TaxTMI 
TaxTMI 
2025 (5) TMI 1394
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....and ordinary course of business and do not fall within the provisions of section 2(22)(e) of the Act, the addition made is contrary to facts, bad in law and be deleted. 3. Because the CIT(A) has erred on facts and in law in passing an order under section 153(3)(ii) read with section 150(1) directing the AO to make similar additions on account of deemed dividend in A.Y. 2011-12 & A.Y. 2012-13 without giving the assessee any opportunity to elaborate his submissions and to further clarify his stand, the direction so given, be deleted. 4. Because the CIT(A) has erred on facts and in law in giving directions u/s.150 of the Act, 1961 for addition to be made under section 2(22)(e) of the Act, which amounts to enhancement of income and such enhancement of income is impermissible in view of the specific provisions of section 251(2) of the Income Tax Act, 1961. 5. Because the CIT(A) has erred on facts and in law in upholding the disallowance of Rs. 13,26,600/- under section 41(1) of the Act, payment outstanding be made to M/s. Scrap Tin Enterprises without appreciating the facts and circumstances of the case and without giving the assessee an opportunity to explain....
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.... the year should ought to have been adjusted. Such exercise having not been done, the addition made is contrary to the provisions of law and be deleted. 14. Because without prejudice, if the addition is to be sustained, then the figure of closing stock for the year under consideration should ought to have been adopted as figure of opening stock of the subsequent year. 15. Because the CIT(A) has erred on facts and in law in upholding the disallowance of Rs. 2,23,561/- by invoking the provisions of section 14A, there being no tax free income, addition is contrary to facts, bad in law and be deleted. 16 Because there being no expenditure incurred for the purpose of earning tax free income nor there being any satisfaction recorded by the authorities below the disallowance made is bad in law and be deleted." 2. At the time of hearing, no one attended the proceedings on behalf of the assessee. It is seen from the records that vide order sheet entry dated 18.02.2025, this Tribunal had noted that the Ld. Counsel for the assessee Shri Rakesh Garg, Adv informed that the assessee is not in his contact and requested for withdrawal of his 'Vakalatnama'. Thereafter,....
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....Shri Sanjeev Krishna Sharma strongly supported the orders of the lower authorities. He also contended that the Ld. CIT(A) on all the issues has thoroughly examined and deliberated after having given sufficient opportunity to the assessee. He submitted that in the absence of plausible explanation along with supporting evidences the lower authorities are justified in making and sustaining the additions. It is seen that the assessee through his Ld. AR has placed on record written submissions filed before Ld. CIT(A). For the sake of clarity, the written submissions of the assessee are reproduced as under:- "The present appeal has been filed against the order of the ACIT-I, Kanpur passed u/s 143(3) of the Act dated 27.03.2015. Return was filed declaring income of Rs. 13,20,260/- on 28.09.2012. Assessment has been framed under sec. 143(3) of the Income Tax Act on total income of Rs. 1,19,35,200/-. The assessee is carrying on business of edible oil. Besides business income, he draws salary from M/s R.K. Agro Oil (P) Ltd., and from M/s Ganpati Edible Oil (P) Ltd., income from house property and other sources. Return declaring total income of Rs. 13,20,26....
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.... 2 (22) (e) of the Income Tax Act, 1961 are unjust, illegal and arbitrary. 4. That the additions made amounting to Rs. 13,26,600/- u/s. 41(1) of the Income Tax Act, 1961 are unjust and on the facts illegal and arbitrary. 5. The disallowances of Rs. 10,00,000/- made out of packing expenses without proper verification that the entire expenses claimed are certified by U.P. Government by charging tax @ 5% as per law. 6. That disallowances of Rs. 10,00,000/- out of packing expenses are unjust, illegal, arbitrary and in any case highly excessive. 7. That addition of Rs. 10,00,000/- out of freight expenses have been made without proper verification of the facts that the closing stock has been valued on the basis followed in earlier also i.e. at cost. 8. That without appreciating the facts that closing stock has been valued at cost without adding the freight as was done in the past and disallowed a sum of Rs. 10,00,000/- arbitrarily and is any case it is highly excessive. 10. That disallowances of Rs. 2,23,000/- made by invoking provisions of Sec. 14A of the Income tax Act, 1961 are contrary to law, unjust & arbitrary. 11. That....
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....es P Ltd. along with other shares of this company for Rs. 75,00,000/- aggregating to Rs. 2,45,00,000/- and also another shares of this company for Rs. 24,80,000/- were purchased from his credit balance in his personal account with Punjab National Bank, Birhana Road, Kanpur, Account No. being 1882000102444741." 4.1 The aforesaid submissions of the assessee was carefully examined and it was found that the Company M/s. R.K.Agro Pvt. Ltd. from which he had taken loan of Rs. 2,50,00,000/- is a company in which the assessee is a Director and deriving Salary income from there. Accordingly, assessee vide order sheet entry dated 31.12.2014 was called upon to furnish Tax audit report of M/s. R.K.Agro Pvt. Ltd along with shareholding pattern of the company. In compliance thereto, assessee through his written submissions dated 13.01.2015 furnished the share holding pattern of the company. A perusal of which revealed that assessee's share was 80.30% of total shares of the company as on 31.03.2011 and 31.03.2012. Meaning thereby, the assessee is substantial share holder in the company M/s. R.K.Agro Pvt Ltd. 4.2 Therefore, Keeping in view the provisions contained in Section 2(22....
