TaxTMI 
TaxTMI 
2023 (1) TMI 163
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....lained income u/s 68 of the IT Act. 3. On the facts 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 earnin....
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....ade by him clearly demonstrate that he was of the view that the disallowance 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 en....
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....ssessee company. M/s. Rajat Consumers & Services Pvt. ltd. has failed to prove its identity 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....
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.... (i) cash credits for which assessee offers no explanation about the nature and source thereof or (ii) the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory. 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....
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....ce and the fact that there was no contrary evidence forthcoming from the revenue. The revenue only relied on the prevalent practice of utilising fictitious hundis through bogus persons. It appears to us that the Tribunal accepted the evidence 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 res....
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....or the Assessing Officer to rebut the same on the basis of available record, instead Assessing Officer merely picked up non-filing of confirmations as a tool to discard other material and explanations of the Appellant. Rejection of the explanations of the Appellant is not based on 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 t....
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.... the Hon'ble Delhi Court in the case of Divine Leasing and Finance ([2009] 299 ITR 268). In the instant case, where there were documentary evidences in the form of bank statements, Permanent Account Number, financial statements showing creditworthiness, the High Court has held that the assessee's case would 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 accep....
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....velop the land available with the appellant. The availability of land and sale of agriculture produce has been established by the appellant during the course of assessment proceedings. The A.O. in the assessment order accepted that the appellant is engaged in the agricultural activity and owning the farm land at village chiklod. The appellant is owning 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 expedie....
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....of which the advance of Rs. 3,75,00,000/- was received. It is further admitted by Ld. AO that the Balance-Sheet of RCSPL discloses the advance of Rs. 3,75,00,000/- given to the assessee. However, we note that the Ld. CIT(A) has at once place in Para No. 10.3 of his order mentioned "No cogent reason has been stated in the impugned order which undermines 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 RCS....
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....so given advances to Shri Manmohan Agarwal Director of the company and not charged any interest on it. It is also noticed that assessee company has given advance of Rs.1,93,00,000/- to M/s. Seven Star Realcon Pvt. Ltd. and Rs.1,79,70,000/- to M/s. Sangam Associates for purchase of flats. Copy of agreement is also produced. In order to examined the issue summon u/s 131 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 fre....