ITO, New Delhi V. M/s Madhav Tech (India) Pvt. Ltd., New Delhi

ITA 1312/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4081 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 12-05-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 14-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRUJANI MOHANTY
• Keywords: Business expenditure; Earning of tax free income; Additional evidence
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: E NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO: 1312/DEL/2011 ASSESSMENT YEAR : 2007-08 ITO, WARD (1), VS. M/S MADHAV TECH (INDIA)P.LTD . NEW DELHI D-15/2, NEW GOBINPURA, ST.NO.9 NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. SRUJANI MOHANTY, SR.D.R. RESPONDENT BY : NONE (APPLICATION REJECTED). O R D E R PER SHAMIM YAHYA, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE REVENUE IS DIRECTED AG AINST THE ORDER OF LD.CIT(A)-IX, NEW DELHI DATED 15.11.2010 AND PERT AINS TO A.Y. 2007-08. 2. THE ISSUE RAISED IS THAT THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 10 LAKHS MADE U/S 68 OF THE INCOME TAX ACT. 3. ON THIS ISSUE THE A.O. NOTED THAT DURING THE YEAR THE ASSESSEE CLAIMED TO HAVE RECEIVED SHARE APPLICATION MONEY OF RS. 10 LAKHS FROM ONE SRI DEVENDER PARASHAR. AO MADE NECESSARY ENQUI RY IN THIS REGARD ITA 1312/DEL/2011 PAGE 2 OF 7 A.Y. 2007-08 M/S MADHAV TECH. (INDIA) P.LTD., NEW DELHI FROM THE ASSESSEE. HOWEVER HE WAS NOT SATISFIED WI TH THE REPLIES. THE AO OBSERVED THAT IT IS FOUND FROM THE DOCUMENTS IN RESPECT OF SHARE APPLICATION FOR RS. 10 LAKHS FROM SHRI DEVENDER SIN GH WAS FULL OF CONTRADICTION. THE AO OBSERVED THAT THE NAME OF TH E PARTY WAS NOT CLEAR. HE FURTHER OBSERVED THAT NO DOCUMENTARY EVIDENCE H AS BEEN FURNISHED TO ESTABLISH HIS CREDIT WORTHINESS TO HAVE ADVANCED RS. 10 LAKHS TO THE ASSESSEE. THE ONLY DOCUMENTARY EVIDENCE FOUND IN TH E FORM OF PAY SLIP FOR 2007 WAS FURNISHED AND THE SAME WAS REJECTED BY THE A.O. 4. UPON ASSESSEES APPEAL THE LD.CIT(A) CONSIDERED THE ISSUE AND HELD AS UNDER. DURING THE YEAR THE APPELLANT HAD SHOWN RECEIPT OF SHARE APPLICATION MONEY OF RS. 10 LAKHS FROM AN NRI. DURING THE ASSE SSMENT PROCEEDINGS THE LD.AO DIRECTED THE APPELLANT TO EXPLAIN THE SAI D CREDIT. IN RESPONSE THE APPELLANT FILED COPY OF CONFIRMATION LETTER, PRINT OUTS OF E-MAILS SENT BY THE SAID CREDITOR AND ALSO HIS TWO PAY SLIPS TO ESTABLI SH THE IDENTITY AND CREDIT WORTHINESS. DUE TO THE PAUCITY OF TIME, THE APPEL LANT COULD NOT FILE A COPY OF HIS BANK STATEMENT, WHICH WAS FILED DURING THE A PPELLATE PROCEEDINGS AS AN ADDITIONAL EVIDENCE. DISBELIEVING THE DOCUME NTS FILED BY THE APPELLANT, THE