TaxTMI 
TaxTMI 
2025 (2) TMI 442
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.... the A.O and sustained by the Ld. CIT(A) is arbitrary, illegal, baseless and not justified. 2. Ld. CIT(A) erred in confirming addition of Rs. 68,62,394/- made by the A.O on account of amount being offered by appellant during assessment proceedings while explaining credit of Rs. 2 crore in capital a/c. The addition represents double addition. The addition made by the A.O and sustained by the Ld. CIT(A) is arbitrary and not justified. 3. Ld. CIT(A) erred in confirming addition of Rs. 6,12,607/- made by the A.O on account of amount shown as "deemed sales tax" in balance sheet treating it to be revenue receipt. The addition made by the A.O and sustained by the CIT(A) is arbitrary, baseless and not justified. 4. Ld. CIT(A) erred in confirming the addition of Rs. 1,45,75,000/- made by the A.O on account of deemed dividend u/s. 2(22)(e) without appreciating the facts/evidences. The addition made by the A.O and confirmed by the Ld. CIT(A) is arbitrary, illegal and not justified. 5. Ld. CIT(A) erred in confirming the disallowance of Rs. 15,000/- out of donation expense. The disallowance made by A.O and confirmed by the Ld. CIT(A) is arbitrary and not just....
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....ch was received on different dates were accumulated under different accounts heads, therefore, the same were brought under one head as addition to capital. The A.O called upon the assessee to put forth an explanation as to why the aforementioned amount of Rs. 2 crore may not be added to his income as an unexplained cash credit in his capital account. As the reply filed by the assessee did not find favour with the A.O, therefore, the latter held the entire amount of Rs. 2 crore as an unexplained cash credit u/s. 68 of the Act. 4. Although the assessee had in his return of income disclosed the agricultural income of Rs. 2 lacs, but as per the details filed by the assessee in the course of assessment proceedings, he had reflected the net surplus agricultural income (after all expenses) at Rs. 13,78,830/-. As there was deficit/short agricultural income of Rs. 11,78,830/-disclosed by the assessee in his return of income, therefore, the assessee filed before the A.O a consolidated statement of affairs as on 31.03.2012 for A.Y.2010-11 to A.Y.2012-13, as under: S. No. A.Yr. Agricltrl. Income as per ITR Rs. Agricltrl. Income as per reply Rs. Difference short fall Rs. 1.....
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.... (SC) was in the nature of a revenue receipt, therefore, made an addition of the same to the returned income of the assessee. 7. On a perusal of the records, the A.O furthrer observed that the assessee had during the subject year made an investment in the equity share capitals of six companies and in agricultural assets aggregating to Rs. 1,61,53,680/-. As the assessee had not disclosed on a suo-motto basis any disallowance u/s. 14A r.w.r. 8D, therefore, the A.O worked out the disallowance on the said count of Rs. 55,06,957/-. 8. As the assessee had in two tranches received loans from M/s. Atmastco Pvt. Ltd., a company in which the assessee was having more than 10% shareholding, viz. (i) loan of Rs. 1,35,00,000/-; and (ii) loan of Rs. 10,75,000/-, therefore, the A.O made an addition of the same by treating it as "deemed dividend" u/s. 2(22)(e) of the Act. Also, the A.O disallowed the assessee's claim for donation of Rs. 15,000/-. 9. Accordingly, the A.O vide his order passed u/s. 143(3) of the Act, dated 26.03.2015 after, inter alia, making the aforesaid additions, determined the income of the assessee at Rs. 6,99,24,738/-. 10. Aggrieved the assessee carried the matter ....
