R.K.M.Powergen Private Limited, CHENNAI V. DCIT, CHENNAI

CO 129/CHNY/2015

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4040 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-04-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 09-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B S PURUSHOTHAM
• Assessee Lawyers: H KABILA
• Keywords: Unexplained cash credit; Cost of acquisition; Onus to prove; Revenue expenditure; TDS; Rule 8D
• Section: 40A(3); 143(3); 14A; 40(a)(ia); 194C; 68; 69

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . . . , . , & BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.1868/MDS/2015 & C.O.NO.129/MDS/2015 ( / ASSESSMENT YEAR: 2010-11 ) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-5(2), CHENNAI-600 034. VS M/S. R.K.M POWERGEN PVT.LTD., 14/45, DR.GIRIAPPA ROAD, T.NAGAR, CHENNAI-600 017. PAN:AADCR0301B ( /APPELLANT) ( /RESPONDENT/CROSS OBJECTOR ) / APPELLANT BY : MS. H.KABILA, JCIT /RESPONDENT BY : MR. B.S.PURUSHOTHAM, C.A /DATE OF HEARING : 7 TH APRIL, 2016 /DATE OF PRONOUNCEMENT : 22 ND JUNE, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL AND CROSS OBJECTION ARE FILED BY THE REVENUE AND ASSESSEE RESPECTIVELY AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -3, CHENNAI DATED 30.03.2015 IN ITA NO.117/13-14 PASSED UNDER SECTION 143(3) & 250(6) OF THE ACT. ITA NOS.1868/MDS/2015 (A.Y. 2010-11) 2. THE REVENUE HAS RAISED THREE GROUNDS IN ITS APPE AL, HOWEVER THE CRUX OF THE ISSUE IS AS FOLLOWS:- 2 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION OF RS.5,12,12,200/- MADE BY THE LEARNED ASSESSING OFFICER UNDER SECTION 68 OF THE ACT BEING UNEXPLAINED CASH DEPOSITS. C.O.NO.129/MDS/2015 (A.Y.2010-11): 3. THE ASSESSEE HAS RAISED THE FOLLOWING THREE GROU NDS IN ITS CROSS OBJECTION:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE UNDER SECT ION 14A OF THE ACT WHEN NO EXPENDITURE ATTRIBUTABLE TO THE INCOME FROM MUTUAL FUNDS HAD BEEN CLAIMED AS DEDUCTION. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE UNDER SECT ION 40(A)(IA) OF THE ACT, WHEN THE SAID EXPENDITURE HAS BEEN CAPITALIZED AND HENCE SECTION 40(A)(IA) HAS NO APPLICATION. III) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE UNDER SECT ION 40A(3) OF THE ACT. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF POWER GENERATION, FILED ITS RETURN OF INCOME WITHIN THE D UE DATE FOR THE ASSESSMENT YEAR 2010-11. SUBSEQUENTLY, ASSESSM ENT 3 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 28 TH MARCH 2013. ITA NO.1868/MDS/2015 (A.Y. 2010-11) GROUND : ADDITION OF RS.5,12,22,200/- U/S. 68 BEING UNEXPLAINED CASH CREDITS: 5.1 WHILE SCRUTINIZING THE BOOKS OF ACCOUNT OF THE ASSESSEE, IT WAS REVEALED THAT THE ASSESSEE HAD DEP OSITED CASH AMOUNTING TO RS.5,12,22,200/- . ON QUERY, THE ASSESSEE HAD EXPLAINED THAT CASH WAS REFUND BY THE FRAGMENTE D LAND OWNERS TO WHOM ADVANCES WERE PAID BY THE ASSESSEE F OR ACQUIRING THEIR LANDS. THE LEARNED ASSESSING OFFIC ER DIRECTED THE ASSESSEE TO PRODUCE THE PARTICULARS SUCH AS NAM ES, ADDRESSES, PAN OF THE PERSONS TO WHOM THE ASSESSEE HAD ADVANCED CASH WHICH WAS SUBSEQUENTLY REFUNDED. HOWE VER, DESPITE SUFFICIENT OPPORTUNITIES PROVIDED TO THE AS SESSEE, THE ASSESSEE FAILED TO PRODUCE THE DETAILS CALLED FOR. HENCE, THE LEARNED ASSESSING OFFICER TREATED THE AMOUNT OF RS.5,12,22,200/- AS UNEXPLAINED CASH CREDITS IN THE BOOKS OF THE ASSESSEE AND BY INVOKING THE PROVISIONS OF SECT ION 68 OF THE ACT BROUGHT THE SAME TO TAX. 4 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 5.2. