ITO 3(3)(4), MUMBAI V. VENKATESH SECURITIES LTD, MUMBAI

ITA 1498/MUM/2017

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5898 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2006-2007
• Appeal Filed On: 03-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV GUBGOTRA; S PADMAJA DR SHRI
• Assessee Lawyers: ITA NO M
• Keywords: Unexplained cash credit; Business income; Opportunity of being heard; Earning of tax free income; Additional evidence; Accommodation entries; Onus to prove; Rule 8D; Set aside
• Section: 143(3); 14A; 143(1); 201; 64; 147; 131; 148; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI RAJESH KUMAR , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO S . 1498 TO 1501 / MUM/ 201 7 ( / ASSESSMENT YEA R S : 2006 - 07 , 2007 - 08 , 2009 - 10 & 2011 - 12 ) ITO - 3(3)(4) ROOM NO.672, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 . / VS. M/S. VENKTESH SECURITIES LTD. 112, B - MITTAL COURT, NARIMAN POINT, MUMBAI - 400021. ./ ./ PAN/GIR NO. : AA ACV 5479 K ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 25 .0 9 .201 8 / DATE OF PRONOUNCEMENT : 21. 12. 2018 / O R D E R PER AMARJIT SINGH (JM) : THE REVENUE HAS FILED THE ABOVE MENTIONED APPEAL S AGAINST THE DIFFERENT ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 8 , MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 2006 - 07, 2007 - 08, 2009 - 10 & 2011 - 12 . ITA. NO.1498/M/2017 REVENUE BY: SHRI RAJEEV GUBGOTRA & S. PADMAJA (DR) ASSESSEE BY : SHRI VINOD KUMAR BINDAL & GAURAV BANSAL ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 2 2. THE REVENUE HAS FILED THE PRESENT APPEAL S AGAINST THE ORDER DATED 29.11.2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 8 , MUMBAI [HEREIN AFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 2006 - 07 . 3 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION MADE BY THE AO ON UNSE CURED LOAN SHOWN FROM BASANT MARKETING PVT. LTD. AMOUNTING TO RS.1,70,37,750/ - (RS.1,34,03,750/ - U/S 28(IV) AND RS.36,34,000/ - U/S 68 OF THE I.T. ACT, 1961. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS RIGHT IN DELE TING THE ADDITION OF RS.1,07,77,000/ - MADE BY THE AO IN RESPECT OF UNPROVED CREDITORS IN RESPECT OF BUTTERFLY PROPERTIES PVT. LTD., INDIGO EDUTAINMENT PVT. LTD., K.K. FINTRADE, P. SHARMA (INFRA INFOTECH) AND DATABASE SOFTWARE TECHNOLOGY PVT. LTD. 3. WHETHE R ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS,20,00,000/ - ON ACCOUNT OF UNPROVED SHARE APPLICATION MONEY. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. THE LD. CI T(A) WAS RIGHT IN DELETING THE ADDITION OF RS,10,000/ - U/S 14A OF THE I.T. ACT, 1961 OBSERVING THAT DISALLOWANCE U/S 14A CANNOT BE MADE IF EXEMPT INCOME HAS NOT BEEN EARNED. 5. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE A ND THAT OF THE AO BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 4 . THE BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME TO THE TUNE OF RS . NIL ON 23.11.2016. ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 3 THE RETURN WAS PROCESSED U/S 143(1) OF THE I.T. ACT, 1961 ON 10.08.2007 . THEREAFTER AN INTIMATION WAS RECEIVED FROM THE DCIT CENTRAL CIRCLE - XXVIII, KOLKATA VIDE HIS LETTER DT. 12.02.2013 . AS PER THE INTIMATION , THE ASSESSEE COMPANY WAS SHOWN A GROUP COMPANY FORMED BY SHRI ARUN DALMIA AND SHRI HARSH DALMIA WHICH WAS ENGAGED IN PROVIDING ACCOMMODATION ENTRIES TO VARIOUS PERSONS . ON THE BASIS OF THE LETTER, T HE ASSESSMENT WAS REOPENED U/S 147 OF THE ACT. THE NOTICE U/S 148 OF THE ACT WAS G IVEN . T HE CREDIT BALANCE OF LOAN AND ADVANCES FROM M/S. BASANT MARKETING P. LTD. WAS CARRIED FORWARDED IN SUM OF RS.1,52,37,750/ - AND DURING THE CURRENT ASSESSMENT YEAR , THE LOAN AND ADVANCES WAS TO THE TUNE OF RS.36,34,000/ - . THE NOTICE WAS GIVEN ON THE B ASIS OF L ETTER OF INVESTIGATION AGENCIES. T HE CARRY FORWARDED LOAN S AND ADVANCES IN SUM OF RS. 1,52,37,750/ - WAS DECLINED AND ADDED TO THE INCOME OF THE ASSESSEE U/S 68 OF THE ACT. THE ASSES SEE HAS ALSO SHOWN THE CREDIT IN SCHEDULE D IN SUM OF RS. 2,67,77, 000/ - . THE ASSESSEE WAS ASKED TO PROVE THE TRANSACTION BUT THE ASSESSEE FAILED TO PROVE THE SAME, THEREFORE, CREDIT IN SUM OF RS. 2,57,77,000/ - WAS ADDED TO THE INCOME OF THE ASSESSEE AND BROUGHT TO TAX. THE ASSESSEE ALSO SHOWED THE LIABILITY OF RS.20,00,00 0/ - ON ACCOUNT OF SHARE APPLICATION MONEY WHICH WAS ALSO DECLINED AND ADDED TO THE INCOME OF THE A SSESSEE. THE ASSESSEE ALSO SHOWED THE INVESTMENT IN SHARES OF THE COMPANIES AMOUNTING TO RS.5,00,000/ - . THE AO APPLIED THE PROVISIONS U/S 14A R.W. RULE 8D OF THE ACT AND DISALLOWED IN SUM OF RS.10,00,000/ - AND ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 4 ADDED TO THE INCOME OF THE ASSESSEE. THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS .4,50,16,817/ - . THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO ALLOWED THE CLAIM OF THE ASSESSEE, TH EREFORE, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO.1 5 . UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETION OF THE ADDITION TO THE TUNE OF RS.1,70,37,750/ - U/S 68 OF THE I.T. ACT, 1961. THE ASSESSEE HAS SHOWN THE UNSECURED LOAN FROM BASANT MARKETING PVT. LTD. T HE CASE OF THE ASSESSEE WAS REOPENED ON THE BASIS OF LETTER RECEIVED FROM DCIT, CENTRAL CIRCLE - XXVIII, KOLKATA DATED 12.02.2013 IN WHICH IT WAS CONVEYED THAT ONE OF THE GROUP COMPAN Y FORMED BY SHRI ARUN DALMIA AND SHRI HARSH DA LMIA, M/S. BASANT MARKETING PVT. LTD. WAS PROVIDING THE ACCOMMODATION