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....LB relate to FY 2010-11 in the books of Apex Industries Unit-1. The other two ledger accounts of APLB relate to FY's 2010-11 and 2011-12 in the books of Apex Industries Trading Division and it is marked as "Atmastco (P) Ltd, Bhilai (Sundry Creditors)". Copies of these ledger accounts have been enclosed as Annexure-1 (collectively) and form part of the assessment order. The closing balance in these accounts are carried over to the respective balance sheets. The AO has observed that the claim of additional capital coming out of said accounts to explain the source is misleading. The AO has observed that the appellant's contention that le said amount of Rs. 2 Crores was infused to reduce sundry creditors and associate credit balances is another false claim and it leads to the conclusion that relevant balances in sundry creditors and associate credit balance are also not correct. This establishes the fact that the appellant has made unexplained investment in acquisition of corresponding assets from his undisclosed income. The AO treated the amount of unexplained credit of Rs. 2,00,00,000/- as unexplained cash credit under section 68 of the I.T. Act, 1961. 5.2. The appel....
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....ks. The amount of capital brought forward as opening capital of AY 2012-13 included the inreased amount of Rs. 1,25,00,000/-, which was effected outside the books, only in the balance sheet. According to the appellant, considering the effect in both the years, the entries in books are to the effect of reducing the creditors/credit balances by Rs. 3,25,00,000/- and increasing the balance in capital account of appellant by Rs. 3,25,00,000/- and the appellant has stated that the credit entry of Rs. 2,00,00,000/- in the capital account of appellant which is shown in the schedule/balance sheet is the result of above explained adjustments only and there was no fresh infusion of fund. 5.2.1. The AO in the Remand Report has noted that these transfers/adjustments are not made through passing of entries in the relevant books of accounts of the appellant. In view of above, the claim of the appellant with regard to additional capital coming out of these accounts cannot be accepted. On carefully going through these documents, it is noted by the AO that the claim of the appellant that the credit of Rs. 2 cr (as additional capital in the balance sheet) was intended to reduce sundry credi....
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....prietor. To justify capital introduction, it was explained by the appellant that there were credit balance in the account of Atmastco (P) Ltd., Bhilai in the books of proprietorship concern of appellant i.e. Apex Industries (Manufacturing Division) and Apex Industries (Trading Division). Out of these credit balances, a sum of Rs. 2.00 crore was transferred by journal entry to the capital account of appellant in the instant year. The appellant has stated that he was enjoying credit facility in the form of CC limit from State Bank of India and the appellant was required to bring in capital of Rs. 2 crore so as to meet the bank's requirements; and therefore, the appellant transferred a sum of Rs. 2 crore through transfer entries from the account of Atmastco (p) Ltd., debiting the account of above company and crediting his capital account. During the appellate proceedings, it is seen that the closing balances in the accounts of above parties were carried over to the balance sheets. These transfers/adjustments are not made through passing of entries in the relevant books of accounts of the, appellant. In view of above, the claim of the appellant with regard to additional capita'....
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.... the personal balance sheet of appellant of 31.03.2011 41,51,604/- 2011-12 Agricultural income disclosed less in the return filed 15,31,960/- 2012-13 Agricultural income disclosed less in the return filed 11,78,830/- Total 68,62,394/- 6.3. All the details have been perused. The appellant has argued that the amount of Rs. 68,62,394/- was offered for tax only while explaining the credit entries of Rs. 2.00 crore. The credit entry of Rs. 2.00 crore has been separately added by the AO. Therefore, to the extent of Rs. 68,62,394/-, 'here is double addition, which is not justified. The appellant has been giving contusing arguments to justify the credit entries. The appellant has argued that out of Rs. 68,62,394/-, a sum of Rs. 56,83,564/- (Rs.41,51,604/- + Rs. 15,31,960/-) represents the difference in the earlier year and Rs. 11,78,830/- only related to the year under consideration; therefore, to the extent of Rs. 56,83,564/-, addition could not have been made. This argument of the appellant cannot be accepted. The appellant is trying to build up a case that he generated tax free agricultural income in earlier years which were not part of ....