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE APPEAL OF THE ASSESSEE BY OBS ERVING AS UNDER:- 9.4 AFTER GOING THROUGH THE OVERALL FACTS, LEADING CIRCUMSTANCES AND THE IMPERATIVES OF BUSINESS EXPEDIENCY OF THE CASE, I AM NOT IN AGREEMENT WITH THE ACTION OF THE AO IN TREATING THE REFUND OF THE LAND ADVANCES, AS CASH CREDITS U/S 68 OF THE IT ACT. THE RE IS LITTLE DOUBT THAT THE AMOUNTS WITHDRAWN ON DIFFEREN T DATES AS TABULATED IN PARA 9.1 FROM THE INSTANT COMPANY'S BANK ACCOUNTS WERE WITHDRAWN SPECIFICALLY FOR THE PURPO SE OF LAND ADVANCES TO THE FRAGMENTED LAND OWNERS IN AND AROUND THE COMPANY'S FACTORY SITE AS SEEN REFLECTED UNDER THE HEAD 'ADVANCES' IN THE BALANCE SHEET OF THE ASSESSEE; FOR FY 2009-10. THEREFORE THERE WAS ALSO LITTLE DOUBT THAT THE AMOUNTS WITHDRAWN WERE OF THE ASSESS EE AND THAT WHICH WAS REFUNDED BACK ALSO IN CASH BY TH E FRAGMENTED LAND OWNERS DUE TO THEIR REFUSAL TO ACCE PT THE COMPANY DETERMINED RATES FOR ACQUISITION OF THEIR L ANDS AS AGAINST THE HIGHER RATES FIXED BY THE CHATTISGARH GOVERNMENT FOLLOWING DISPUTE BETWEEN THE PARTIES ON THE RATES, IN CONNECTION WITH THE COAL-BASED-POWER PROJ ECT AT JANJGIR, CHAMPA DISTRICT, CHATTISGARH WAS REDEPOSIT ED IN THE VERY SAME BANK ACCOUNTS OF THE COMPANY. AS SUCH , THE ORIGIN SOURCE AND NATURE OF ADVANCES OUT OF CAS H WITHDRAWN FROM THE BANK ACCOUNTS OF THE COMPANY SU PRA AND REFUNDED AND DEPOSITED BACK, ALSO IN CASH BY NA TURAL COROLLARY THEREFORE WOULD BE OF THE SAME SOURCE AND NATURE AND BY LOGICAL EXTENSION THEREOF, WOULD CERT AINLY NOT PARTA KE THE CHARACTER OF 'ANY SUM FOUND CREDIT ED' AS PER SECTION 68 OF THE ACT IN THE STRICTLY CONVENTIO NAL SENSE. 9.5 THE AR SUBMITTED THAT, AS HELD IN CIT V KAMADHE NU STEEL AND ALLOYS LTD. (361 ITR 220) (DELHI) THAT, I T IS A WELL ESTABLISHED PRINCIPLE OF LAW THAT IN . ANY MATTER T HE ONUS BROUGHT IS NOT A STATIC ONE THOUGH THE INITIAL BURD EN IS UPON THE ASSESSEE BUT ONCE HE PROVES PRIMA FACIE TH E SOURCE OF THE FUNDS THEN THE ONUS TO REBUT THE SAME WOULD SHIFT TO THE REVENUE AND EVEN IF THE AO HAD SUSPICION IN THE MATTER THE AO FAILING TO CARRY HIS SUSPICION TO ITS LOGICAL CONCLUSION BY FURTHER INVESTIGATION DOES MAKE SENSE IN 5 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 THE FACTS OF THE INSTANT CASE. 9.6 AS HELD IN CIT VS DWARKADISH INVESTMENT PVT. LTD. 330 ITR 298 JUST BECAUSE THE CREDITORS / SHARE APPLICAN TS COULD NOT BE FOUND AT THE ADDRESS GIVEN IT WOULD NO T GIVE THE REVENUE THE RIGHT TO INVOKE SECTION 68 AND ONE MUST NOT LOOSE SIGHT OF THE FACT THAT IT IS THE REVENUE THAT HAS ALL THE POWERS AND WERE WITHAL TO TRACE ANY PERSON AND MOREOVER IT IS SETTLED LAW THAT THE ASSESSEE NEED N OT PROVE THE 'SOURCE OF THE SOURCE', ONCE ADEQUATE EVIDENCE / MATERIAL IS GIVEN WHICH WOULD PRIMA FACI E DISCHARGE THE BURDEN OF THE ASSESSEE, THEREAFTER IN CASE SUCH EVIDENCE HAS TO BE DISCARDED OR IS TO BE PROVE D THAT IT IS A 'CREATED' EVIDENCE THE REVENUE IS SUPPOSED TO MAKE THOROUGH INVESTIGATION, BEFORE IT COULD NAIL THE ASSESSEE AND FASTEN HIM WITHA LIABILITY UNDER SECTI ON 68 AND JUST BECAUSE SOME OF THE CREDITORS / SHARE APPL ICANTS COULD NOT BE FOUND AT THE ADDRESS GIVEN IT WOULD NO T GIVE THE RIGHT TO THE REVENUE TO INVOKE SECTION 68 WITHO UT ANY ADDITIONAL MATERIAL TO SUPPORT SUCH A MOVE. 9.7 IN THE INSTANT CASE, THE ASSESSEE DOES APPEAR T O HAVE PROVIDED THE BANK AND BRANCH ADDRESSES, ITS COMPLET E ACCOUNT COPIES REFLECTING THE AMOUNTS INITIALLY WIT HDRAWN IN CASH AS ADVANCES TO THE FRAGMENTED LAND OWNERS F OR PURCHASE OF THEIR LANDS AND THE REFUNDS OF AMOUNTS OBTAINED BACK FROM THEM WHEN THE DEAL DID NOT GO TH ROUGH ETC. SHOWING THE DETAILED BREAK-UP OF THE WITHDRAWA L AND THE ADVANCES MADE AND REFUNDS OBTAINED AND REDEPOSI TED BACK AND THE CLOSE PROXIMITY OF DATES BETWEEN THE AFORESAID EVENTS. 