AO MADE AN ADDITION OF RS. 10 LAKHS U/S 68. DURING THE PROCEEDING BEFORE ME, THE APPELLANT HAS FILED COPY OF BANK STATEMENT OF THE CREDITOR DEMONSTRATING THAT HE HAD INVESTED RS. 10 LAKHS OUT OF HIS NRE ACCOUNT WITH ICICI BANK LTD. IN WHICH HE HAD RE MITTED MONEY OUT OF HIS INCOME FROM EMPLOYMENT IN USA. THE LD.AR ALSO SUBMITTED THAT THE APPELLANT HAD REFUNDED THE SHARE APPLICATION MONEY OF RS. 10 LAKHS TO THE APPLICANT SUBSEQUENTLY FOR WHICH THE DETAILS OF THE PAYMENT ALONG WITH THE DOCUMENTARY EVIDENCES LIKE CERTIFICATE FROM THE BAN K, THE BANK STATEMENTS ITA 1312/DEL/2011 PAGE 3 OF 7 A.Y. 2007-08 M/S MADHAV TECH. (INDIA) P.LTD., NEW DELHI BOTH OF THE APPELLANT AS WELL AS THAT OF THE CREDIT OR/APPLICANT ETC. WERE FILED. THE APPELLANT HAS ALSO SUCCESSFULLY REPLIED TO VARIOUS DOUBTS RAISED BY THE AO AS REGARDS THE AMOUNT APPEARING IN THE SA LARY SLIP OF THE CREDITOR AND ON CERTAIN OTHER ISSUES. ALL SUCH ISS UES/DOUBTS AND REPLIES THERETO FILED BY THE APPELLANT HAVE ALREADY BEEN D ISCUSSED EARLIER IN THIS ORDER. IN MY CONSIDERED OPINION THE APPELLANT HAS SATISFACTORILY REPLIED TO ALL THE DOUBTS RAISED BY THE APPLICANT. IN ANY CAS E AN ADDITION CANNOT BE MADE MERELY ON THE BASIS OF DOUBTS/SURMISES WHEN TH E APPELLANT HAS FURNISHED NECESSARY DOCUMENTARY EVIDENCE IN SUPPORT OF ITS CLAIM. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DET AILED SUBMISSIONS MADE BY THE APPELLANT AND VARIOUS JUDICIAL PRONOUNCEMENT S RELIED UPON BY IT. I AM OF THE CONSIDERED OPINION THAT THE APPELLANT HAS SUCCESSFULLY ESTABLISHED THE IDENTITY AND CREDIT WORTHINESS OF T HE CREDITOR BY WAY OF FILING HIS CONFIRMATION AND SALARY SLIPS. THE GENU INENESS OF THE TRANSACTION AHS BEEN PROVED BY FURNISHING COPIES OF THE BANK STATEMENTS. I, THEREFORE, HOLD THAT AN ADDITION ON THIS ACCOUNT WAS WRONGLY MADE BY THE LD.AO. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. WE HAVE HEARD THE LD.D.R. AND PERUSED THE RECORDS. A DJOURNMENT PETITION FROM THE ASSESSEE WAS THERE BUT WE HAVE REJECTED TH E SAME AS IN OUR OPINION THE MATTER CAN BE ADJUDICATION BY PERUSING THE RECORDS AND HEARING THE LD.D.R. WE FIND THAT THE LD.CIT(A) HAD GIVEN A FINDING THAT THE IDENTITY AND CREDIT WORTHINESS OF THE PARTY WAS ESTABLISHED. THE ASSESSEE HAS SUBMITTED THE CONFIRMATIONS AND THE SA LARY SLIP OF THE APPLICANT. IT IS FOUND THAT THE SAID PERSON HAS IN VESTED RS. 10 LAKHS OUT OF HIS NRI ACCOUNT WITH ICICI BANK LTD. IN WHICH H E HAS REMITTED THE ITA 1312/DEL/2011 PAGE 4 OF 7 A.Y. 2007-08 M/S MADHAV TECH. (INDIA) P.LTD., NEW DELHI MONEY OUT OF INCOME HE RECEIVED FROM USA. FURTHER ASSESSEE HAD REFUNDED SHARE APPLICATION MONEY