ENTRIES AND THE ASSESSEE COMPANY WAS ONE OF THE BENEFICIARY COMPANY . A FTER THE RECEIPT OF THE LETTER , THE NOTICE WAS GIVEN AND AFTER GETTING THE REPLY, THE CREDIT FROM SAID COMPANY IN SU M OF RS. 1,70,37,750/ - WAS ADDED TO THE INCOME OF THE ASSESSEE BUT THE CIT(A) HAS ACCEPTED THE CLAIM OF THE ASSESSEE, THEREFORE, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. IT IS CONTENDED THAT THE ASSESSEE HAS FAILED TO PROVE THE IDENTITY, CREDIT W ORTHINESS AND GENUINENESS OF THE TRANSACTION IN SUM OF R S.1,70,37,750/ - BUT THE CIT(A) HAS WRONGLY ALLOWED THE CLAIM OF THE ASSESSEE, THEREFORE, THE FINDING OF THE CIT(A) IS WRONG AGAINST LAW AND FACT AND IS LIABLE TO BE SET ASIDE. HOWEVER, ON THE OTHER HA ND, THE ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 5 LD. REPRESENTATIVE OF THE ASSESSEE HAS STRONGLY RELIED UPON THE ORDER PASSED BY THE LD. CIT(A) IN QUESTION. BEFORE GOING FURTHER, WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD: - THE AO REJECTED ALL EXPLANATIONS FILED BY THE APPELLANT WITH THE OBSERVATION, 'IN THE LIGHT OF ANTECEDENT OF M/S BASANT MARKETING PVT LTD , INTIMATION RECEIVED FROM THE DCIT CENTRAL CIRCLE - XXVIII, KOLKATA AND REPORT OF CBI, THE UNDERSIGNED IS FULL Y CONVINCED AND SATISFIED THAT THE ASSESSES HAS USED CO LOURABLE DEVICE OF BOGUS ACCOMMODATION ENTRIES TO INTRODUCE ITS OWN FUNDS GENERATED THROUGH UNDISCLOSED INCOME.' THE ASSESSING OFFICER, THEREFORE, ADDED BROUGHT FORWARD CREDIT OF RS1,34,03,750/ - U/S 28(IV) AND CREDIT DURING THIS YEAR OF RS.36.34,000/ - U/S. 68 MAKING A TOTAL ADDITION OF RS1,70,37.750/ - 5.3.2 IN THE FIRST INSTANCE, THE STATUS OF BMPL HAS TO BE ASCERTAINED. I HAD EXAMINED THIS IN DETAIL IN MY APPELLATE ORDER M THE CASE OF ANOTHER GROUP CONCERN, M/S WATERMARK SYSTEMS (INDIA) PVT. LTD, FOR AY 2003 - 09 IN APPEAL NO.CLT(A) - 8/IT - 407/14 - 15. RELEVANT EXTRACT OF THAT ORDER IS REPRODUCED BELOW: 7.3. 7 IT IS NOTED THAT COMMISSIONER OF INCOME TAX(A) - 2Q, KOLKATA. IN HIS ORDER FOR ASSESSMENT YEAR 2Q1Q - 11 IN THE CASE OF M/S BASANT MARKETING PRIVATE LTD HAS HELD BMPL AS NOT FAKE OR BOGUS THIS FACT IS ALSO NOT DISPUTED BY THE ASSESSING OFFICER IN HIS REMAND REPORT. 7.3.8 THUS, IT IS SEEN THAT THE IDENTITY OF BMPL IS ESTABLISHED BEYOND DOUBT IT IS A/SO NOT DISPUTED THAT BMPL HAD SUFFICIENT FUNDS IN ITS OWN BOOKS OF ACCOUNTS ARID REFLECTED IN BANK STATEMENTS, WHICH ESTABLISHES ITS CREDITWORTHINESS. THE APPELLANT IS NOT REQUIRED TO ESTABLISH SOURCE OF SOURCE AS HELD IN JAIKISHAN DADLANI VS ITO 4 SOT 138 (MUM). THE APPELLANT HAD OFFERED EXPLANATION TO THE ASSES SING OFFICER BUT HAD NOT BEEN TO SUBMIT ALL DOCUMENTARY EVIDENCES BECAUSE THE SAME WERE IN CUSTODY OF CBI AS ALREADY QUOTED ABOVE, IN THE APPEAL IN THE CASE