9.8 IT HAD ALSO CLEARLY SET OUT THE ONEROUS CONDITI ONS PREVAILING, IN DEALING WITH NUMEROUS SMALL AND MARG INAL LAND OWNERS, MOSTLY POOR AND ILLITERATE IN A REMOTE RURAL AREA IN A LARGELY UNBANKED AGRICULTURAL CASH ECONOM Y, WITHOUT PROPER AND ADEQUATE DOCUMENTATION WHICH LED THE COMPANY IN QUESTION, IN MAKING THE ADVANCES THROUGH IDENTIFIED MIDDLEMEN CALLED 'COORDINATORS' IN CASH. ACCORDING TO THE AR IT HAD ALSO GIVEN THE NAMES AND ADDRESSES OF THE 'COORDINATORS' WHO WERE BASICALLY PANCHAYAT HEADS AND VILLAGE ELDERS FROM WHOM ALL RELEVANT INFORMATION NEEDED BY THE AO COULD HAVE BE EN COLLECTED ABOUT THE NAMES AND ADDRESSES OF THE INDI VIDUAL LAND OWNERS AND THE MODE AND DATES OF THE LAND ADVANCES AND ITS REFUND AND REDEPOSITION IN THE BAN K 6 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 ACCOUNTS OF THE ASSESSEE. 9.9 IN THIS CONNECTION, THE AO HAS NOWHERE MADE OUT A CONVINCING CASE THAT THE REFUNDS OF THE LAND ADVANC ES INITIALLY MADE TO THE LAND HOLDERS / OWNERS WERE NO T FROM THE CASH WITHDRAWN INITIALLY FROM THE COMPANY'S BAN K ACCOUNTS AND SINCE SUCH AMOUNTS WERE TO BE PAID TO SMALL AND MARGINAL FARMERS MOST OF WHOM WERE POOR A ND ILLITERATE AND HAD NO BANK ACCOUNTS AND OBVIOUSLY N O PANS AND THEREFORE HAD TO BE NECESSARILY PAID IN CA SH, AS COMPENSATION FOR ACQUIRING / THEIR LANDS THROUGH MI DDLE MEN CALLED 'COORDINATORS' AND THEREFORE THE QUESTIO N OF PAYMENT TO THEM DIRECTLY TO THEIR BANK ACCOUNTS; AS ARGUED BY THE AO, WOULD NOT ARISE. 9.10 UNDER THE CIRCUMSTANCES, THE AO WOULD HAVE DON E WELL TO CALL FOR DETAILS LIKE THE NAMES AND ADDRESS ES OF THE FRAGMENTED LAND OWNERS, THE AMOUNTS AND MODE OF PAYMENT FROM THE 'COORDINATORS' WHO HAD PAID THE AMOUNTS TO THEM COLLATERAL COLLECTED FROM THEM IF A NY ON BEHALF OF THE COMPANY OR EVEN THE BANK MANAGERS MANAGING THE COMPANY'S ACCOUNTS WHO WOULD HAVE NATURALLY BEEN MORE WILLING & FORTHCOMING WITH INFO RMATION AND BACK-UP DOCUMENTATION AS COMPARED TO THE MOSTLY ILLITERATE POOR LAND OWNERS UNSCHOOLED IN FINANCIAL ACCOUNTING DOCUMENTATION ETC., IN ORDER TO TEST THE VERACITY OF SUCH. PAYMENTS REPAYMENTS BUT IN THE AB SENCE OF ANY SUCH EXERCISE BY THE AO, IT WOULD BE UNFAIR TO PENALISE THE COMPANY ONLY FOR THE REASON THAT THE ADDRESSES OF THE PERSONS AND THE MODE OF. PAYMENTS WERE NOT FURNISHED WITH FULL AND PROPER DOCUMENTARY EVIDENCE, WHICH BY ITS VERY NATURE AND SOCIO-ECONOMIC MILIEU WOULD BE DIFFICULT TO COME BY, PARTICULARLY IN A REMOTE RURAL AREA WHERE THE LANDS WERE TO BE ACQUIR ED, WHERE THE PREDOMINANT MODE OF PAYMENT IN A LARGELY RURAL UNBANKED AGRICULTURAL ECONOMY, IS NORMALLY IN CASH AS ALREADY STATED EARLIER WITHOUT PROPER AND ADEQUATE DOCUMENTATION RELATING TO FINANCIAL TRANSACTIONS IN THE CONVENTIONAL SENSE, LARGELY DUE TO ILLITERACY AND P REVALENT SOCIO-ECONOMIC PRACTICES. 