TaxTMI 
TaxTMI 
2023 (12) TMI 31
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....in the circumstances of the case the Id. CIT(Appeals), NFAC is justified in deleting the addition made by the A.O by way of disallowance of Rs. 1,34,83,176/-being non-deduction of tax on deemed dividend u/s 2(22)(e) of the Act. 3. Whether on the facts and in the circumstances of the case the Id. CIT(Appeals), justified in deleting the addition of Rs. 56,15,450/- made by the A.O by disallowing the loss shown to have been claimed from commodity transactions being speculative loss and from business activity of the assessee. 4. Any other ground which may be adduced at the time of hearing. First, we are taking the appeal for the AY 2014-15: 2. Statement of facts culled out from records are that the appellant is a private limited company engaged in the business of building construction as a builder. Proper books of accounts have been kept and maintained, both as per the Companies Act as well as the Income Tax Act, which are audited. In this case, the return of income was filed by the assessee on 08-11-2014 declaring total income at Rs. 42,45,320/-. The case was selected for complete scrutiny through CASS. During the assessment proceedings, it was explained before ....
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....currency in Future and Option at Rs. 56,15,450/- as speculative loss and did not allow set-off from the business income. 3. On the basis of aforesaid facts of the proceedings during the scrutiny assessment, assessment order u/s 143(3) of the Income Tax Act, 1961 was passed on 29-12-2016 determining total income at Rs. 2,54,22,939/-. The following additions/disallowances have been made in the assessment order: (i) Addition u/s 43CA of the Act: Rs. 13,71,900/- (ii) Addition on account of provision made under the head construction expenses Rs. 5,00,000/- (iii) Disallowance on account of advocate fees debited to P&L a/c: Rs. 1,96,000/- (iv) Addition u/s 14A read with Rule 8D of the Act: Rs. 11,093/- (v) Addition u/s 2(22)(e) of the Act: Rs. 1,34,83,176/- (vi) Addition on account of speculative loss: Rs. 56,15,450/- 4. Aggrieved by the aforesaid disallowances by the Ld. AO, the assessee has preferred an appeal before the first appellate authority, wherein the contentions of the assessee were considered and deliberated upon, in conclusion the appeal was partly allowed. 5. Since the first appellate authority has partly allowed....
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..... It was the request that since no provision in the year under reference was made, no addition is warranted, therefore, the same is liable to be vacated. 9. We have considered the rival submissions and perused the material available on record. Admittedly, the fact that the provision for construction expenses of Rs. 5/- lac was made in the succeeding year i.e., in FY 2014-15, on 31/03/2015, whereas the same was misread by the Ld. AO that the provision was made on 31/03/2014. This fact is evident from the ledger account of provision for construction expenses, which the Ld. CIT(A) has rightly read into and, therefore, has deleted the addition made by the AO against the actual facts on record. Under such facts and circumstances, we do not observe any infirmity in the order of Ld. CIT(A), consequently ground no. 1 of the revenue in ITA No. 35/RPR/2023 is dismissed. 10. Ground No. 2: Deleting the addition of Rs. 1,34,83,176/- on account of non-deduction of tax on deemed dividend u/s 2(22)(e) of the Act. 11. At the outset, Ld. Sr. DR on the aforesaid issue has reiterated the facts on para 7 of the Assessment order according to which the observations of the Ld. AO while making suc....
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....arises in the hands the assessee company to deduct tax u/s 194 before making any payment of any sum deemed to be dividend u/s 2(22)(e) of the Act which the assessee company failed to comply. The company was obliged to deduct tax at source in respect of Deemed Dividend in terms of section 194 of the Act. Thus, the above payment be treated as deemed dividend and the amount of loan given will be disallowed u/s 40(a)(ia) of the I.T. Act, 1961 in the hands of the assessee company and will be added to the total income of the assessee. 12. With the aforesaid observations of Ld. AO, it was the submission of Ld. Sr. DR that the decision of Ld. CIT(A) was based on the observation that, for applicability to section 2(22)(e) of the Act, there must be a payment by the company by way of advance or loans if no loan or advance was given by the company provisions of section 2(22)(e) are not applicable. Such observation of Ld. CIT(A) has been strongly opposed by the revenue stating that the company has granted loan to Shri Sanjay Raheja and Shri Deepak Raheja, thus, the provisions of Section 2(22)(e) of the Act are clearly applicable in this case. It is submitted that even if there were frequent ....