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.... (iv) cash & bank balances of Rs. 4,92,601/- In the same way, the value of opening investment has been taken considering the total of all the assets as on 31.3.2011 (Rs.7,51,41,475/-) and deducting therefrom (i) cash and bank balances Rs. 27,57,628/- and (ii) loans and advances of Rs. 5,70,000/-. The AO has not mentioned as to how the figures of item "B" of the formula have been taken by him. If the corrected figures are replaced in the formula prescribed in Rule 8D(2)(ii), the result would be as under: - A x B C = Rs. 53,03,221/-x Rs. 1,42,17,930/- = Rs. 8,16,636/- Rs.9,23,31,014/- As a result of above mistake on the part of AO, the amount of disallowance computed under clause (iii) of Rule 8D(2) is also computed at a higher figure because the figure derived at item "B" in the above formula is required to be adopted for computing disallowance under clause (iii) also. With the above correction, the amount of disallowance of Rs. 4,41,000/-worked out in para (c) on page no. 8 of assessment order [under Rule 8D(2)(iii)] would also become Rs. 71,090/- (i.e. 0.5% of Rs. 1,42,17,930/-in place of 0.5% of ....
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....e. 10.2. The appellant has not furnished any explanation with regard to this addition, despite repeated opportunities. In view of the same, the appeal on Ground no. 6 is dismissed. 11. In the result, the appeal is partly allowed." 11. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 12. We have heard the Ld. Authorized Representatives of both the parties, perused the orders of lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions. 13. Shri Milind Bhusari, Ld. Authorized Representative (for short 'AR') for the assessee, at the threshold of hearing, submitted that as per instructions he is not pressing ground of appeal No.5. Considering the concession of the Ld. AR the Ground of appeal No.5 is dismissed as not pressed. 14. As multiple issues are involved in the captioned appeal, therefore, the same are being adjudicated in a chronological manner in the backdrop of the contentions of the Ld. Authorized Representatives of both the parties: (A). Re: Addition u/s. 2(2....
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..... Departmental Representative (for short "DR") relied on the orders of the lower authorities. 17. We have thoughtfully considered the contentions advanced by the Ld. Authorized Representatives of both the parties. Before proceeding any further, we deem it fit to cull out the provisions of Section 2(22)(e) of the Act, which reads as under: "2. In this Act, unless the context otherwise requires,- *** *** *** *** *** (22) "dividend" includes- *** *** *** *** *** (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate 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 ....
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....vest Limited Vs. CIT, (2015) 378 ITR 33 (Delhi). The Ld. AR to buttress his claim submitted that the assessee had vide his "written submission" [filed before the CIT(Appeals)], submitted that as the assessee had not earned any exempt income during the year under consideration, therefore, the provisions of Section 14A of the Act could not have been invoked, Page 15 of CIT(Appeals)'s order. 23. Per contra, the Ld. Departmental Representative (for short "DR") relied on the orders of the lower authorities. 24. We have thoughtfully considered the contentions advanced by the Ld. Authorized Representatives of both the parties in the backdrop of the orders of the lower authorities. We are principally in agreement with the Ld. AR that in absence of any exempt income having been earned by the assessee during the subject year, the A.O as per the pre-amended Section 14A of the Act, as was applicable to the subject year, could not have worked out any disallowance in his hands. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Chettinad Logistics Pvt. Ltd. (2018) 257 Taxmann 2 (SC) and also of the Hon'ble High Court of Delhi in the case of ....
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.... 27. At the threshold, we may herein observe that the judgment of the Hon'ble Apex Court in the case of Sahney Steel & Press Works Ltd. Vs. CIT (supra) pertained to the issue of refund of sales tax, subsidy etc., i.e. as to whether or not the same were in the nature of production incentives, operational subsidies and not capital subsidies. The Ld. AR had placed on record the copy of the sales tax payable a/c., Page 33 & 34 of APB for F.Y.2011-12 & 2012-13 (as appearing in the books of M/s. Apex Industries Pvt. Ltd., Unit-1). The Ld. AR by referring to the aforesaid sales tax payable account, submitted that as the deemed sales tax of Rs. 6,12,607/- had been paid by the assessee on 14.04.2012 i.e. prior to the "due date" of filing return of income under sub-section (1) of Section 139 of the Act, therefore, no disallowance of the said amount was called for in his hands. 28. Per contra, the Ld. Departmental Representative (for short "DR") relied on the orders of the lower authorities. 29. We have thoughtfully considered the aforesaid issue, and are of the view that the explanation of the assessee qua the addition of Rs. 6,12,607/- requires to be looked into in the backdrop of t....