9.11 I AM ALSO IN AGREEMENT WITH THE AR'S VERBAL SUBMISSION THAT IN THE CONTEXT OF THE PROVISIONS OF SECTION 68 IT WOULD NOT BE OUT OF PLACE TO MENTION THAT ONE HAS TO KEEP IN MIND THE LEGAL MAXIM- 'LEX NON COJIT AD 7 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 IMPOSSIBILA' WHICH MEANS, THAT THE LAW DOES NOT COM PEL A PERSON TO DO THAT WHICH HE CANNOT POSSIBLY PERFORM. IN THAT CONTEXT IN THE PREVALENT AGRICULTURAL/SOCIAL C ONDITIONS AS DESCRIBED SUPRA, IT WOULD HAVE BEEN ASKING FOR T OO MUCH TO EXPECT THE ASSESSEE WHOSE REPRESENTATIVES H AD NO KNOWLEDGE OF THE LOCAL CONDITIONS AND PERSONS /S OCIAL MILIEU/PREVALENT CUSTOMS AND PRACTICES, EVEN, RELAT ING TO FINANCIAL DEALINGS INCLUDING PURCHASE OF LAND TO DE AL WITH HUNDREDS OF SMALL AND FRAGMENTED LAND OWNERS TO PAR T WITH THEIR LANDS TO WHOM MOST OF THEM ARE ALSO USUALLY EMOTIONALLY ATTACHED TO. 9.12 THE AO HAS CRUCIALLY NOT QUESTIONED OR DOUBTED THE GENUINENESS OF THE PAYMENTS MADE TO THE FRAGMENTED LAND OWNERS THROUGH LOCALLY REPUTED AND PERSUASIVE MIDDLEMEN OR 'COORDINATORS', AS ALSO THE REASONS ADVANCED BY THE ASSESSEE FOR THE SAME BECAUSE INDIVIDUALLY DEALING WITH NUMEROUS SUCH LOCAL LAND OWNERS, MOSTLY ILLITERATE AND POOR; OF VARIOUS SIZES, SOME OWNED BY MULTIPLE OWNERS SPREAD OVER 12 VILLAGES IN A REMOTE AGRARIAN PLACE WOULD HAVE BEEN AN UNPRACTICAL AND CUMBERSOME PROCESS. NEITHER HAS THE AO DISPUTED THE WELL KNOWN AND PUBLICIZED FACT THAT FOLLOWING LONG STANDING. DISPUTE BETWEEN THE COMPANY AND. THE LAND OWNERS OVER THE RATE OF COMPENSATION LEADING TO . INTERVENTION' BY THE CHATTISGARH GOVERNMENT AND THE SUBSEQUENT SUBSTANTIAL UPWARD REVISION OF THE RATE OF COMPENSATION FAR THE SUBJECT LANDS AND THE PROBLEMS FACED BY THE COMPANY IN GETTING THE ADVANCES BACK F ROM LAND OWNERS WHO REFUSED TO PART WITH THEIR LANDS, I N THE INTERIM PERIOD, BEFORE THE INTERVENTION BY THE STAT E GOVERNMENT. NOR HAS THE AO MADE OUT A CASE THAT THE REFUNDS RECEIVED FROM THE LAND OWNERS WERE NOT ACTU ALLY FROM THEM BUT FROM 'OTHER CREDITORS' OR 'NAME LENDE RS' OF THE COMPANY, THE SOURCE AND NATURE OF WHICH WAS DUB IOUS AND NOT EXPLAINED SATISFACTORILY BY THE COMPANY, THEREBY WARRANTING AN ADDITION U/S 68 OF THE ACT. 9.13 THERE IS THEREFORE NO GAINSAYING THAT NONE OF THE CONDITIONALITIES OF SECTION 68 UNDER WHICH THE AO H AS MADE THE IMPUGNED ADDITION RELATING TO THE IDENTIT Y OR CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION S ARE EVEN RELEVANT OR EVEN APPLICABLE IN THE INSTANT CAS E IN THE CONVENTIONAL SENSE RELATING TO UNKNOWN, NON-CREDITW ORTHY 'CREDITORS' INTRODUCING OR ROUTING THE ASSESSEE'S O WN UNACCOUNTED UNEXPLAINED MONEY IN NON-GENUINE AND UNSATISFACTORY TRANSACTIONS AND MANNER. 8 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 9.14 IN FACT, ON THE CONTRARY, IN THE INSTANT CASE THERE WAS SEEN A DIRECT CORRELATION BETWEEN THE AMOUNT OF CAS H DEPOSITS REFUNDED IN THE BANKS AS STATED BY THE AO HIMSELF IN THE ASSESSMENT ORDER AMOUNTING TO RS.5,12,22,200/-AND WITHDRAWALS OUT OF WHICH AMOUNT ING TO RS. 5,12,03,000/- WHICH WERE INITIALLY PAID TO T HE FRAGMENTED LAND OWNERS AND WHICH WAS SUBSEQUENTLY REFUNDED BY THEM DUE TO THE REASON THAT THEY EXPECT ED AND DEMANDED A HIGHER RATE OF COMPENSATION FOR THEI R LANDS AND REFUSED TO PART WITH THEIR LANDS AT THE C OMPANY DETERMINED RATE. AS SUCH, IT BECOMES QUITE OBVIOUS IN THE ABSENCE OF ANYTHING CONTRARY' BROUGHT ON RECORD, TH AT THE ADVANCES WERE INDEED INITIALLY WITHDRAWN FROM THE B ANK ACCOUNTS OF THE COMPANY AND LATER MORE OR LESS THE SAME AMOUNTS DEPOSITED BACK IN THE VERY SAME BANK ACCOUN TS ON ITS BEING REFUNDED BACK BY THE LAND OWNERS AND A S SUCH THERE IS NO QUESTION OF IT BEING 'ANY SUM FOUN D, CREDITED IN THE BOOKS OF AN ASSESSEE' WHERE THE ASS ESSEE 'EITHER HAS NOT . EXPLAINED OR NOT SATISFACTORILY E XPLAINED' ABOUT THE 'NATURE AND SOURCE THEREOF AS PER THE TER MS AND WORDINGS OF SECTION 68, AS THE NATURE AND SOURCE OF THE AMOUNTS BOTH INITIALLY WITHDRAWN AND LATER REFUNDED AND DEPOSITED BACK, WAS QUITE CLEAR BESIDES BEING PROPE RLY EXPLAINED AND THEREFORE IT WOULD NOT PARTAKE THE CH ARACTER OF 'ANY SUM CREDITED' UNDER SECTION 68 OF THE ACT, UNDER WHICH THE AO DISALLOWED THE SAME AND ADDED BACK TO THE TOTAL INCOME. 