OF BMPL FOR AY 2010 - 11, THE ID CIT(A) 20, KOLKATA HAD CATEGORICALLY OBSERVED THAT THERE IS NO MATER IAL ON RECORD TO BACK THE TINTING THAT BMPL WAS INVOLVED IN PROVIDING ACCOMMODATION ENTRY THE FINDING ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 6 OF FACT OF CIT(A) IN THAT CASE HAS BEEN ACCEPTED BY THE DEPARTMENT BY NOT GOING IN APPEAL AGAINST IF. THUS, (HE GENUINENESS OF THE TRANSACTION ITSELF HAS BEEN ACCEPTED BY THE DEPARTMENT. 7.3.9 IN VIEW OF THE RATIO OF DECISIONS CITED ABOVE, FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED AND AFTER GIVING DUE CONSIDERATION TO THE OBSERVATIONS OF THE ASSESSING OFFICER IN HIS REMAND REPORT, T DO NOT FIND MERIT IN THE ACTION OF THE ASSESSING OFFICER IN MAKING ADDITION OF RS 4.35.69.600/ - U/S. 68 OF THE ACT AND THE SAME BE, THEREFORE, DELETED. THESE GROUNDS OF APPEAL ARE ALLOWED. 5.3.3 IN REACHING THE ABOVE DECISION, I HAD RELIED UPON THE FOLLOWING JUDGEM ENTS OF VARIOUS COURTS INCLUDING JURISDICTIONAL COURTS I. SUPREME COURT IN CASE OF CIT V P. MOHANAKALA {2007} 291 ITR 278 / 161 TAXMAN 169 HELD THAT [HE EXPRESSION 'ASSESSEE OFFERS NO EXPLANATION' MEANS WHERE THE ASSESSEE OFFERS NO PROPER, REASONABLE AND ACCEPTABLE EXPLANATION AS REGARDS THE SUM FOUND CREDITED IN THE BOOKS MAINTAINED BY THE ASSESSEE. IT FURTHER HELD THAT THE OPINION OF THE AO FOR NOT ACCEPTING THE EXPLANATION OFFERED BY THE ASSESSEE AS NOT SATISFACTORY IS REQUIRED TO BE BASED ON PROPER APPRECIATION OF MATERIAL & OTHER ATTENDING CIRCUMSTANCES AVAILABLE ON RECORD THE OPINION OF THE AO IS REQUIRED TO BE FORMED OBJECTIVELY WITH REFERENCE TO THE MATERIAL AVAILABLE ON RECORD. APPLICATION OF IS THE SINE QUA NON FOR FORMING THE OPINION. II CIT VS DAULAT RAM RAWAT MUTT (87 ITR 34TY(SC). IT WAS HELD THAT ASSESSEE WAS NOT REQUIRED TO PROVE THE SOURCE OF THE SOURCE. III. 190 ITR 396 (BOM): IT WAS HERD THAT THE ASSESSEE HAVING DISCHARGED THE INITIAL BURDEN, BY GIVING COMPLETE NAME AND ADDR ESS OF THE BANKERS AND CONFIRMATION LETTERS, IT WAS FOR THE INCOME - TAX OFFICER TO SHOW THAT (HE EXPLANATION RENDERED BY THE ASSESSEE WAS NOT TRUE. IV CIT V LOVELY EXPORTS (P.) LTD [APPLN NO. 11993 OF 2G07 , DATED 11 - 1 - 2008 IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSES SEE - COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN TO THE AO, THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANCE WITH ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 7 LAW BUT IT CANNOT BE REGARDED AS UNDISCLOSED INCOME OF THE ASSESSEE - COMPANY. V CIT V FIRST POINT FINANCE LTD. (2006) 286 ITR 477 (RAJ) CIT V. BHAWANI OIL MILLS (P.) LTD. 49 DTR 212. WHERE IT IS FOUND THAT THE INVESTORS ARE GENUINELY EXISTING PERSONS, THEY HAVE FILED CONFIRMATIONS IN RESPECT OF INVESTMENTS MADE B Y THEM AND THEIR STATEMENTS ARE ALSO RECORDED, AMOUNT OF SHARE APPLICATION MONEY CANNOT BE TREATED AS UNEXPLAINED CASH CREDIT AND NO ADDITION CAN BE MADE UNDER SECTION 68. VI. SHREE BARKHA SYNTHETICS LTD. V. ASSTT CIT [2006] 263 ITR 377 / 155 TAXMAN 2 89 (RAJ.), UMA POLYMERS (P.) LTD V. DY OT(2DQ6] 101 TTJ L24 {JODH.)