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....sum previously paid by it and treated as a dividend within the meaning of sub clause(e), to the extent to which it is so set off, (iv) Any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act, 1956 (1 of 1956); (v) Any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company)] Explanation 1. The expression "accumulated profits" wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 32^st day of March 1948, and before the 1^st day of April, 1956. Explanation 2, - The expression "accumulated profits" in sub-clause (a), (b), {d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub-clauses, and in sub-clause (c) shall include all profits of the company upto the date of liquidation, [but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government under any law....
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.... has to pay advance tax on 45°o of total income for the year. Therefore by taking Rs. 3,75,000/- as tax paid by the company on income of Rs. 8,33,300/-, the total accumulated profits with the company upto the month of September 2011 were at Rs. 70,64,782/- (Rs. 62,31,452/- + Rs. 8,33,330/-). Since the amount of loan received by the assessee is higher than that of accumulated profits so the loan amount to the extent of accumulated: profits would be taxed as deemed dividend in the hands of the assessee. Therefore, a sum of Rs. 70,64,782/- is treated as Income of the assessee for the year as income from other sources. (Addition : Rs. 70,64,782/-) The assessee's submission as under: The assessee is a Director of the company M/s. R.K. Agro Oils Pvt. Ltd. The AO has applied the provisions of section 2(22)(e) of the I.T. Act, 1961. The assessee runs his separate business under the name and style of M/s. R.K. Agro Enterprises as sole proprietor. The regular business transactions have been carried on between M/s. R.K. Agro Enterprises and M/s. R.K. Agro Oils Pvt. Ltd. The same would be visible from the copy of account of both the concerns appearing in the books of each....
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....ried on. The total goods purchased by the assessee i.e. M/s. R.K. Agro Enterprises is Rs. 17,13,52,081/- against which payment of Rs. 22,81,66,482/- has been made. Further sales to the tune of Rs. 7,69,03,751/- has also been made. Thus, there has been regular purchase and sale between the assessee's proprietorship concern M/s. R.K. Agro Enterprises and M/s. R.K. Agro Oils Pvt. Ltd. There is no cash payment. The over all position at the end of the year is that of debit of Rs. 3,82,76,399/-. It has been held by the several courts, that where regular transactions had been carried on between the assessee and the company, then the provisions of section 2(22)(e) of the Act could not be applicable. The AO does not dispute that regular trading transactions have been carried on between the assessee's proprietorship concern M/s. R.K. Agro Enterprises and M/s. R.K. Agro Oils Pvt. Ltd. Reference in this connection may be made to the following decisions: Sachidanand Pandit vs. ACIT 19 SOT 213. ITO vs. Larka Brothers 162 Taxmann 170 (Chd) ACIT vs. Nigam Chawla 28 SOT 503 (Del) Ashwani Enterprises vs. ACIT 121 TTJ 408 (Chennai) Copies of these....
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....ee to it. In this regard a certificate was also obtained from Mss. Scraptin Enterprises and has been placed on record. 5.1 Further, during the course of hearing on 24.03.2015, attention of A.R. s drawn towards the facts & certificate given by the said firm and was required fo show cause why liability against M/s Scraptin which is no longer existing be not treated as income u/s 41(1) of the Act. In response, assessee vide written submissions dated 25.03.2015 admitted that the said liability may be treated as income for the year by giving following submission; "Regarding to show cause as to why the liabilities of Rs. 13,26,600/-, appearing in the Balance Sheet to be paid to M/s. Scraptin Enterprises, Kanpur, it is submitted that no doubt the cessation of liability is liable to be taxed u/s 41(1) of the I.T. Act, 1961, but the matter is still remains for proper consideration that the assessee is bound morally and following the social admasphier for carrying out the business, to carry such liability which are acceptable in future on moral ground. Though the liability of the assessee ceases after denial of the person concern become taxable yet the assessee is not in default on ....
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....said claimed expenditure. The required details were filed which were examined. From the details, it was found that out of aforesaid expenditure, purchase to the extent of Rs. 19,27,800/- being 'unregistered Tin purchases' were made in cash. Therefore, assessee was asked to furnish details of said cash purchases and details of parties also. In response, assessee submitted as follows; "That in so for as the cash purchases of packing material is concerned, it is submitted that on exceptional circumstances the businessman is bound to purchase the old material from the open market on cash basis. The purchases have been made from open market and not from any manufacturing concern or established firm or company. So the matter under consideration may be considered keeping in mew the above circumstances and decide the issue on merit." Further, during the course of examination of books of account, bills & vouchers, assessee could not furnish any evidence of making cash purchases of said packing material in the shape of cash vouchers etc. and same was pointed out to the A.R. as well as accountant of the assessee Shri Prakash Gupta. But they could not come out with the reason....