9.15 FURTHER AND MORE IMPORTANTLY THE AO WHILE MAKI NG THE IMPUGNED ADDITION APPEARS TO HAVE MISTAKENLY AN D ERRONEOUSLY SOUGHT TO DETACH THE REFUNDED AMOUNTS A S 'SUM FOUND CREDITED IN THE BOOKS OF THE ASSESSEE A S PER SECTION 68 FROM THE 'NATURE AND SOURCE' OF THE AMOU NTS PAID BY THE ASSESSEE IN THE FIRST PLACE, TO THE LA ND OWNERS WHICH HE HAS NOT DISPUTED OR CONTROVERTED, WHILE ON THE OTHER HAND NOT BRINGING ANY MATERIAL ON RECORD TO SUBSTANTIATE. THAT THE REFUNDED AMOUNTS IN CASH REDEPOSITED BACK IN THE COMPANY'S BANK ACCOUNTS WER E 'CASH CREDITS' OF THE ASSESSEE ITSELF ROUTED BACK B Y 'OTHER CREDITORS' OR 'NAME LENDORS' OF THE ASSESSEE. 9.16 IT HAS BEEN PERTINENTLY HELD IN THE CASE OF DI VINE LEASING AND FINANCE LTD. 299 ITR 268 (DEL) THAT WHE RE THE PREPONDERANCE OF EVIDENCE INDICATED ABSENCE OF CULPABILITY AND COMPLICITY OF THE ASSESSEE IT SHOUL D NOT BE HARASSED BY THE REVENUE INSISTENCE THAT IT SHOULD P ROVE 9 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 THE NEGATIVE AND FURTHER THAT A DELICATE BALANCE MUST BE MAINTAINED WHILE WALKING THE TIGHT ROPE OF SECTION 68 AND 69 OF THE IT ACT. THE BURDEN OF PROOF CAN SELDOM BE DISCHARGED TO THE HILT BY THE ASSESSEE AND IF THE A O HARBOURS DOUBTS OF THE LEGITIMACY OF THE SUBSCRIPTI ON HE IS EMPOWERED, NAY, DUTY BOUND, TO CARRY OUT THOROUGH INVESTIGATIONS BUT I F THE AO FAILS TO UNEARTH ANY WRONG OR ILLEGAL DEALINGS HE CANNOT OBDURATELY ADHERE TO HIS SUSPICIONS AND TREAT THE SUBSCRIBED CAPITAL AS THE UNDISCLOSED INCOME OF THE COMPANY. IN THE CASE OF T HE INSTANT ASSESSEE TOO, AS DETAILED IN THE FOREGOING PARAS, THE AO APPEARS TO HAVE NOT UNEARTHED ANY WRONG OR ILLEGAL DEALINGS BY THE COMPANY AND SIMPLY ADDING T HE REFUNDED AMOUNT AS CASH CREDITS U/S 68 DUE TO THE I NABILITY OF THE ASSESSEE TO FURNISH THE NAMES I ADDRESSES I PANS OF INDIVIDUAL LAND OWNERS WITHOUT THOROUGH INVESTIG ATION ON THE LINES SUGGESTED IN THE FOREGOING PARAS BY THE A O, APPEARS TO BE IMPROPER AND UNREASONABLE. REJECTION OF THE EXPLANATION OF THE ASSESSEE BY IGNORING TO CONS IDER IMPORTANT PIECES OF EVIDENCE IS AN ERROR IN LAW AS HELD IN BHAGWATI PRASAD MISRA V CIT35 ITR 97 (ORI). 9.17 AS SUCH, IN THE LIGHT OF THE ABOVE DISCUSSIONS, PARTICULARLY THE OBVIOUS PREPONDERANCE OF PROBABILI TIES AS ALSO EVIDENCE OF THE 'NATURE AND SOURCE' AND EVEN T HE TOTAL AMOUNTS OR EVEN THE PROXIMATE DATES OF THE RE FUNDED AMOUNTS BY THE FRAGMENTED LAND OWNERS REDEPOSITED BACK IN THE COMPANIES I BANK ACCOUNTS BEING ALMOST THE VERY SAME AMOUNTS WITHDRAWN IN THE FIRST PLACE BY THE ASSESSEE FROM ITS BANK ACCOUNTS AMOUNTING TO ` 5,12,22,200/- AND RS.5,12,03,000/- RESPECTIVELY AS DETAILED SUPRA AND AS ACKNOWLEDGED BY THE AO HIMSEL F IN THE ASSESSMENT ORDER FOR SETTING UP ITS COAL-BASED- POWER-PROJECT, WHOSE ATTENDANT AND SURROUNDING FACT S HAVE NOT BEEN CONTROVERTED WITH ANY WORTHWHILE OR CONVINCING REASONING / EVIDENCE BY THE AO, THE ADDI TION OF RS.5,12,22,000 /- MADE U/S 68 OF THE ACT AS UNEXPLA INED AND NON-GENUINE CASH CREDIT, IS HELD TO BE LEGALLY UNTENABLE AND THEREFORE DIRECTED TO BE DELETED. THI S GROUND IS THEREFORE ALLOWED. 