OF RS. 10 LAKHS T O THE APPLICANT SUBSEQUENTLY FOR WHICH THE DETAILS OF THE PAYMENT A LONG WITH DOCUMENTARY EVIDENCES LIKE CERTIFICATE FROM THE BAN K, THE BANK STATEMENTS BOTH OF THE APPELLANT AS WELL AS THAT OF THE APPLICANT ETC. WERE ALSO FILED. WE FURTHER FIND THAT THE LD.CIT(A) FO UND SUPPORT IN THE CASE OF CIT VS LOVELY EXPORTS P.LTD. 216 CTR (SC) 195 WHERE IN IT WAS HELD THAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSE SSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN T O THE AO THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR INDIV IDUAL ASSESSMENTS IN ACCORDANCE WITH LAW, BUT IT CANNOT BE REGARDED AS U NDISCLOSED INCOME OF THE COMPANY. THEREFORE, IN THE BACKGROUND OF AFORE SAID DISCUSSION, WE FIND THAT THE ADDITION MADE IN THIS REGARD IS NOT T O BE SUSTAINED. LD.CIT(A) IS CORRECT IN HOLDING THAT THE ADDITION N EEDS TO BE DELETED. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY OR ILLEGAL ITY IN THE ORDER OF LD.CIT(A) AND WE UPHOLD THE SAME. IN THE 6. ANOTHER ISSUE RAISED IS THAT THE LD.CIT(A) HAS E RRED IN DELETING THE ADDITION OF RS. 43,003/- MADE ON ACCOUNT OF DISALLO WANCE OF BUSINESS EXPENSES. 7. ON THIS ISSUE THE AO OBSERVED THAT ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY OTHER THAN INVESTING MONEY IN SHARES AND EARNING ITA 1312/DEL/2011 PAGE 5 OF 7 A.Y. 2007-08 M/S MADHAV TECH. (INDIA) P.LTD., NEW DELHI DIVIDEND INCOME AND BOOKING CAPITAL GAINS ON SALE O F INVESTMENT. ASSESSEE EARNED DIVIDEND INCOME OF RS. 29,975/- AND ALSO EARNED PROFIT ON SALE OF INVESTMENT RS. 31,975/- AND DECLARED A N ET PROFIT OF RS. 10,028/-. ASSESSEE DISALLOWED RS. 6,959/- AS PER PR OVISIONS OF S.14A OF THE ACT. HOWEVER IN AOS OPINION THIS WAS NOT ADE QUATE. HE DISALLOWED INDIRECT EXPENDITURE OF RS. 51,922/-. CONSEQUENTLY CLAIM OF RS.34,003/- WAS DISALLOWED. 8. UPON ASSESSEES APPEAL LD.CIT(A) HELD AS UNDER. IT IS SEEN THAT THE APPELLANT HAD CLAIMED AN EXPE NDITURE OF RS. 51,922/- DURING THE YEAR. THE LD.AO DISALLOWED THE ENTIRE E XPENDITURE HOLDING THAT THE TOTAL INCOME SHOWN BY THE APPELLANT WAS EXEMPT EITHER U/S 10(33) OR U/S 10(38). THE LD.AO FURTHER HELD THAT THE APPELL ANT HAD NOT CARRIED OUT ANY BUSINESS ACTIVITY OTHER THAN TO EARN INVESTMENT IN SHARES AND EARNING DIVIDEND INCOME AND BOOKING PROFIT ON SALE OF SHARE S. THE LD.AO THEREFORE WAS OF THE OPINION THAT SINCE NO BUSINESS ACTIVITY OTHER THAN THE EXEMPT INCOME WAS CARRIED OUT, THE ENTIRE EXPENDITURE OF R S. 51,922/- WAS LIABLE TO BE DISALLOWED. IN THIS REGARD THE APPELLANT HAD SUBMITTED THAT IT HAD ALREADY DISALLOWED AN AMOUNT OF RS. 17,918/- OUT OF WHICH RS. 6959 WAS DISALLOWED IN