(TM); WHERE THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE - COMPANY THROUGH BANKING CHANNEL, THE ASSESSES HAS ONLY TO PROVE THE EXISTENCE OF PERSON IN WHOSE NAME SHARE APPLICATION M ONEY IS. RECEIVED ONCE THE EXISTENCE OF INVESTOR IS PROVED, IT IS NO FURTHER BURDEN OF ASSESSEE TO PROVE WHETHER ME PERSON ITSELF HAS INVESTED THE SAID MONEY OR SOME OTHER PERSON HAS MADE INVESTMENT IN NAME OF THAT PERSON THE BURDEN THEN SHIFTS ON THE REVE NUE TO ESTABLISH THAT SUCH AN INVESTMENT HAS COME FROM ASSESSES - COMPANY ITSELF. VII. CIT V. GANGOUR INVESTMENT LTD [2009] 179 TAXMAN 1 (DELHI), CIT V. VICTOR ELECTRIES LTD. [2010] 329 ITR 271 (DELHI), DY - CITV. DOLPHINE MARBLES (P.) LTD. [2011] 129 ITD 163 /10TAXMANN.COM 75 (JAB)(TM), BHARTI SYNTEX LTD. V DY. CIT 52 DTR 73 (JP); ASSESSEE - COMPANY FILED LETTERS OF THE SHARE APPLICANT COMPANIES TO THE ACLT CONFIRMING THAT THEY HAD APPLIED FOR SHARES IN THE ASSESSEE - COMPANY, GIVING DETAILS OF DRAFT, COPIES OF R ESOLUTIONS PASSED BY BOD OF APPLICANT - COMPANIES BESIDES THEIR BANK STATEMENT/COPIES OF ACKNOWLEDGEMENT OF RETURNS, CERTIFICATES OF INCORPORATIONS AND BALANCE SHEETS OF THE APPLICANT - COMPANIES WHEREIN INVESTMENT MADE IN THE ASSESSEE - COMPANY WAS SHOWN, PAN, ROC CERTIFICATE, IT HAD DISCHARGED THE ONUS WHICH LAY UPON IT UNDER SECTION 68 BY ESTABLISHING THE IDENTITY AND CREDITWORTHINESS OF EACH SHAREHOLDER AND. THEREFORE, NO ADDITION COULD BE MADE UNDER SECTION 68. ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 8 VIII. CIT V. ORISSA CORPN. (P.) LTD. [1986] 15 9 ITR 78 /25 TAXMAN 80F (SC): IN THIS CASE ASSESSEE GAVE THE NAMES AND ADDRESSES OF THE CREDITORS. IT WAS IN THE KNOWLEDGE OF THE REVENUE THAT THE CREDITORS WERE INCOME - TAX ASSESSEE. THE REVENUE APART FROM ISSUING NOTICES UNDER SECTION 131 DID NOT PURSUE T HE MATTER FURTHER. IT DID NOT EXAMINE THE SOURCE OF INCOME OF THE ALLEGED CREDITORS TO FIND OUT WHETHER THEY WERE CREDITWORTHY. THEREFORE, IT WAS HELD THAT IN THESE CIRCUMSTANCES, ASSESSEE COULD NOT DO ANY FURTHER AND IT HAD DISCHARGED THE BURDEN LAID ON I T. IX. DY. CIT V. ROHINI BUILDERS [2002] 256 ITR 360 /[2003) 127 TAXMAN 523 (GUJ): IF THE IDENTITY OF THE CREDITORS IS PROVED AND THE AMOUNTS ARE RECEIVED BY ACCOUNT - PAYEE CHEQUES, THE INITIAL BURDEN OF PROVING CREDIT IS DISCHARGED AND THE SOURCE OF CREDI TS NEED NOT BE PROVED. X, CIT V. SAMTET COLOR LTD 64 DTR 46 IN THIS