5.3 BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTA TIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER WHILE AS THE 10 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 LEARNED AUTHORIZED REPRESENTATIVE ARGUED IN SUPPORT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS). 5.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM T HE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND MERIT IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BE CAUSE OF THE FOLLOWING REASONS:- I) IT IS EVIDENT THAT THE ASSESSEE HAD WITHDRAWN CA SH FROM ITS BANK ACCOUNT AND REFLECTED THE SAME IN THE BALANCE SHEET FOR THE RELEVANT ASSESSMENT YEAR, THU S THE ORIGIN AND SOURCE OF ADVANCE IS ESTABLISHED. II) THE ASSESSEE HAD PAID ADVANCES THROUGH INTERMEDIARIES FROM WHOM THE FACTS COULD HAVE BEEN VERIFIED BY THE LEARNED ASSESSING OFFICER, WHICH HE FAILED TO DO SO. III) PAYMENTS ARE EXTENDED BY CASH TO VILLAGERS WHO HAD MOSTLY SMALL LAND HOLDINGS, POOR AND ILLITERATE AND NORMALLY THE VILLAGE HEADMAN NEGOTIATE ON BEHALF OF THEM. 11 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 IV) IT IS ALSO EVIDENT THAT THERE WERE DISPUTES WIT H RESPECT TO THE COST OF ACQUISITION OF LANDS. V) VILLAGERS WHO HAD SMALL LAND HOLDINGS ENGAGED IN FARMING NORMALLY WILL NOT APPLY FOR PAN CARD AND AL SO NOT HAVE BANK ACCOUNTS. VI) ON THE IDENTICAL ISSUE FOR THE EARLIER ASSESSM ENT YEARS IN THE CASE OF THE ASSESSEES RELATED COMPANY IN ITA NO.1864 TO 1867VIDE ORDER DATED 22.06.2016, THI S BENCH OF THE TRIBUNAL HELD THE ISSUE IN FAVOUR OF T HE ASSESSEE. 5.5 FOR THE AFORESAID REASONS AND CONSIDERING THE F ACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND IT NECESS ARY TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) ON THIS ISSUE. ACCORDINGLY, TH IS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE. C.O.NO.129/MDS/2015 (A.Y.2010-11): GROUND NO.1 : DISALLOWANCE UNDER SECTION 14A: 6.1 IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICE R THAT THE ASSESSEE HAD EARNED DIVIDEND FROM MUTUAL FUNDS 12 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 AMOUNTING TO RS. 1,46,22,839/-. THEREFORE, HE INVOK ED THE PROVISIONS OF SECTION 14A R.W.R. 8D OF THE RULES B Y REJECTING THE EXPLANATION MADE BY THE ASSESSEE THAT NO DEDUCT ION IN RELATION TO EXPENDITURE IN RESPECT OF INCOME HAD BE EN CLAIMED. THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) BY FOLLOWING THE DECISION DECIDED BY THE CHENNAI BE NCH OF THE TRIBUNAL IN THE CASE OF LAKSHI RING TRAVELLER V S. ACIT IN ITA NO.2083/MDS/20110 HELD THE ISSUE AGAINST THE AS SESSEE AND IN FAVOUR OF THE REVENUE. FURTHER, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAD OBSERVED A S FOLLOWS WHILE DECIDING AGAINST THE ASSESSEE:- 6.7 IN ANY CASE, IT WAS SEEN FROM THE ASSESSMENT O RDER AND THE SUBMISSIONS MADE BY THE AR DURING THE COUR SE OF APPEAL PROCEEDINGS, THAT HE HAD CLAIMED INDIRECT EXPENSES AND OTHER ADMINISTRATIVE EXPENSES IN ITS P &L ALE APART FROM DIRECT EXPENSES INCURRED ON ACCOUNT OF PAYMENT OF MANAGEMENT FEES TO THE MUTUAL FUND COMPANY TOWARDS MANAGEMENT OF OTHER INVESTMENT IN DEBT FUNDS ALSO. THEREFORE, AS EVIDENT FROM THE ABO VE, BOTH DIRECT AND INDIRECT EXPENSES HAD BEEN INCURRED BESIDES INVESTMENT MADE IN RELATION TO EXEMPT INCOM E IN THE INSTANT CASE. THEREFORE THE AO WAS CLEARLY JUST IFIED IN DETERMINING THE EXPENDITURE IN RELATION TO TAX EXEM PT INCOME IN ACCORDANCE WITH RULE 8D(2) RWS 14A OF THE ACT. 6.8 THEREFORE THE ADDITION MADE BY THE AO ON AC COUNT OF DISALLOWANCE OF EXPENDITURE AS PER RULE 8D AND ADDITION TO THE TOTAL INCOME OF THE ASSESSEE AND CONSEQUENT REDUCTION OF THE SAME FROM THE NET BLOCK OF ASSETS IS CONFIRMED. THIS GROUND OF APPEAL IS THERE FORE 13 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 DISMISSED. 