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....ing current account giving rise to mutual obligations or payment formed one-way traffic, assuming character of loan or advance out of accumulated profit then payment of sums to assessee cannot be treated as dividend out of profit. Commissioner of Income Tax Vs. Suraj Dev Dada, [(2014) 88 CCH 0393 PHHC] Section 2(22)(e) was inserted to stop misuse by Assessee by taking funds out of the company by way of loan advances instead of dividends and thereby avoid tax. Exotica Housing & Infrastructure Company Pvt. Ltd. Vs. Income Tax Officer [(2020) 59 CCH 0141 Del Trib] When current account is maintained between parties, provisions of Section 2(22)(e) would not apply. Deputy Commissioner of Income Tax (OSD) & ORS. Vs. Dishman Pharmaceuticals & Chemicals Ltd. & ORS. [(2018) 53 CCH 0065 Ahd Trib] Section 2(22)(e) does not apply to amounts which are merely adjustment entries and not in nature of loan or deposit. 15. It is further stated by the LD. AR that if at all the amounts given to the directors of the company are considered as deemed dividend, in that case it should not be more than the accumulated profits. On this aspect following case laws are reli....
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....unal, the issue is already settled by the Hon'ble Supreme Court against the Revenue in the case of Associated Banking Corporation of Ind. Ltd. V/s. Commissioner of Income-Tax, Bombay reported in (1965) Vol.56 ITR I(SC) by which, the view taken that the profit accrues when the books of account are closed. 5. Under the circumstances and considering the Explanation 2 to Section 2(22)(e) of the Act, we confirm the view taken by the learned Tribunal and held the question No. 1 raised in the present appeal in favour of the assessee and against the Revenue. Consequently, the present appeal deserves to be dismissed and is accordingly dismissed. No order as to costs. Ramesh Premji Shah Vs. DCIT, ITA No. 1985/Mum/2022, Mumbai ITAT dated 19.01.2023. "6. In the gross receipts of a business day after day or from transaction to transaction lies embedded or dormant profit or loss; on such dormant profit or loss undoubtedly taxable profits, if any, of the business will be computed. But dormant profits cannot be equated with profits charged to tax under ss. 3 and 4 of the IT Act. The concept of accrual of profits of a business involves the determination by the method of acc....
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....tion of the Tribunal directing the Assessing Officer not to include the current year profit to be part of accumulated profit while determining the amount of deemed dividend under Section 2(22)(e) of the Act after considering Explanation-2 to Section (2(22)(e) of the Act (which defines the accumulated profit). And the Hon'ble High Court specifically observed that while determining the amount of deemed dividend under Explanation 2 to Section 2(22)(e) of the Act, the current profit was not required to be included to be part of accumulated profit. And their Lordship also took note that the issue was already settled by the Hon'ble Supreme Court against the revenue in the case of Associated Banking Corporation of India Ltd. Vs. CIT (1965) 56 ITR 1, wherein the view was taken that the profit accrues when the books of account are closed. In the light of the judicial precedent laid by Hon'ble Gujarat High Court in CIT Vs. M. B. Stockholding (P) Ltd.(supra), and since no decision of jurisdictional High Court was cited in support of impugned action of Ld. CIT(A), we are of the considered opinion that in the present case, while determining the deemed dividend, the AO/Ld. CIT(A) oug....
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....ticipate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ; but "dividend" does not include- (i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets; (ia) a distribution made in accordance with sub-clause (c) or sub-clause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March 1964, and before the 1st day of April, 1965; (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is ....
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....sideration of the provisions of law as well as judicial pronouncements, the contentions of the assessee w.r.t. applicability of section 2(22)(e) on the amounts advanced or loans given to the directors of the company holding more than 10% of share capital in the company being the person who is beneficial owner of shares holding not less than 10% of the voting power, that in the present case the amounts given the directors are for the business purpose under the current account, therefore, the same cannot be categorized as loan moreover, the account in case of director Shri Deepak Raheja which has been squared up in the year under consideration therefore provisions of sec. 2(22)(e) are not applicable, cannot be amicably subscribed to, since the ledger account of the said directors does not reflect any transactions or details where from it can be perceived that the transactions are in the nature of normal business transactions, much less the said transactions were not substantiated with any documentary evidence substantiating that these pertains to or have any nexus with the business of the assessee company, therefore, we are unable to accept such contentions of the assessee, which has....
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..../2015. On this argument also the disallowance made u/s 40(a)(ia) in the AY 2014-15, cannot sustain. Resultantly ground 2 of the revenue's appeal stands rejected. 23. Ground No. 3: Regarding deleting the addition of Rs. 56,15,450/- made by the AO by disallowing the loss shown which have been claimed from commodity transactions being speculative loss and not loss from business activity of the assessee. 24. While arguing on the Ground No. 03, Ld. Sr DR has submitted that there were certain transactions against which the assessee has claimed losses from trading of currency derivative in Future and Option (F & O) and debited the same in P&L account of the company treating the same as business loss. When the issue is raised by the Ld. AO during the assessment proceedings, assessee submitted that it had transacted in F&O through recognized stock exchange, therefore, the same should be considered as loss in the nature of loss from business activities and not from speculative transactions. Observations of the Ld. AO in this respect are read out, the same are as extracted as under: 8. The assessee has shown loss from trading of currency derivatives in Futures & Options (F&O) a....