ACCORDANCE WITH THE PROVISIONS OF S.1 4A. THE LD.AR THEREFORE, SUBMITTED THAT THE BALANCE EXPENSES OF R S. 34,004/- WERE THE EXPENSES WHICH WERE COMPULSORY DUE TO THEIR BEING O F STATUTORY AND LEGAL NATURE. I HAVE GONE THROUGH THE NATURE AND DETAIL OF VARIOUS EXPENSES ITA 1312/DEL/2011 PAGE 6 OF 7 A.Y. 2007-08 M/S MADHAV TECH. (INDIA) P.LTD., NEW DELHI INCURRED BY THE APPELLANT DURING THE YEAR. THE SAI D EXPENSES INCLUDE ACCOUNTING CHARGES, PRINTING AND STATIONERY EXPENSE S, LEGAL AND PROFESSIONAL CHARGES, AUDIT FEES, FILING FEES ETC. WHICH ARE COMPULSORY TO ENSURE THE EXISTENCE AND CONTINUATION OF THE COMPAN Y. THE QUANTUM OF THE SAID EXPENDITURE HAS BEEN FOUND TO BE BARE MINIMUM. THE LD.AR HAS RELIED UPON THE RECENT DECISION OF THE ITAT, DELHI I BENCH IN THE CASE OF ITO VS MOKUL FIN.P.LTD. WHEREBY IT HAS BEEN HELD THAT T HE EXPENDITURE WHICH ARE NECESSARY FOR RUNNING THE ORGANIZATION ARE ALLO WABLE EVEN IF THERE IS NO BUSINESS ACTIVITY. IN THE CASE OF CIT VS GANGA PRO PERTIES LTD. (1993) 199 ITR 94 (CAL) IT HAS OBSERVED THAT A LIMITED COMPANY DERIVING INCOME FROM OTHER SOURCES HAS TO MAINTAIN ITS ESTABLISHMENT FO R COMPLYING WITH STATUTORY OBLIGATIONS SO LONG IT IS IN OPERATION AN D ITS NAME IS NOT STRUCK OFF THE REGISTER OF COMPANIES OR UNLESS THE COMPANY IS DISSOLVED AND EXPENSES INCURRED FOR THAT PURPOSE IN RETAINING CLERICAL STA FF, SECRETARY, ACCOUNTANT AND INCIDENTAL EXPENSES ARE ALLOWABLE DEDUCTION. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE APPELLANT, I AM O F THE CONSIDERED OPINION THAT THE EXPENDITURE CLAIMED BY THE APPELLA NT WAS ALLOWABLE TO IT FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE AO IS DIRECTED TO DELETE THE ADDITION MADE. 9. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUS ED THE RECORDS. WE FIND THAT THE A.O. HAS MADE THE DISALLOWANCE WITHOU T ATTRIBUTING ANY ITA 1312/DEL/2011 PAGE 7 OF 7 A.Y. 2007-08 M/S MADHAV TECH. (INDIA) P.LTD., NEW DELHI COGENT REASONING. LD.CIT(A) HAD GIVEN A FINDING TH AT THE EXPENDITURE WAS BARE MINIMUM AND IT WAS NECESSARY FOR THE ASSESEES BUSINESS. THE CASE LAW RELIED UPON BY THE LD.CIT(A) IS ALSO RELEVANT. AS SUCH WE DO NOT FIND ANY INFIRMITY OR ILLEGALITY IN THE ORDER OF LD.CIT( A) IN DELETING THE ADDITION. ACCORDINGLY WE UPHOLD THE SAME. 10. IN THE RESULT THE REVENUES APPEAL STANDS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH MAY, 2011. SD/- SD/- (RAJPAL YADAV ) (SHAMIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 12TH MAY, 2011 *MANGA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2. RESPONDENT; 3. CIT; 4. CIT(A); 5. DR; 6. GUARD FILE BY ORDER DY. REGISTRAR // C O P Y //