6.2 CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISION OF THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) WHO HAD ONLY FOLLOWED THE ORDER OF THE CH ENNAI BENCH OF THE TRIBUNAL, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH HIS ORDER. ACCORDINGLY, THIS ISSUE IS HELD AGA INST THE ASSESSEE. GROUND NO.2 : DISALLOWANCE UNDER SECTION 40(A)(IA): 7.1 IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICE R THAT THE ASSESSEE HAD PAID TO M/S.G.M. ENERGY SERVICES P VT.LTD. RS.8,73,576/- ON WHICH TAX WAS NOT DEDUCTED AT SOUR CE. IT WAS EXPLAINED BY THE ASSESSEE THAT BILL WAS RAISED FOR THE SERVICES RENDERED ONLY FOR RS.4,85,320/- AND THE BA LANCE AMOUNT OF RS.4,36,788/- WAS PAYMENT MADE TOWARDS ADVANCE. IT WAS FURTHER SUBMITTED THAT TDS WAS DED UCTED ON THE BILL AMOUNT OF RS.4,85,320/- AND TAX WAS DEDUCT ED FOR THE SAME AND PAID INTO GOVT. TREASURY ON 25.05.2010. WH ILE AS, FOR THE ADVANCE AMOUNT OF RS.4,36,788/- TAX WAS REM ITTED IN THE SUBSEQUENT YEAR I.E.,ON 21.06.2011. HENCE IT WA S 14 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 PLEADED THAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WILL NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE. HOWEVER, THE LEARNED ASSESSING OFFICER REJECTED THE CONTENTIONS OF THE ASSESSEE AND OBSERVED AS FOLLOWS: SINCE SECTION 40(A)(IA) DOES NOT MAKE ANY DISTINC TION BETWEEN CAPITAL AND REVENUE EXPENDITURE, AND ALSO T HE ASSESSEE HAS FAILED TO COMPLY WITH THE TDS PROVISIO NS, THE BALANCE AMOUNT OF RS.4,36,788/- IS HEREBY DISALLOWED AND REDUCED FROM THE CAPITAL AMOUNT OF T HE SUBJECT ASSESSMENT YEAR 2010-11. 7.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) HELD THE ISSUE IN FAVOUR OF THE REVENUE B Y OBSERVING AS FOLLOWS:- 7.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT VIS-A-VIS THE FACTS OF THE CASE, REASONING OF THE AO IN MAKING THE AFORESAID DISALLOWANCE AND I AM IN AGREE MENT WITH HIS ACTION OF DISALLOWING THE AMOUNT OF RS.4,3 6 , 788/-. UNDER SECTION 40(A)(IA). IT IS CLEAR FROM THE CONTE NTS OF THE CASE THAT THE APPELLANT . HAD PAID RS.8,73,576/- CO NSISTING ALSO OF THE ABOVE RS.4,36,788/- TO M/S. G.M. ENERGY SERVICES P. LTD. ON 20.11.2009 BUT TAX HAD BEEN DED UCTED ON THE ABOVE ADVANCE AMOUNT OF RS.4,36,788/- ONLY ON 21.06.2011. A COMBINED READING OF SECTION 40(A)(IA) ALONG WITH SECTION 194C CLEARLY MANDATES THAT TDS SHOULD BE DEDUCTED AT THE TIME OF CREDIT OF SUCH SUM TO THE A CCOUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE WHICHEVER IS EARLIER, WHICH IS CLEARLY NOT THE CASE IN THE INSTANT ASSESSEE, AS THE TDS WAS DEDUCTED ON THE S AID ADVANCE ALMOST TWO YEARS LATER THAN THE CREDIT. OF SUCH SUM TO THE ACCOUNT OF THE CONTRACTOR AND AS SUCH TH E AO WAS JUSTIFIED IN DISALLOWING THE SAME AND REDUCING IT FROM THE COST OF ASSETS. 