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.... J.J: Enterprises vs Commissioner Of Income-Tax on 14^th September 2001 Equivalent citations: 2002 254 ITR 216 SC Bench: S Bharucha, y Sabharwal ORDER 1. Leave granted. The Tribunal had declined to make a reference, at the instance of the Revenue, of the following question: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in upholding the deletion of Rs. 19, 66, 550/- instead of setting aside the same to the file of the Assessing Officer for the re-examination and opportunity to the assessee?" In its principal order, the Tribunal had concluded that the addition was unsustainable because it had been made 'on the basis of pure guess work" The Revenue moved the High Court under Section 256(2) of the Income-tax Act 1961, and the High Court called for a reference on the basis that the question was a question of law. We are unable to agree with the High Court. In the first place, the Tribunal has held that the addition had been made on the basis of pure guess work and this is a matter of fact in respect of which the Tribunal's conclusion is final. In the second place, there was no questi....
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....essing Officer to reject them under section 145(3) of the Act. Similarly, the explanation give by the Commissioner of Income Tax (Appeals) as well as by the Tribunal, the accounts of the assessee cannot be said to be defective on this ground and, therefore, could not have been rejected. If any particular expense claimed by the assessee remained unverified, the Assessing Officer could have disallowed that particular expense. But, that by itself cannot be a ground for rejection of accounts as a whole under Section 145(3) of the Act. The finding off acts recorded by the IT AT has not been shown to be perverse and hence cannot be interfered with by this Court." In view of the above, the addition made be deleted. Ground no. 7 and 8 relate to addition of Rs. 10,00,000/- on account of freight expenses and valuation of closing stock: The AO while dealing with the issue has held as under: 7. It was also seen from the profit & loss account, that closing stock of Edible Oil had been disclosed at Rs. 4,84,31,121/-. Further, during the course of proceedings, it was found that the closing stock shown by the assessee was valued only by taking purchase rate of commodity.....
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....t Rs. 25,63,403/- debited in the profit & loss account have been found very excessive and not open for verification and there is certainly heavy leakage in the claim. Therefore, keeping in view all facts together, a sum of Rs. 10,00,000/- is disallowed and added to the total income of the assessee for want of vital and genuine supporting documentary evidence. (Disallowance: Rs. 10,00,000/-) The assessee's submission as under: The AO has held that the closing stock should ought to have been valued on the basis of cost plus expenses, whereas the assessee has valued the closing stock on purchase price only. It was explained that there had been no change in the method of accounting regularly followed by the assessee year after year and the stocks have been valued as it was valued in the earlier years. The AO also noted that in purchases made from sister concern, no freight has been paid. It was explained during the assessment proceedings that the stock of both was in the same premises hence for paying freight from sister concern does not question arise. The AO concluded that the claim of freight expenses of Rs. 25,63,403/- debited under the head "freight expe....
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....enditure was incurred in connection with the management of investment portfolio which does not formed part of taxable income. It is also pertinent to mention here that assessee himself has admitted for none maintenance of personal financial affairs and he has not been able to substantiate that the funds claimed to be utilized for none business/investment purposes were actually incurred for the same. Now the question arises whether disallowances can be made in the case of assessee as she has not earned any exempt income during the year. To examine the issue I have carefully gone through the previsions of the section 14A of the Act and also Rule 8D of Income tax Rules and other specific provisions regarding allowability of expenses. From the analysis, it was found that the expenditure which is relatable to earning of income is to be only allowed as expenditure and it therefore follows that the expenses which are relatable to the earning of exempt income have to be considered for disallowance irrespective of the fact whether any such income has been earned during the financial year or not. Further, Central Board of Direct taxes, in exercise of its power under section 119 of the Act ha....
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....urther, taking % % of investments as per Rule 8D(2)(iii), the expenditure on average investment comes to Rs. 1,24,075/- which would be disallowed also. Hence, the total disallowance as per provisions of Section 14A would be Rs. 99,486/- +1,24,075/- = Rs. 2,23,561/- which is added to the total income of the assessee. (Disallowance (Rs. 2,23,561/-) The assessee's submission as under: Rs. 2,23,561/- has been disallowed by applying the provisions of Section 14A. The disallowance as well as computation made are both erroneous and misconceived. In para-8 of the assessment order the AO has dealt with the amount of Rs. 6,10,762/- being interest paid on borrowed funds. The AO has wrongly invoked the section 14A of the I. T. Act, 1961 without proper considering the facts. The assessee took loan in earlier years and invested it in the books of the proprietorship business named M/s. R.K. Enterprises. The entries of the relevant year were explained by filing copies of account duly confirmed but not properly discussed in para-8 of the assessment order. "Sec.14-A" deals with the expenditure incurred by the assessee and relation to the income which is not formed part of ....