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.... were filed by the assessee to explain the source of the source of the addition in his capital a/c. of Rs. 2 crore (supra) related to the preceding financial year, except for, one entry dated 13.06.2011 which pertained to the subject year, but in absence of documentary evidence which would irrefutably support the said claim had rejected the same. 31. Shri Milind Bhusari, Ld. AR submitted that the capital addition of Rs. 2 crore (supra) during the subject year was not in the nature of any fresh addition and no movement of funds was involved, but had occasioned pursuant to the outstanding liabilities of M/s Atmastco Pvt. Ltd. (supra) being taken over by the assessee in his personal/individual capacity. Elaborating further on his contention, the Ld. AR submitted that the addition in the "capital a/c" of Rs. 2 crore (supra) was sourced out of, viz. (i) transfer out of the "opening balance" of Rs. 2,32,61,506.37 as on 01.04.2011 of M/s. Atmastco P. Ltd., Bhilai (appearing in the books of account of M/s. Apex Industries, Unit-1) : Rs. 1,05,00,000/-; (ii) transfer out of the "opening balance" of Rs. 1,49,10,000/- as on 01.04.2011 of M/s. Atmastco P. Ltd., Bhilai (appearing in the books....
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....rnal entry to the assessee's "capital a/c" with the said proprietary concern/division, Page 4 of APB. Also, the Ld. AR had drawn our attention to the copy of account of M/s. Atmastco Pvt. Ltd., Bhilai appearing in the books of account of M/s. Apex Industries (trading division) for F.Y.2011-12 i.e. A.Y.2012-13, Page 5 & 6 of APB, which revealed that an amount of Rs. 7.50 lacs was vide an inter division adjustment transferred to the "capital a/c" of the assessee with M/s. Apex Industries, Unit-1, Page 8 of APB. 33. The Ld. AR based on his aforesaid contentions supported by the aforementioned documentary evidence, submitted that as the assessee in the course of the proceedings before the lower authorities had duly substantiated his claim that the addition of Rs. 2 crore (supra) in his "capital a/c" with M/s. Apex Industries, Unit-1 during the year under consideration i.e. A.Y.2012-13 was sourced out of the accounts of M/s. Atmastco P. Ltd., Bhilai (appearing in the books of accounts of M/s. Apex Industries, Unit-1 and M/s. Apex Industries (trading division), which in turn were primarily sourced out of the brought forward balances of the preceding year, therefore, there was no justi....
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....lance sheet, i.e. before adjustment of Rs. 1.25 crore (supra). Further, the CIT(Appeals) observed that the closing balance of the "capital a/c" (before adjustment of Rs. 1.25 crore) was, thereafter, carried forward as the "opening balance" to the next year i.e. the year under consideration. In other words, the CIT(Appeals) had observed that though the balance of "branch/division" was reduced by an amount of Rs. 1.25 crore and the balance in the "capital account" was correspondingly increased by the same amount but the said adjustment was not routed through the books of account but was made only in the financial statement/Schedule/on the face of the balance sheet. Elaborating further, the CIT(Appeals), had observed, that the assessee during the year under consideration i.e. A.Y.2012-13, had though credited his "capital a/c" with an amount of Rs. 3.25 crore, which adjustment was made to reduce the credit balance of the creditors and increasing the "capital a/c" of the proprietor, but as per the "Schedule-1" of the balance sheet for A.Y.2012-13 the increase in the balance of capital was Rs. 2 crore only, against the transfer entry of Rs. 3.25 crore. Referring to the aforesaid discrepa....