15 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 7.4 THE AO WAS FURTHER RIGHT IN HOLDING THAT SEC TION 40(A)(IA) DOES NOT MAKE ANY DISTINCTION BETWEEN CAP ITAL AND REVENUE EXPENDITURE AND THEREFORE THE AO'S CLAIM TH AT SINCE THE AMOUNT WAS CAPITALIZED SECTION 40(A)(IA), HAD N O APPLICATION IS WITHOUT MERIT AND THEREFORE REJECTED . THE ASSESSEE'S' CONTENTION THAT SINCE EXPENDITURE RELAT ING TO THE ABOVE ADVANCE HAD NOT BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT AND THEREFORE SECTION 40(A)(IA) SHOULD NOT BE APPLIED ALSO IS WITHOUT MERIT SINCE IT IS THE RESPONSIBILITY OF THE ASSESSEE TO CLAIM EXPENDITURE FROM THE PROFIT & LOS S ACCOUNT IN ORDER TO ARRIVE AT THE TRUE AND CORRECT PROFITS AND THE DEPARTMENT CANNOT BE HELD RESPONSIBLE FOR FAILURE O F THE ASSESSEE TO DEDUCT TAX AT SOURCE IN A TIMELY MANNER AND NOT CLAIMING THE EXPENDITURE IN THE PROFIT & LOSS ACCOU NT AS DONE BY THE ASSESSEE IN THE INSTANT CASE. THE CONTENTION AN D ACTION OF THE AO IN DISALLOWING THE ADVANCE AMOUNT OF RS.4 ,36,788/- U/S 40(A)(IA) FINDS SUPPORT IN A CATENA OF JUDGEMEN TS INCLUDING (I) ABAD BUILDERS PVT. LTD. VS. ADDL. CIT, (COCHIN ITAT) (62 SOT 106); (II) SAI BUILDERS VS ITO, (AGRA ITAT) (152 IT D 462) AND (III) ITO V RAJESH A BORACHA, RAJKOT ITAT (153 ITD 537). IN VIEW OF THE ABOVE DISCUSSION, THE ASSESSEE'S EXP LANATION IS REJECTED AND THE ADDITION MADE BY THE AO U/S 40(A)( IA) IS CONFIRMED. THIS GROUND OF APPEAL IS THEREFORE DISMI SSED. 7.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS ON RECORD. FROM THE FACTS OF THE CASE, IT IS APPARENT THAT THE LEARNED ASSESSING OFFICER HAS REDUCED RS.4,36,788/- FROM THE CAPITAL BY INVOKING THE PRO VISIONS OF SECTION 40(A)(IA) OF THE ACT DUE TO THE VIOLATION OF SECTION 194C OF THE ACT. THE CLAIM OF THE ASSESSEE IS THAT IT HAD ONLY ADVANCED AMOUNT TO ITS CONTRACTOR AND THEREFORE HAS NOT CLAIMED ANY EXPENDITURE FOR THE RELEVANT ASSESSMENT YEAR. HENCE, ADDITION CANNOT BE MADE INVOKING THE PROVISI ONS OF 16 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 SECTION 40(A)(IA) OF THE ACT. WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE. IN THE CASE OF THE ASSESSEE, THE ASSESSEE HAS PAID ONLY AN ADVANCE AND NOT CLAIMED THE SAME A S EXPENDITURE. WHEN THE ASSESSEE HAS NOT CLAIMED THE SUM PAID AS EXPENDITURE, THE QUESTION OF DISALLOWANCE D OES NOT ARISE. FURTHER THERE IS NO PROVISION IN THE ACT TO REDUCE SUCH SUM FROM THE CAPITAL AMOUNT OF THE ASSESSEE. THEREF ORE, WE HEREBY STRIKE DOWN THE ACTION OF THE REVENUE ON THI S COUNT. IT IS ORDERED ACCORDINGLY. GROUND NO.3: DISALLOWANCE UNDER SECTION 40A(3): 8.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSE E HAD MADE SEVERAL CASH PAYMENTS EXCEEDING RS.20,000/- TO A SINGLE PERSON IN A DAY UNDER THE HEAD TRAVELLING E XPENSE, BROKERAGE COMMISSION, BUSINESS PROMOTION EXPENSE & OFFICE MAINTENANCE EXPENSE WHICH IS VIVIDLY EXPLAINED IN T HE ORDER OF THE LEARNED ASSESSING OFFICER. THEREFORE, THE L EARNED ASSESSING OFFICER MADE ADDITION OF THE SAME BY INVO KING THE PROVISIONS OF SECTION 40A(3) OF THE ACT. 17 ITA NO.1868 /MDS/2015 & CO. NO.129/MDS/2015 8.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DISMISSED THE APPEAL OF THE ASSESSEE BY S TATING THAT THE ONUS IS ON THE ASSESSEE TO SUBSTANTIATE TH E CLAIM THAT IT HAS NOT MADE ANY PAYMENT EXCEEDING RS.20,00 0/- BY CASH IN A SINGLE DAY TO A SINGLE PERSON. SINCE NO MATERIALS OR CONVINCING ARGUMENTS ARE BROUGHT BEFORE US BY THE L EARNED AUTHORIZED REPRESENTATIVE ON THIS ISSUE, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDERS OF THE REVEN UE. HENCE, THIS GROUND IS DECIDED AGAINST THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 22 ND JUNE, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 22 ND JUNE, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /