking the provisions of section 68 merely because the notices were returned unserved / unattended, without considering the other documentary evidence is unjustifiable. The A.O. has not brought on record any evidence to refute the documentary evidence submitted by the appellant. The entire basis for invoking the provisions of section 68 of the IT Act by the learned A.O. is on the fact that notices issued under the IT Act were not served / not attended to. No cogent reason has been stated in the impugned order which undermines the conclusive evidence submitted to corroborate the genuineness of the transaction undertaken such as JV agreement, confirmation from party, income-tax return and financial statements and the same has been rejected on capricious and arbitrary grounds. Further, the opinion of the AO as stated in the impugned order is not based on proper appreciation of material and other circumstances available on record. In this regard, reliance is placed on the decision of the Hon'ble Supreme Court in the case of Commissioner....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ence of the Appellant as sufficient to discharge their preliminary onus and in that process further noted that there was no further evidence to the contrary. In the absence of any such evidence the contentions of the Appellant stood proved."(Emphasis Supplied) The Hon'ble Allahbad High Court in the case of Commissioner of Incometa v. Avant Grade Carpets Ltd. (2015 20 Taxman 165) wherein after considering the considering balance sheet of lender as well as confirmatory certificates in respect of advances given to assessee, the additions made the AO under the provisions of section 68 of the IT Act, were deleted. The relevant extract of the judgment is reproduced below for your ready reference: "On perusing the records, it appears that the finding that the assessee was rerouting its own funds was based on surmise. The CIT (A) had the benefit of considering the balance sheet of the lender as well as confirmatory certificates in respect of the advances which the lender in tum had received. There was no material to establish that the assessee was engaged in a transaction for routing its own funds. The view which has been taken by the Tribunal is a possible view to take and there....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n objective considerations but by way of summary rejection. In our view, Appellant having given reasonably plausible explanations, which has not been found to be wrong or unsatisfactory on any objective consideration, we hold that cash credit in question cannot be added as unexplained cash credit under section 68 of the Act. Accordingly, this ground of Appellant is allowed."(Emphasis Supplied) The AO has observed that the creditworthiness of the party, which has advanced the sum, has not been proved / substantiated by the Appellant. The balance sheet of RCSPL has been duly filed during the course of assessment proceedings. On a perusal of the same, it is amply clear that the party advancing the money is a fiscally sound company, having reserves amounting to Rs. 49,52,26,086/- and revenue for the FY 2012-13 amounting to Rs. 43,65,438/- and as such, it cannot be said that the company has not proved the creditworthiness. In this regard, reliance is placed on the decision of the Hon'ble Delhi High Court in the case of Goodview Trading (P.) Ltd. [2017] 77 taxmann.com 204. In the instant case, the High Court has decided the issue of section 68 in favour of the assessee, where t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not be negated merely because creditor / share applicant had not appeared before the Assessing Officer. The relevant extract of the judgment is reproduced below for your honour's ready reference: "In this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the Income-tax Act. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Shares Application Forms, Share Transfer Register etc., it would constitute acceptable proof or acceptable explanation by the assessee; (5) the Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng 389 acre land which is substantial amount of land. The RCSPL company is engaged in the investment in the property as the same has been mentioned by the A.O. in the assessment order dated 26.02.2016. Therefore, it cannot be said that the investor i.e. RCSPL is not engaged in any business activity. The A.O. also in the assessment order confirmed that amount has been received through RTGS. Strictly speaking, both i.e. appellant and RCSPL has entered into the business agreement through joint venture. The agreement is a written agreement. The agreement is a written agreement. The appellant is in receipt of amount as a business transaction. The appellant has not taken the loan from RCSPL. The appellant has not borrowed the fund from RCSPL but has entered into the business agreement and it is falling within the measure of commercial expediency. Both the parties has entered into the joint venture to carry out the business. The appellant is having substantial amount of land and RCSPL was having sufficient fund for investment. Since, in the case of RCSPL, the order has been passed uls 143(3) of the Act by the ITO, therefore, the identity cannot be doubted and RCSPL has transferred the fun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the conclusive evidence submitted to corroborate the genuiness of the transaction undertaken such as JV agreement, confirmation from party, income-tax return and financial statements and the same has been rejected on capricious and arbitrary grounds." Here the Ld. CIT(A) has mentioned that the assessee has filed "A/c confirmation of RCSPL" but this fact is no coming from assessment-order. Furthermore, at another place in Para No. 10.6 of his order, the Ld. CIT(A) has mentioned "Further, to understand the issue of advance given by RCSPL has not been challenged by the Assessing Officer during the course of assessment proceedings RCSPL. The Assessing Officer of RCSPL in the assessment order mentioned that RCSPL is engaged in the investment in the property. The assessment order u/s 143(3) has been passed on 26.02.2016, the A.O. of RCSPL stated that the appellant was having investment as on 01.04.2012 and 31.03.2013 at Rs. 50,05,12,5731- and Rs. 38,58,83,373/-." As against this, the Ld. AO has mentioned "M/s Rajat Consumers & Services P Ltd. Kolkata has e-filed its ITR on 30.03.2015. Said company has shown income of Rs. 30,521/- for the AY 2013-14. As per balance sheet as on 31.03.2013....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1 were issued to M/s Seven Star Realcon Pvt. Ltd. and M/s. Sangam Associates. However, compliance of the summons was not done on the date of hearing 30.03.2016. Therefore, purpose of advancing loan above company/firm is not established. In view of this interest expenses claimed by the assessee amounting to Rs.4,65,031/- is being disallowed under section 36(1)(iii) of the Act and addition of Rs.4,65,031/- is made to the total income of the assessee." 14. Ld. CIT(A) has deleted the disallowance by observing and holding thus: "11. Ground No. 5:- Through this ground of appeal the appellant has challenged the disallowance of Rs. 4,65,031/-. The A.O. made the addition on account of disallowance of interest on notional basis. The appellant has given the loan and advance to the persons from own fund and interest free fund. It is accepted principle that if there is interest free fund available to the appellant sufficient to meet its investment and at the same time the appellant raised the loan, it can be presumed that the investment is from the interest free fund available. It is not the case that the appellant has diverted interest bearing borrowed funds for investment not earning inco....