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.... 9. In view of the above facts, it is clear that transactions through United Stock Exchange and related broker are nothing but accommodation transactions for the only purpose of claiming sham profit/loss in the books. Due to this reason, the broker as well as authority from NMC Exchange, Ahmedabad did not respond to the notices issued by this office. Hence, the veracity of such transactions is not ascertainable. In view of foregoing discussion, it is held that the loss shown to have been claimed at Rs. 56,15,450/- from currency derivative transactions is bogus claim of expenditure and no actual business transactions done by the assessee, hence it will not be allowed as expenditure u/s 37(1) of the I.T.Act in computing taxable income of the assessee company. Penalty proceedings u/s 271(1)(c) of the I.T.Act are initiated separately for furnishing inaccurate particulars of income. 10. Further, it would be pertinent to mention that the assessee has shown loss from trading of currency derivative in Futures & Options (F&O) at Rs. 56,15,450/and debited in profit and loss account of the company. Commodity transactions under F. & O. would be regarded as business transactions....
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....spite having transactions of large volume within a short span of transaction period i.e., to the extent of payment of Rs. 56.15 Lakh no initial margin money was kept by the broker "Kayan Securities Pvt. Ltd" Kolkata. The broker is bound to keep margin money in advance which is absent in the instant case of the assessee. 12.2 By virtue of sec.73 of the I.T. Act, 'Speculation Business/transactions' [Explanation 2 to Section 28 and section 43(5)] means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically and ultimately settled, otherwise than by the actual delivery or transfer of the commodity or scrips. If a contract for purchase/sale of shares, stock or commodity is ultimately settled otherwise than by actual delivery or transfer of commodity, it would be a speculative transaction, even if at the time of entering into the contract there was no intention to gamble. On the other hand, if actual delivery of commodity takes place, the transaction would be a nonspeculative transaction, even if it is highly speculative otherwise. In the case of the instant assessee, the contract is settled other....
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....s from business income. 12.6 Further, the AO also disallowed it u/s 37(1) of the Act and added to the total income of the appellant company on the ground that the Notice u/s 133(6) of the Act issued to the United Stock Exchange and the broker (M/S. Kayan Securities Pvt. Ltd.) was remained unanswered. The appellant relied upon the decision of ITAT Delhi, in the case of Phool Singh vs ACIT [ITA No. 2901/ Del/ 2014] and ITAT Mumbai, in the case of Prabhat Gupta vs ITO [51 CCH 0713] and further submitted that the AO didn't point out any specific defects in the documents furnished by the assessee. Kayan Securities (P) Ltd is a registered broker in United Stock Exchange and an active company and is duly registered in MCA and provided the company's master data extracted from MCA website. 12.7 It is noted that the appellant traded in F&O through recognized stock exchanges which admittedly happens through electronic platform; and when the transactions are finalized the payments are made through banking channel/online. All the supporting documents to prove the F&O transactions were produced before the AO which has been discarded by them without assigning any reason.....
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....ctions effect by the assessee. With these submissions, Ld. CIT DR has prayed that the AO has rightly disallowed the expenditure u/s 37(1) of the I.T. Act, 1961, therefore, the same should be sustained and the order of Ld. CIT(A) should be set aside. 27. In response to the submissions to the department Ld. AR of the assessee submitted that the Ld. CIT(A) has deleted the disallowance of Rs. 56,15,450/- on two different grounds. First, the CIT has treated loss of currency derivatives has business loss excepted claim of the assessee and secondly, the CIT has treated the loss of currency derivative as genuine loss. It was the submissions of Ld. AR that from the ground no. 03 raised by the department, it is evident that department has not challenged the genuinity of the transactions rather they have sticked upon the issue that the transactions are not connected to the business but are from speculative activities. It is further submitted of Ld. AR that as per section 43(5)(e), the transactions undertaken by the assessee is an eligible transaction and shall not be deemed as speculative transactions and, therefore, the provisions of sec. 73 is not applicable. Ld. AR placed his reliance o....
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....y are through broker M/s Kayan Securities Pvt Ltd, who is authorized by United Stock Exchange of India Ltd which is a recognized stock exchange. According to the provisions of sec 43(5)(e), "an eligible transaction in respect of trading in commodity derivatives carried out in a [recognized stock exchange] [which is chargeable to commodity transaction tax under chapter 7 of the Finance Act, 2013 (17 of 2013),]] shall not be deemed to be speculative transaction." On perusal of copies of contract note issued by Kayan Securities Pvt Ltd, furnished before us at Page No. 62 to 70 of the paper book by the assessee, it is apparent that the transactions carried out are through recognized stock exchange, tax on transaction charges are also charged, therefore, the same, as rightly observed by the Ld. CIT(A) are in the nature of business transactions which shall not deemed to be speculative transactions as per provisions of section 43(5)(e). Our observations are duly supported with the various decisions relied upon by the Ld. AR, referred to supra. Respectfully following the settled position of law, we are of the considered opinion that the decision of Ld. CIT(A) holding the transaction as bus....
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.... However, the assessee was not satisfied with the addition in principle, therefore, has assailed the issue before the Ld. CIT(A), wherein Ld. CIT(A) has accepted the contentions of the assessee and has deleted the entire addition. 33. Ld. Sr. DR vehemently supported the orders of Ld. AO and has requested that the decision of Ld. CIT(A), NFAC on this issue is not acceptable on merits. He argued that the accounting standard issued by ICAI are binding on the companies [as per proviso to clause 3C of Sec. 211 of Companies Act], which has made it mandatory to follow AS-7 i.e., Percentage Completion Method for recognizing revenue in the construction contract. It was, therefore, the prayer that the AO has rightly made the addition and the same deserves to be sustained. 34. Ld. AR before us responding to counter the submissions and arguments of the revenue, has submitted that the project of the assessee was started in year 2014-15 and the department has accepted the Project Completion Method adopted by it. Ld. AR further drew our attention to order of Ld. CIT(A), wherein the issue has been deliberated at length and has been decided under the guidance of various judgments by Hon'ble A....
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....t on the land owned by the appellant. The company has initiated the development and construction of the residential project on its own cost and continues to build the project irrelevant of fact whether any booking has been made or not by the customer. When an intended buyer approaches assess to purchase a flat/shop, he enters into an agreement mutually at an agreed price with description of flat/shop, method, and instalments of payment of agreed sales consideration. Assessee receives payment in different instalments and final payment is received only upon the completion of construction of flat/shop as per agreement. The amount received over the period of time is treated as advance in the books of the company. Also, expenditure incurred during development of the project is capitalized and treated as closing stock. When the construction of residential unit is completed and registered in the name of the buyer, advance amount is adjusted with final sales consideration and offered as income and taxes are paid thereon. 2.3 That in the order passed, the AO, has discussed following sections of the l. T. Act, 1961 and methods of revenue recognition: * Section 145 of the l.....
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....ted in (2008)299 ITR 1 (SC) has held "Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. The completed contract method is one such method. Similarly, the percentage completion is another such method. Under the completed contract method, the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the contract. The profit and loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. This method leads to objective assessment of the results of the contract. On the other hand, the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method is determined by reference to the stage of completion of the contract. Also, in the case of Commissioner of Income Tax Vs. Principal Officer, Hill View Infrastructure (P) Ltd. [(2016) 384 ITR 0451 (P&H)] it was held that "Both ....
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....t case of the appellant there is no contract between the customer's and the appellant company to construct the residential flats/shops unit on customer's behalf. The appellant is developing the project on its own land and is selling residential flats/shops after its completion. As long as the flat/shop is not sold, it is treated as closing stock in the books of the appellant as treated in case of goods and accordingly closing work in progress is calculated at cost at the end of the year. This results in high stock at the end of the respective financial year. In case of revise in method as per AS-7 then the opening stock of the project will also be required to be revalued. In the identical sets of facts in the case of Commissioner of Income Tax Vs. Prestige Estates Project Pvt. Ltd [(2020) 108 CCH 0001 Kar HC], Hon'ble court held that -It has been noticed by the appellate Tribunal that assessee was in the activity of projects and was not a construction contract on Thus, the revised AS-7 would be applicable to an enterprise undertaking Construction activities on their own account as a venture of commercial nature. Whereas the assessee undertakes construction activities fo....
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....s no certainty of accrual of revenue in such scenario. Where transfer of legal title is a condition precedent to the buyer taking on the significant risks and rewards of ownership and accepting significant completion of the seller's obligation, revenue cannot be recognized till such time legal title is validly transferred to the buyer. Due to this peculiar nature of this trade of real estate business, it is practically not possible for the builder to recognize revenue as per percentage completion method prescribed in Accounting Standard-7 even though substantial advance is received from customers. Hence, the addition made by the AO based on percentage completion method i.e., AS-7 should be deleted. The appellant places his reliance to following judgments: - 7.2 1 have gone through the facts of the case and submission made by the appellant in this regard. The appellant is developer and developing the project on its own land. It is noted that the appellant company is running two projects namely Raheja Residency and Raheja Tower. During the year Raheja Residency was the only project under progress wherein considerable construction was completed and significant bookings we....
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....adoption of project completion method of accounting by the assessee, the appellant IS consistently following project completion method of accounting since the inception of appellant company and project in question. The appellant company never deviated from such method of accounting since the inception of the business and that the revenue had also accepted project completion method and profit shown by the assessee during the assessment proceedings for AY 2015-16 in Assessee's own case. It is well settled that the project completion method is one of the recognized methods of accounting and as the assessee has consistently been followed such recognized method of accounting thus in the absence of any prohibition or restriction under the act for doing so, it can't be held that the Project completion method followed by the appellant company was erroneous in any manner. Further, over the period of project life, both the methods will yield same result and therefore, revenue neutral in nature. In the identical set of facts in the case of CIT & Anr. Vs. Varun Developers, (2021) 110 CCH 0394 Kar HC held as under: "since assessee had not offered any income from said project in rel....
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....mpleted contract method is one such method. Similarly, percentage of completion method is another such method. 16. Under completed contract method, the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to P & L account. The said method determines results only when contract is completed. This method leads to objective assessment of the results of the contract. 17. On the other hand, percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the proportion that costs incurred to date bears to the estimated total costs of contract." 7.11 Further, Hon'ble I TAT Mumbai Bench 'A' in case of Aditya Builders Vs. CIT (Admn) (2013) 39 178 has held as under: "where assessee had been consistently following project ....
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....stions of law for consideration: (i) Whether on the facts and circumstances of the case the Tribunal was justified in law to accept the accounting method followed by the assessee as accounting standard-9 (AS9) instead of accounting standard-7 (AS-7) despite the fact that the assessing officer arrived at a conclusion finding that the assessee is a contractor and not a builder after analysing the various aspects of the business of the assessee? (ii) Whether in the facts and circumstances of the case the Tribunal was justified in law in accepting the accounting method AS-9 (Project Completion Method) instead of accounting method AS-7 (Percentage Completion Method) since the assessee is a contractor which has been proved by the assessing officer in the Assessment Order? The Court also took note of the decision of the Hon'ble Supreme Court in Bilahari Investment (P) Ltd. (supra) in Commissioner of Income-Tax Vs. Principal Officer, Hill View Infrastructure (P.) Ltd., reported in (2016) 384 ITR 451 (P & H). Similar question arose as to whether the percentage completion method ought to have been followed by the assessee therein. The Court after taking note of....
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....d, the finding of the ITAT are as follows: 39. Apropos substituting the method of accounting from Project Completion to % Completion by the authorizes below is by observations that Assessee's have not followed Accounting Standards 9 & 7 which tantamount to not following Accounting Standard-I as prescribed under section 145(2) of the Act. It is admitted position that the appellant were regularly following project completion method from year to year and the assessments prior to the date of search were also framed by accepting project completion method. As per ICAI guidelines real estate developer has an option to choose from Project Completion method or the Percentage Completion method as both are recognized methods for revenue recognition in such cases. Once the option is exercised by assessee, it is not open to the Assessing Officer to substitute his own opinion to change the method of accounting because mid-way it is found that other method of accounting better suits the revenue. It is the accounting principle, consistent following of method and its earlier adoption which decides the issue and not the suitability or revenue. 40. We have already mentioned that in ....
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....t be taken a valid basis for change of method regularly employed by the appellant. Thus, we uphold the method of revenue recognition adopted by the assessee's as "Project Completion Method. The other judicial precedents cited by the assessee mentioned in ITAT orders as well as written submissions support our view. 36. backed with the aforesaid submissions, it was the contention of the Ld. AR that the assessee has rightly and consistently followed the project completion method, which is approved by the Ld. CIT(A), therefore, the decision of Ld. CIT(A) in favour of assessee cannot be held as unjustified so as to be rejected and set aside, accordingly, the same qualifies to be maintained. 37. We have considered the rival submissions, perused the material available on record and case laws relied upon by the opponent parties. AS-7(revised 2002) issued by the institute of Chartered Accountants of India, applicable for all the construction contracts entered into during the accounting periods commencing on or after 01.04.2003, is mandatory in nature. According to the AS-7, recognition of the contract revenue and expense can be done under the Percentage Completion Method or under ....
