TaxTMI 
TaxTMI 
2023 (7) TMI 1512
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....and in law in having passed the appellate order u/s. 250 of the Act ex parte qua the appellant entirely on the untrue allegation of not furnishing any ex parte reply to various notices issued between 24.10.2017 and 10.02.2023 when as per records before migrating the appeal to NFAC on 25.09.2020 the appellant attended the hearing on each date, filed written submission before the Ld. CIT( A) with relevant documents and the A.O. after considering the replies to the notices had duly submitted his remand report to the Ld. CIT( A). 2. That, therefore, the very foundation of passing the impugned faceless appellate order ex parte on 22 /02/2023 without consulting the records and also without affording meaningful opportunity after migration of the appeal to NFAC was in violation of audi alteram partem, which is one of the fundamental principles of natural justice and that being so the impugned order passed on the untrue allegation that the appellant had chosen not to furnish any reply to the notices deserves to be set aside as void. 3. That, the Ld. CIT(A), NFAC has erred on facts and in law in having upheld the disallowance of Rs. 15,00,000/- incurred on payment of commission of Rs. 5 ....
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....It is also engaged in providing servicing of vehicles. Return for the year was filed on 28.09. 2012 reporting total income of Rs. 1,18,75,637/-. In the course of assessment, Ld. AO enquired about various aspects of claims made by the assessee in its return for which explanation with supporting documents and evidences were called for, and were duly complied with by the assessee. Assessment was completed on assessed total income of Rs. 5,39, 45,370/-. Additions/ disallowances made in arriving at the said assessed total income are challenged by the assessee in the grounds stated above. Summarily, issues raised by the assessee in the appeal are as under: (i) Commission Expenses paid to three group/associated companies disallowed alleging non-business purposes and for want of actual services provided by those group companies. Rs. 15,00,000 (ii) Unexplained Share Capital along with share premium introduced in the business of the assessee-company on allotment of 4,01,000 shares @Rs.80/- per share and premium of Rs. 20/- to Group Company M/s. M/s Laa-Dhan Vyapaar Pvt. Ltd. Rs. 4,01,00,000 (iii) Expenditure on Mediclaim for staff first incurred through Credit Card of the Director bu....
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....im, Assessing Officer did not send the remand report/assessment records for AY 2012 -13. However, he admitted about the availability of remand report for AY 2013- 14 only. 4.4. On the submissions made by the Ld. Counsel, we observe that appeal of the assessee was migrated to National Faceless Appeal Centre (NFAC), Delhi in terms of CBDT Notification dated 25.09.2020. The present faceless regime in the administration of the Act is a recent technological introduction which is going through its teething phase. It is quite natural that in the initial phase of a new technologically driven faceless regime, certain lapses of procedural requirements may occur. However, we are mindful of the fact that such lapses should not lead to rendering prejudice to effective administration and disposal of the matter. In the present case, it seems that in the course of migration of appeal into the faceless regime, the documents and material already on record did not reach to appropriate authority in the NFAC for his consideration while disposing the first appeal. Such a lapse is not appreciated as Ld. CIT(A) has noted while disposing the appeal that there is complete non-compliance by the assessee whi....
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....s. 40 A(2) of the Act. 5.1. Ld. Counsel pointed out that in the course of first appellate proceedings, assessee had submitted all the details relating to the claim of commission expenditure in the remand proceedings. Details furnished include nature of services provided giving date and customer wise sale of cars, make and chassis nos. of the cars, value of cars sold and commission payable in respect of each sale of cars. It was also submitted that this commission payment has been subjected to TDS and has been duly offered by the three recipient companies in their respective returns. Also, this commission was duly disclosed in the audited financial statements of the respective companies under the related party disclosure details. 5.2. Above details furnished in respect of one of the three companies placed in the paper book are reproduced hereunder for the purpose of reference: 5.3. It was also submitted that commission was paid through banking channel, duly reflected in the bank statement of the assessee as well as the recipient companies. 5.5. Ld. Counsel submitted that this issue has already been dealt by the Coordinate Bench of ITAT, Kolkata in assessee's own case for AY 2010....
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....hare capital of the assessee in the immediately preceding year i.e. AY 2011-12 and was already a shareholder of the assessee. In this respect, Form 20B under the Companies Act was furnished. Assessee also furnished details and documents to explain the nature and source of share capital raised by the assessee both, in the assessment proceedings as well as in first appellate proceedings including the remand proceedings before the Ld. AO. 7.1. Details furnished by the assessee in remand proceedings are as under: 8. Before us, Ld. Counsel asserted that the share subscribing company is regularly assessed to tax and is one of the group companies of the assessee. It had duly complied with the notices issued by the department by furnishing all the details along with supporting documents, all of which are placed on record. From the audited financial statements of the share subscribing company for AY 2012- 13, Ld. Counsel pointed out that it had capital and reserves of Rs. 8.04 Cr. which are more than sufficient for the investment made by it of Rs. 4.01 Cr. in assessee company. This substantiates the creditworthiness and the capacity of the subscribing company to make investment in the sha....