DECISION GIVEN BY THE DELHI HIGH COURT, IT WAS HELD THAT BY BRINGING ON RECORD EVERY POSSIBLE INFORMATION REGARDING THE DEPOSITORS INCLUDED M THE APPLICATION FORM WHICH INCLUDED PARTICULAR S OF APPLICANT/DEPOSITOR, TELEPHONE NO, PARTICULARS OF DEMAND DRAFT/CHEQUE THROUGH WHICH THE DEPOSIT WAS MADE, TAX STATUS OF APPLICANT AND OTHER DEPOSIT WITH THE ASSESSEE, IF ANY, ASSESSEE HAD DISCHARGED THE INITIAL ONUS LAID ON IT UNDER SECTION 68 AND ADD ITION COULD NOT BE MADE MERELY FOR THE REASON THAT NO CONFIRMATION LETTERS WERE FILED IN RESPECT OF SOME OF THE DEPOSITORS XI. CIT VS. ORISSA CORPN. (P.) IN THIS CASE ASSESSEE GAVE THE NAMES AND ADDRESSES OF THE CREDITORS. IT WAS IN THE KNOWLEDGE OF THE RE VENUE THAT THE CREDITORS WERE INCOME - TAX ASSESSEE. THE REVENUE APART FROM ISSUING NOTICES UNDER SECTION 131 DID NOT PURSUE THE MATTER FURTHER. IT DID NOT EXAMINE THE SOURCE OF INCOME OF THE ALLEGED CREDITORS TO FIND OUT WHETHER THEY WERE CREDITWORTHY THERE FORE, IT WAS HELD THAT IN THESE CIRCUMSTANCES, ASSESSEE COULD NOT DO ANY FURTHER AND IT HAD DISCHARGED THE BURDEN LAID ON IT. XII IN ORIENT TRADING CO. LTD. V. COMMISSIONER OF INCOME - TAX (1963) 49 ITR 723 (BORN.), ONE OF THE QUESTIONS REFERRED TO THE BOMBA Y HIGH COURT WAS WHETHER THERE WAS ARTY MATERIAL BEFORE THE TRIBUNAL TO HOLD THAT A SUM STANDING IN THE BOOKS ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 9 OF THE ASSESSEE TO THE CREDIT OF A THIRD PARTY BELONGED TO THE ASSESSEE. THE BOMBAY HIGH COURT DISCUSSED THE NATURE AND SIGNIFICANCE OF CASH CREDI TS IN SUCH CASES AND OBSERVED AS FOLLOWS; 'WHEN CASH CREDITS APPEAR IN THE ACCOUNTS OF AN ASSESSES, WHETHER IN HIS OWN NAME OR IN THE NAME OF THIRD PARTIES, THE INCOME - TAX OFFICER IS ENTITLED TO SATISFY HIMSELF AS TO THE TRUE NATURE AND SOURCE OF THE AMOUN TS ENTERED THEREIN, AND IF AFTER INVESTIGATION OF INQUIRY HE IS SATISFIED THAT THERE IS NO SATISFACTORY EXPLANATION AS JO THE SAID ENTRIES, HE WOULD BE ENTITLED TO REGARD THEM AS REPRESENTING THE UNDISCLOSED INCOME OF THE ASSESSEE. WHEN THESE CREDIT ENTRIE S STAND IN THE NAME OF THE ASSESSEE HIMSELF, THE BURDEN IS UNDOUBTEDLY ON HIM TO PROVE SATISFACTORILY THE NATURE AND SOURCE OF THESE AND TO SHOW THAT THEY DO NOT CONSTITUTE A PART OF HIS BUSINESS INCOME LIABLE TO TAX WHEN, HOWEVER, ENTRIES STAND, NOT IN TH E ASSESSEE'S OWN NAME, BUT IN THE NAME OF THIRD PARTIES, THERE HAS BEEN SOME DIVERGENCE OF OPINION EXPRESSED AS TO THE QUESTION OF THE BURDEN OF PROOF THE INCOME - TAX OFFICERS REJECTION NOT OF THE EXPLANATION OF THE ASSESSEE, BUT OF THE EXPLANATION REGARDI NG THE SOURCE OF INCOME OF THE DEPOSITORS, CANNOT BY ITSELF LEAD TO ANY INFERENCE REGARDING THE NON - GENUINE OF FICTITIOUS CHARACTER OF THE ENTRIES IN THE ASSESSEES BOOKS OF ACCOUNT. XIII. THE ASSESSEE HAVING DISCHARGED THE INITIAL BURDEN, BY GIVING COMPL ETE NAME AND ADDRESS OF THE BANKERS AND CONFIRMATION LETTERS, IT WAS FOR THE INCOME TAX OFFICER TO SHOW THE EXPLANATION RENDERED BY THE ASSESSEE WAS NOT TRUE 190 ITR 396 (BOM). 