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....essee, the money comes in the bank account was from unexplained sources, since the same are transferred to the assessee on the same date or within a short period of time. Much less, Ld. AO did not find the behaviour of loan provider as creditworthy. Under such circumstances it was requested to set aside the order of Ld. CIT(A) and restored the addition made by Ld. AO. 39. Contradicting the aforesaid submissions of the Ld. CIT DR, Ld. AR of the assessee submitted that Ld. AO during the course of assessment proceedings had queried the assessee to furnish the details of unsecured loans received from M/s Pitambara Udyog Pvt. Ltd., in reply the assessee submitted ITR, Computation, Bank statement and confirmation of the loan creditor. Assessee also furnished details of unsecured loan received during the year a/w audited financial statement to discharge the onus cast upon it under the provisions of section 68 of the Act. Regarding nature and source of the unsecured loan received, before the Ld. AO, the assessee has explained that the funds were remitted out of overdraft account of the lender. The assessee also requested the Ld. AO to summon directly the lender, but Ld AO without proper....
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.... Annexure-9. Thereafter the Ld. A.O. issued notice dated 23.12.2018 stating therein that why unsecured loan of Rs. 2,11,21,38/- received from Pitambara Udyog Pvt. Ltd should not be added to the total income as creditworthiness of the lender and genuineness of the transactions are not proved from the bank statements, balance sheet and its income produced in this office. Copy of notice dated 23.12.2018 is enclosed herewith. Kindly refer Annexure-10. In response to this the appellant submitted that the appellant has discharged his onus and also stated that the lender has filed return of income of Rs. 30/- lacs approximately and also explained that all the funds were remitted out of overdraft account of the lender. Further the appellant requested to the A.O. to summon directly to the lender if any further detail required. Copy of written submission dated 25.12.2018 is enclosed herewith. Kindly refer Annexure-ll. However, the Ld. A.O. without properly appreciating the submission of the assessee, added the unsecured loan including interest of Rs. 2,11,34,877/- received during the year from Pitambara Udyog Pvt. Ltd u/s 68 by stating that the money comes in the bank account from unexplaine....
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....se facts but stated that the source of loan is not clear and comes from unexplained sources. The said observation of the A iS not substantiated by any material evidence. 3.4 At this juncture it is also important to bring in notice of your honour that the said loans were duly repaid in succeeding years i.e., in A. Y 2017-18 and 2019-20 Copy of account evidencing the repayment of loan along with relevant bank statement is enclosed herewith. (Kindly refer Anexure- 13.) 3.5 It is further to submit before your honour that the entire allegation have been framed on the basis of mere presumption and assumption. It is also a matter of fact that the funds were remitted out of overdraft account of the lender which has not been disproved by the A.O. It is also to important to bring in notice of your honour that even after specific submission by the appellant wherein it was stated that the party can be summoned for further verification, the AO has not conducted any enquiries. We would like to submit before your good self that the AO did not took into notice the said submissions made by the appellant during the course of assessment proceedings. In this regard reliance can be pl....
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....ts submitted by the appellant, The Ld. A.O has given the genera/ observation without mentioning the reason why the documents could not be accepted. The Ld. A.O. has mentioned certain observation directly in the assessment order only without stating the same during the assessment proceeding. The A.O. is duty bound to mention the reason why the documents furnished should pot be accepted or not sufficient to prove the identity, creditworthiness, and genuineness of the transactions. The entire addition have been proposed and made without any adverse material brought on record. The addition made by the Ld.AO is merely based on presumption and assumption and is not sustainable in the eyes of law. 3.8 That in para 23 of the assessment order, the Ld. A.O has mentioned that, it is visible from the bank a/c statement of the lender that as money comes in the bank account from unexplained sources, same are transferred to the assessee on the same date or within a short period. Further it is required to mention that there is cash deposit of Rs. 20,00,000/-. Hence the genuineness of transaction could not be established by the assessee. The behavior of loan provider in this transaction is....
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....ara 23 of the assessment order, the Ld. A.O have relied upon one case law namely Novoday Castle Pvt. Ltd In this regard it is to submit here that the principal laid down in the said judgment of Delhi High Court is not applicable in the present case of the assessee since the factual conditions are totally different. "In the case law i.e. Navodaya Castles (P) Ltd was not able to produce the shareholders from whom share application money was received. Notice u/s 131 also remained unserved to the shareholders. But in the present case the no notice /s 133(6)/131 was issued or make any third-party enquiry. The fact of the case IS altogether different from the fact of present case of the assessee. Further no material brought on record that the loan has been received from a paper company. 3.10 That in para 23 of the assessment order, the Ld. A.O. have relied upon one more case law namely N Tarika Properties Pvt. Ltd Vs. CIT, 2014 [387 SCI. In this regard It is to submit here that the principal laid down in the said judgment of Apex Court is not applicable in the present case of the assessee since. "In the case law i.e. N Tarika Properties Pvt. Ltd, The appellant has furnished fals....