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....nd, Ld. AO could have taken an adverse view, only if, he could point out the discrepancies or insufficiency in the evidence and details furnished in his office and also as to what further investigation was needed by him by way of recording of statement of the directors of the assessee and the subscriber company. For this view, draw our force from the decision of Hon'ble Bombay High court in the case of PCIT v. Paradise Inland Shipping Pvt. Ltd. [2017] 84 taxmann.com 58 (Bom.) wherein it was held that once the assessee has produced documentary evidence to establish the existence of the subscriber company, the burden would shift on the revenue to establish their case. We also draw our force from the decision of Hon'ble Jurisdictional High Court of Calcutta in the case of Crystal Network Pvt. Ltd. v. CIT in ITA 158 of 2002 dated 29.07.2010 which held as under: "We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore it shall be assumed that the assessee failed to prove the existence of the creditors or for t....
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....ble as per law. 10.3. From the perusal of the paper book and the documents placed therein, it is vivid that share applicant is (i) income tax assessee, (ii) it is filing its income tax returns, (iii) share application money was made by account payee cheque, (iv) details of the bank accounts belonging to share applicant and its bank statements, (v) share applicant is having substantial creditworthiness represented by its capital and reserves. 10.4. We also note that assessee asserted before the ld. CIT(A) that all the submissions were made in the assessment proceedings even though it is stated that assessee failed to comply with the requirements. The claim of the assessee for the submissions made before the Ld. AO in the remand proceedings is reproduced above which is contrary to the observation made by Ld. CIT(A) in the order. 10.5. We also take note of the most clinching evidence on record that both the investor company and the assessee have been assessed u/ s. 143(3) r. w.s. 147 for AY 2012-13 and u/s 143(3) for AY 2011-12, respectively, by the Department. In these assessments, no addition has been made in respect of the share capital transaction. It is difficult to conceive t....
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....fixed deposits. However, at the time of maturity of fixed deposit, it was observed that excess provision of income had been made and this excess provision was reversed and written off under the head "Prior Period expenses" in the P&L Account for the year under consideration. Thus, Ld. Counsel asserted that there is no expenditure which has been claimed during the earlier years and the disallowance so made deserves to be deleted. Considering the factual matrix as explained above, we agree with the submissions made by the ld. Counsel and delete the addition so made. Accordingly, ground taken by the assessee in this respect is allowed. 13. We now take up the second appeal in ITA No. 183/Kol/ 2023 for AY 2013-14. Grounds of appeal in this respect are reproduced as under: "1. That, the Ld. C. I.T.(A) has erred on facts and in law in having passed the appellate order u/s. 250 of the Act ex parte qua the appellant entirely on the untrue allegation of not furnishing any reply to various notices issued between 16.10. 2017 and 29.12.2022 when as per records before migrating the appeal to NFAC on 25.09.2020 the appellant attended the hearing on each date, filed written submission before th....
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.... Rs. 4,12,50,000/- as unexplained cash credit u/s 68 of the Act on the specious ground of unexplained share application money with premium received during the relevant previous year in spite of the fact that the Ld. A. O. in his subsequent remand report submitted to the then Ld. CIT( A) after scrutiny of the documents, audited accounts etc. had mostly accepted the source of the fund utilized by the share applicants. 6. That, the Ld. C.I.T.( A) alleging non-response to the notices further erred on facts and in law in having upheld the disallowance of deduction of Rs. 87,50,000/- claimed u/s 35( 1) ( iii) of the Act under the pretext that the donee (SHGPH) during the survey operation had admitted their involvement in routing back the donations received in the form of cash to the donors and without allowing the assessee to cross- examine the said donee in violation of principle of natural justice. 7. That, the Ld. C.I.T.(A) alleging non-response from the assessee has erred in law in having upheld the disallowance of expenditure of Rs. 5,04, 790/- incurred on account of payment of interest on late payment of statutory liabilities in spite of the fact that such payments of interest ....
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....fore the Ld. Sr. DR, placed reliance on the remand report, observations and finding given by the Ld. AO. 15.2. We have gone through the remand report extracted above and has also cross verified it with the submissions made in the paper book, corroborating the claim of the assessee, contained in the paper book having 384 pages. Details of documents furnished in the paper book are extracted by reproducing the index of the said paper book, as under: 15.3. We now deal with the additions made by the Ld. AO seriatim as tabulated in paragraph 14. In respect of the addition made towards unsecured loan u/ s. 68 of the Act, in the remand proceedings, assessee had filed all the relevant documents in support of the loan transactions. Ld. AO had examined the same in detail for which he had also issued notice u/s. 133(6) of the Act and were duly complied with. Upon considering the documents furnished by the assessee and detailed examination and enquiry conducted by the Ld. AO in the remand proceedings, he arrived at a conclusion that the submissions of the assessee may be accepted. On perusing the observations and findings of the Ld. AO in the remand report vis-à-vis the material placed....