5.3.4 IN VIEW OF THE ABOVE, I FIND NO MERIT IN ADDITION OF RS.36,34,000/ - MADE U/S 68. AS REGARDS ADDITION OF THE OPENING CREDIT BALANCE OF RS.1,34,03,750/ - IN THE NAME OF BMPL, I AM IN AGREEMENT WITH THE CONTENTION OF THE APPELLANT EXTRACTED ABOVE. I DO NOT FIND THE FACTS OF THIS CASE ARE SIMILAR TO THOSE IN THE CASE OF M/S. SOLID C ONTAINERS LTD., 308 ITR 417 (BOM) RELIED UPON BY THE ASSESSING OFFICER. IN THE INSTANT CASE, THERE IS NO WAIVER OR REMISSION OF THE IMPUGNED AMOUNT BY THE CREDITOR, BMPL. THEREFORE, INVOKING OF SECTION 28(IV) IS COMPLETELY MISPLACED. ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 10 ACCORDINGLY, THIS GROU ND OF APPEAL IS ALLOWED AND ADDITION OF RS.1,70,37,750/ - IS DELETED. 6 . ON APPRAISAL OF THE ABOVE MENTIONED FINDING, WE NOTICED THAT THE AO HAS RAISED THE ADDITION IN SUM OF RS.1,70,37,750/ - ON ACCOUNT OF NON - GENUINE COMPANY OF M/S. BASANT MARKETING PVT. LTD. THE COMMISSIONER APPEALS HAS ALREADY HELD IN CASE OF GROUP COMPANY CONCERNED M/S. WATERMARK SYSTEMS (INDIA) PVT. LTD. FOR THE A.Y. 2008 - 09 IN APPEAL NO. CIT(A) - 8/IT - 407/14 - 15 AS GENUINE COMPANY. THE FINDING HAS BEEN EXTRACTED BY THE CIT(A) IN HIS ORDE R WHICH HAS BEEN MENTIONED ABOVE. THE COMPANY HAS ALSO BEEN HELD AS GENUINE COMPANY BY THE CIT(A) - 20 KOLKATA IN HIS ORDER OF THE A.Y. 2010 - 11 IN CASE OF M/S. BASANT MARKETING PVT. LTD. T HE IDENTITY IS NOT IN DISPUTE AND IN ITS BOOKS OF ACCOUNT SUFFICIENT F UND HAS BEEN REFLECTED . THE BANK STATEMENT ALSO ESTABLISH ED ITS CREDIT WORTHINESS. THE CIT(A) HAS RELIED UPON NUMBER OF CASES MENTIONED IN HIS ORDER AND ARRIVED AT THIS CONCLUSION THAT THE ASSESSEE HAS PROVED THE IDENTITY , GENUINENESS AND CREDIT WORTHINE SS OF TRANSACTION, THEREFORE, NO ADDITION CAN BE RAISED HENCE ALLOWED THE CLAIM OF THE ASSESSEE. THE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE ALSO. THERE IS NO FINDING OF ANY AUTHORITY ON RECORD IN WHICH IT HAS BEEN HELD THAT M/S. BASANT MARKETING PVT. LTD. IS NOT GENUINE COMPANY. THE DEPARTMENT NOWHERE PREFERRED THE APPEAL AGAINST THE JUDGMENT MENTIONED IN THE FINDING NOR PERVERSE FINDING IS ON RECORD. TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 11 DECIDED T HE MATTER OF CONTROVERSY JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO.2 7 . UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION IN SUM OF RS. 1,07,77,000/ - MADE BY AO IN RESPECT OF UNPROVED CREDITORS I,E BUTTERFLY PROPERTIES PVT. LTD., INDIGO