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....vant grounds. The AO pas arbitrarily disbelieved the identity/creditworthiness without substantiating by any evidence and therefore the addition deserves to be deleted. Calcutta High Court in the case of Northern Bengal Jute Trading Co. Ltd vs CIT [70 ITR 407, 4151 "...the surrounding circumstances to be considered must however be objective facts, evidence adduced before the taxing authorities, presumptions of facts based on common human experience in life and reasonable conclusions. In holding a particular receipt as income from undisclosed source, the fate of the assessee cannot be decided by the Revenue on the basis of surmises, suspicions or probabilities...ll In the case of RIDDHI SIDDHI DEVELOPERS PVT. LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX, (2021) 63 CCH 0086 Mum Trib it was held that: No additions can be made merely on the basis of presumption, conjectures and surmises. In the case of NISARG LIFESPACE LLP vs. INCOME TAX OFFICER, (2021) 62 CCH 0203 Mum Trib it was held that "No addition could be made on mere presumption that the assessee routed its own cash in the form of unsecured loans without any concrete evidence to this e....
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....he above contention of the appellant also finds support from various judicial pronouncements as under: - High court of Gujrat in the case of Principal Commissioner of Income Tax vs. Gopal Heritage Pvt. Ltd [20211 133 taxmann.com 173 (Gujarat) The court held that "Section 68 of the Income-tax Act, 1961 - Cash credit (Unsecured loans) - Assessee-company had taken unsecured loans from some persons - As assessee was not in a position to establish capacity and creditworthiness of depositor, Assessing Officer made an addition under section 68 - On appeal, Commissioner (Appeals) thread bare examined entire material in case of each of these persons and entities and eventually held that identities of depositors had been proved and moreover, loans had been granted through banking channels and copy of bank statements also had been provided and deleted addition under section 68 - Tribunal confirmed said order - Whether since all ingredients contemplated under section 68 had been duly satisfied on aspect of identity of creditors, genuineness of transactions and their creditworthiness, concurrent findings of both authorities deserved no interference - Held, yes [Para 5....
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.... INCOME TAX & ORS. vs. CHAIN HOUSE INTERNATIONAL (P) LTD. & ORS. It was held as under: - "Income-Cash Credits-issue of shares at premium-Genuineness of transaction-Search, seizure and survey operations u/s 132/133A were conducted along with other concerns/group companies of assessee at various residential and business premises-Thereafter, a notice u/s 153A was issued to assessee, in response to which, assessee filed its returns declaring its total income of Rs. 1.03/- crores-During course of search, it was found that assessee had received an unsecured loan of Rs. 30/- crores from company 'BSPL' who shown to had got a bogus share application money and premium of Rs. 55/- crones from 5 entry providing companies during FYs 2011-12 and 2012-13 in form of accommodation entries-lt was also found that share capital share premium during FYs 2011-12 & 2012-13-1t was allegedly found that commission at rate of 5 % had been charged by such 5 entry providers companies for providing accommodation entries, therefore, commission of Rs. 1.50/- crores for FY 2011-12 and Rs. 1.25/- crores for FY 2012-13 was added to total income on assessee company for infusion of accommodation entri....
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....) Good Standing of RTCHL, (iv) Director Certificate of RTCHL as well as the Balance Sheet of RTCHL for the years 2004-05 and the confirmation given by the remitters towards remittance of share capital etc. This was all that the assessee could have furnished in the circumstances. It could not be expected to prove the negative that the monies received by it were suspicious or not genuine infusion of capital etc. The assessee had discharged its burden of proof in terms of the settled dicta in Divine Leasing (supra). It was only logical to expect that if the AO was not convinced about the genuineness of the said documents, he would have inquired into their veracity from the bank(s) to ascertain the truth of the Assessee's claims. Having not done so, he was not justified in disregarding the Assessee's contentions that the infusion of monies into its accounts was legitimate. Consequently, the AO was not justified in making additions of the various sum's u/s 68 of the Act... Bombay High Court in the case of Orient Trading Company Ltd vs. CIT [49 ITR 723] The Court held that "...where, however, the identity of the third patty and his capability is established, the initial....
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....and statements of the relevant period, thus the primary onus was discharged by the assessee. The appellant contends that now it is for the AO to disprove the credits by bringing adverse material. In holding a particular receipt as income from undisclosed sources, the fate of the assessee cannot be decided by the revenue on the basis of surmises, suspicion or probabilities. " In the case of K.P. MANISH GLOBAL INGREDIENTS PVT. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX, (2021) 62 CCH 0195 Chen Trib, it was held that "Once the assessee discharged its burden u/s 68, then burden shifts to Assessing Officer to prove otherwise that the transaction was nothing but undisclosed income of assessee. " In the case of NAMDHARI INDUSTRIAL TRADERS PVT LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX, (2021) 62 CCH 0216 Chd Trib, it was held that "Addition u/s 68 is not sustainable where the. Assessee has prima facie discharged the onus of establishing identity and creditworthiness of the aforesaid three companies and further in establishing the genuineness of the transaction- In the cases of DCIT (Central), Raipur Vs. R.K. Transport & Constructions (P) Ltd ITA No. 236 to....