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....y creditors/associate credit balances to his "capital account" without making any entry in the books of account was to be accepted, still no income would arise. Apart from that, the assessee had stated that if the A.Os version that the aforesaid entries, i.e. increase in the "capital a/c" by an amount of Rs. 2 crore (supra) with a corresponding decrease in the outstanding amount of the sundry creditors/associate credit balances were not routed through the books of account, then on the said count itself the applicability of the provisions of Section 68 of the Act would fail. It was, thus, the claim of the assessee that as Section 68 of the Act pre-supposes that sum of money is received/credited in the books of the assessee, therefore, based on the aforesaid observation of the A.O that the relevant entries were not routed through the books of account would in itself render the provisions of Section 68 of the Act as unworkable. 40. We find that considering the facts that the explanation of the assessee as regards the addition of Rs. 2 crores (supra) in his "capital a/c" was considering the remand report filed by the A.O; the rejoinder filed by the assessee, had rendered the same as....
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.... the assessee, viz. (i) M/s. Apex Industries (manufacturing division); and (ii) M/s. Apex Industries (trading division) were not made through passing of entries in the relevant books of account of the said concerns/divisions, apparently is not found to be in conformity with the material that has been placed on record by the assessee appellant. As observed by us hereinabove, the assessee had for the subject year filed before us copy of the ledger account of M/s. Atmasco Pvt. Ltd., Bhilai in the books of account of M/s. Apex Industries, Unit-1, which reveals that the amount of Rs. 1.05 crore (supra) was debited in the account of the aforementioned company on 31.03.2012, Page 4 of APB. On a similar footing, the assessee had during the subject year filed before us copy of the account of M/s. Atmastco Pvt. Ltd., Bhilai in the books of account of M/s. Apex Industries (trading division), wherein an amount of Rs. 87.50 lacs (supra) and Rs. 7.50 lacs (supra) had been debited to the account of the aforesaid company as on 31.03.2012. Apparently, the CIT(Appeals) had remained guided by the facts of A.Y.2011-12, wherein the addition of an amount of Rs. 1.25 crore to the assessee's capital a/c w....
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....e. Needless to say, the A.O shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate his claim on the basis of fresh documentary evidence, if any. Thus, the Ground of appeal No.1 raised by the assessee is allowed for statistical purposes in terms of our aforesaid observations. (E). Re: Addition u/s. 68 of the Act: Rs. 68,62,394/- 46. Apropos the addition of Rs. 68,62,394/- made by the A.O u/s. 68 of the Act, we find that the assessee had disclosed agricultural income of Rs. 2 lacs in his return of income for the subject year. On being queried, the assessee claimed that he owned 14.95 acres of agricultural lands at Village :Mahamara and Village: Ahivara and was engaged in agricultural activities, from which, he had derived income @ Rs. 92,000/- per acre. However, the A.O did not find favour with the aforesaid claim of the assessee. 47. During the course of the assessment proceedings, the assessee had filed before the A.O a "Chart" vide his reply dated 18.09.2014, wherein he had furnished details of difference in the agricultural income (as actually earned) vis-à-vis a....
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....fication for the A.O to have held the same as unexplained cash credit u/s. 68 of the Act. Also, the Ld. AR submitted that in case the credit balances were to be held as ingenuine, then the addition of the same was liable to made in the respective years to which the same pertained. 50. Per contra, the Ld. Departmental Representative (for short "DR") relied on the orders of the lower authorities. 51. We have considered the aforesaid issue and are unable to persuade ourselves to concur with the Ld. AR's claim. At this stage, we may herein observe, that the assessee initially in the absence of any plausible explanation as regards the "nature" and "source" of the credits in his books of account (compiled in the form of "statement of affairs" that was filed before the A.O), had vide his reply dated 18.09.2014 filed in the course of the assessment proceedings offered an additional income of Rs. 54,15,250/-, viz. (i). the total of short fall of agriculture income: Rs. 27,10,790/-; and (ii). Other credits: Rs. 27,04,460/- for buying peace of mind. Thereafter, the assessee vide his another reply dated 07.11.2014, had revised his offer for additional income to Rs. 68,62,539/-. As observ....