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....part of the total addition of Rs. 4,12,50,000 /-. Assessee had furnished all the relevant details and evidence for the entire sum and there is no basis and reason to give a partial allowance and sustain the balance though the evidence and explanation applied to the entire sum. Having perused the material on record and the submissions of the assessee, we are in agreement with the contention of the Ld. Counsel and accordingly, delete the addition of Rs. 4,33,900 /- also. Thus, the assessee gets relief of Rs. 4, 12,50, 000/-. Grounds taken by the assessee in this respect are allowed. 15.6. On the next issue relating to disallowance made in respect of payment made by the assessee for weighted deduction u/ s. 35 (1)(ii) of the Act of Rs. 87,50,000/-, ld. AO has elaborately dealt with the issue in the remand report justifying the disallowance. Before us, Ld. Counsel has placed reliance on the decision of Hon'ble Supreme Court in the case of CIT Vs. Chotatingrai Tea [2002] 258 ITR 529 (SC). This issue has been elaborately dealt with by the Coordinate Bench of ITAT, Kolkata wherein the decision of Hon'ble Supreme Court has also been considered and distinguished the light of recent judgmen....
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....e Act came before it in the case of CIT(E) Vs. Batanagar Education and Research Trust [2021] 129 taxmann.com 30(SC) dated 02.08.2021. Important fact noted in this case in para 3 reads as under: "3. In a survey conducted on an entity named School of Human Genetics and Population Health, Kolkata under section 133A of the Act, it was prima facie observed that the Trust was not carrying out its activities in accordance with the objects of the Trust. A show cause notice was, therefore, issued by the CIT on 04.12.2015." 8.3. By invoking section 12 AA(3), registration of the said trust was cancelled including the approval granted u/s. 80 G. Appeal filed by the trust before the Tribunal was dismissed by recording fact- based finding that from the evidence on record, it is clear that activities of the trust were not genuine and hence their registration is liable to be cancelled. Aforesaid conclusion of the Tribunal arrived at after considering the entire material on record is as under: 13. We have given a very careful consideration to the rival submissions. It is clear from the statements of Secretary and Treasurer of SHG and PH that they were accepting cash and giving bogus donations....
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....appeals by the assessee." [ emphasis supplied by us by bold and underline] 8.4. Matter travelled before the Hon'ble Apex Court who gave its factual finding that the donations were bogus, out of which substantial money was ploughed back or returned to the donors in cash. According to the Hon'ble Court, registration conferred upon it under section 12 AA and 80 G of the Act was completely being misused by the Trust. Thus, cancellation of registration is justified. Hon'ble Supreme Court in conclusion, further noted that High Court erred in not dealing with the conclusion drawn by the CIT and the Tribunal. Relevant extracts of the conclusion arrived at by the Hon'ble Supreme Court in para 11 and 12 are as under: "11. The answers given to the questionnaire by the Managing Trustee of the Trust show the extent of misuse of the status enjoyed by the Trust by virtue of registration under section 12AA of the Act. These answers also show that donations were received by way of cheques out of which substantial money was ploughed back or returned to the donors in cash. The facts thus clearly show that those were bogus donations and that the registration conferred upon it under sections l2....
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.... the money received in the form of donations from Corporate Bodies as well as from individuals. The assessee Batanagar Society was selected by the brokers, who have arranged the donations to SHG&PH as a conduit for receiving the donations from SHG&PH. This donation was to be returned back to those Corporate Houses and individuals in cash after layering the transaction and the Batanagar Education & Research Trust would also retain commission income for such an activity. On the basis of that, its registration was cancelled by the ld. Commissioner (Exemption) by exercising the powers under section 12AA(3). This order was upheld by the ITAT. However, on further appeal, Hon'ble High Court has reversed this order but Hon'ble Supreme Court restored this order, in other words upheld the cancellation of the registration to Batanagar Education & Research Trust. In this judgment, Hon'ble Supreme Court has made reference to the outcome of the survey at SHG&PH coupled with the post survey enquiry conducted upon Batanagar Society and satisfied that it was an organized fraud to misuse the status of a charitable entity. This judgment has been pronounced on 02.08.2021. After this judgment, a judgme....
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....0/- on account of interest expenses for late payment of statutory liabilities, in the remand report, ld. AO has considered the submissions made by the assessee, wherein details of interest on late payment of various statutory liabilities were furnished. Ld. AO has accepted the submission of the assessee by allowing the claim in respect of interest on all the statutory liabilities except on account of TDS, amounting to Rs. 8,428 /-. All the other statutory liabilities are in respect of indirect taxes namely, VAT, Entry Tax, Service Tax, CST and education cess on service Tax. In this respect, we are in agreement with the finding given by the Ld. AO in the remand report. This issue of disallowing interest on delayed deposit of TDS has been dealt with by the Coordinate Bench of ITAT, Kolkata in the case of Premier Irrigation Adritec Pvt. Ltd. Vs. ACIT in ITA No. 387/ Kol/2021 dated 20. 01.2023. While dealing with this issue, the Coordinate Bench observed in para 21 that "At this stage, it is pertinent to mention here, that it is not all type of taxes that are not allowable as deduction under the Income Tax Act, but the question before us is of the allowability of interest on delayed pa....