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....as furnished confirmation letters in respect of al/ loan creditors. Court further observed that the assessee has filed income tax returns along with bank statements of al/ loan creditors. Al/ the loan creditors are assessed to Income tax and loans have been given by cheque. Court further observed that the A.O has summoned trustees of the trust who had appeared before the A.O and given a statement u/s 131, wherein they have clearly admitted that they have advanced loan to the assessee. In respect of remaining three patties, though they are not appeared before the A.O, the assessee has filed necessary details that these loans have been repaid by cheque in the next financial year Therefore, assessee has discharged his initial burden cast upon him by filing identity, genuineness, and creditworthiness of the parties. Once, three aspects have been proved, then the onus shifts to the A.O to prove otherwise. In this case, the A.O ignoring all evidence filed by the assessee, simply made additions on the simple reason that creditors are not having sufficient source of income to explain loan given to the assessee. If at all, the A.O having any doubt on the capacity of the loan creditors, he i....
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..... The onus of proof is not static. The initial burden lies on the assessee to establish the identity and the creditworthiness of the creditor as well as the genuineness of transaction. 5. The identity of creditors can be established by furnishing their PANs or assessment orders. The genuineness of the transaction can be proved if it was shown that the money was received through banking channels by A/c payee cheque/online/digital transfer. Creditworthiness of the lender can be established by attending circumstances by filing the documents. 8.3 It is seen that during the course of assessment proceedings, the following details were filed before the AO. 1. PAN, Acknowledgement of Income Tax Return of Pitambara Udyog for A. Y.2016-17. 2. Ledger a/c duly confirmed by Pitambara Udyog p Ltd. 3. Bank statement of Pitambara Udyog P Ltd showing the loan advanced. 4. Bank statement of appellant showing the loan returned. 5. Ledger a/c for the interest paid and tax deducted (TDS) by the appellant. 8.4 If the above referred principles are applied to the facts of the case under consideration it can be seen that the identity o....
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....e Hon. Supreme Court in the case of CIT v. Orissa Corporation P. Ltd. 159 ITR 78 had held, as under:- "Held, that in this case the respondent & given the names and addresses of the alleged creditors, lives in the knowledge of the Revenue that the said predators were income tax assessee. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices u/s 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion can be arrived at, no question of law as such arose. The High Court was right in refusing to state a case. " 8.8 In Nemi Chand Kothari vs CIT [20031 264 ITR 254 (Gau), the Ga....
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....t nature and source of credit in the books of accounts of the appellant stands explained by the assessee and the explanation is not apparently false looking into the documents filed. Consequently, addition on account of unexplained credit cannot be sustained. This ground of appeal is accordingly allowed and addition of Rs. 2,11,21,389/- is deleted. 40. Ld. AR, further submitted that in the present case since the source of unsecured loans have been duly explained by the assessee, but the AO without any corroborative evidence to prove that the money taken as loan actually belongs to the assessee, have imposed the addition. The AO squarely failed to dislodge the explanations of the assessee, have made the disallowance under preconceived mind set on his own presumptions, therefore, the additions was rightly deleted by the Ld. CIT(A) and accordingly the decision of Ld. CIT(A) deserves to be upheld. 41. We have considered the rival submissions, perused the material available on record and case laws referred to pertaining to the issue. In the present case, admittedly the primary onus was discharged by the assessee in producing the documents to substantiate the transactions of unsecu....
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....s produced any forged or fabricated document. Ld. CIT(A) has observed that the opinion of AO for not accepting the explanation offered by the assessee should be objectively w.r.t. material on record, the assessee has offered explanations about the nature and source of the funds so received during the relevant AY, the evidences produced by the assessee cannot be brushed aside in a casual manner, the assessee has adduced requisite documents to substantiate the identity, creditworthiness of the loan creditor and genuineness of the transactions. The AO instead of examining the application of section 68, has harped upon to discuss the case laws. No preliminary investigation u/s 133(6) of the Act from the lenders was initiated by the AO. Ld. CIT(A) also observed that according to him the assessee has discharged its primary onus when documents, confirmations and affidavits pertaining to the lender were filed and no infirmity in such documents could point out by the Ld. AO. Ld. CIT(A) placed his reliance on the judgment in the case of CIT vs Orissa Corporation Pvt. Ltd. 159 ITR 78, wherein Hon'ble Supreme Court (supra) and other case laws by Hon'ble High Court. 42. In view of aforesaid ....