EDUTAINMENT PVT. LTD., K.K. FINTRADE, P. SHARMA (INFRA INFOTECH) AND DATABASE SOFTWARE TECHNOLOGY PVT. LTD. THE ADDI TION WAS RAISED BY AO ON THE BASIS OF INTIMATION RECEIVED FROM DCIT, CENTRAL CIRCLE - XXVIII, KOLKATA AND REPORT OF CBI AND THE AO ADDED THE OUTSTANDING BALANCE AGAINST THE SAID PARTY OF RS.2,57,77,000/ - ON THE BASIS OF THE DECISION OF HONBLE BOMBAY HIGH CO URT IN M/S. SOLID CONTAINERS. BEFORE GOING FURTHER, WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD: - 5.4.1THIS GROUND OF APPEAL RELATES TO ADDITION OF RS.2,57,77,000/ - AS UNEXPLAINED CREDIT. THE AO HAS DISCUSSED THIS ISSUE AT PAGES 5 - 6 OF HIS ORDER. HE OBSERVED THAT THERE ARE SEVERAL CREDITORS OUTSTANDING SINCE LONG: M/S. HIMACHAL FUTURISTIC COMMUNICATIONS LTD. (RS1,50,00,000/ - , M/S. BUTTERFLY PROPERTIES PVT. LTD. (BPPL) (RS.65,000/ - ), M/S. INDIGO EDUTAINMENT PVT. LTD. (RS.9,00,000), MS. DATABASE SOFTWARE TECHNOLOGY PVT. LTD. (RS.69,21,000/ - ), M/S. K.K. FINTRADE (RS.3,75,500/ - ) AND M/S. P. SHARMA (RS.25,15,500) CITING THE INTIMATION RECEIVED FROM DCIT, KOLKATA/CBI, THE AO CONCLUDED THAT ALL THE ENTRIES REMAIN UNPROVED. HE ADDED THE TO TAL AMOUNT OF OUTSTANDING BALANCE AGAINST THE SAID PARTY OF RS.2,57,77,000/ - RELYING ON THE DECISION OF ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 12 HONBLE HIGH COURT IN M/S. SOLID CONTAINERS ALSO CITED IN THE PREVIOUS GROUND OF APPEAL. 5.4.2 IT CAN BE ASSUMED FROM THE ORDER THAT THE ASSESSING OFFIC ER HAS MADE THE ABOVE ADDITION U/S 2B(IV) OF THE ACT. THE RATIONALE FOR MY DECISION AT GROUND NO. 2 ABOVE ALSO APPLIES TO THESE ADDITIONS AS THERE IS NO REMISSION OR WAIVER OF ANY AMOUNT AND THEY ARE BEING CARRIED FORWARD IN THE BOOKS OF THE APPELLANT. CRE DITS APPEARING IN THE NAMES OF M/S/. HFCL, M/S BPPL, M/S. KX FINTRADE AND M/S. P SHARMA (INTRA INFOTECH) WERE CARRIED FORWARD TO THE SUBSEQUENT ASSESSMENT YEAR 2007 - 08 AS WELL WHERE AN ASSESSMENT ORDER U/S 143(3} R.WS 147 OF THE ACT WAS PASSED EARLIER. THE ADDITION IN RESPECT OF THESE CREDITS HAS BEEN REPEATED AND THE APPELLANT IS IN APPEAL FOR THE SAME ADDITION M AY 2007 - OB, WHICH IS BEING SIMULTANEOUSLY DISPOSED BY ME. 5.4.3 BASED ON THE SUBMISSIONS MADE IN THE SAID APPEAL FOR A Y. 2007 - 08, A REMAND REPOR T WAS CALLED FOR VIDE THIS, OFFICE LETTER DATED 06 - 02 - 2015. REMAND REPORT WAS SUBMITTED BY THE ASSESSING OFFICER VIDE HIS LETTER DATED 31.8 2016. IN THE SAID REMAND REPORT THE ASSESSING OFFICER HAS ACKNOWLEDGED THAT IN RESPECT OF THE AMOUNT OF CREDIT OUTST ANDING IN THE NAME OF M/S. HFCL, THE TRANSACTION DID NOT MATERIALIZE DURING THE YEAR AND THE AMOUNT OF ADVANCE HAS BEEN RETURNED BY THE APPELLANT COMPANY TO THE SAID CREDITOR IN THE F.Y. 2012 - 13 AND THE CREDITOR HAS CONFIRMED THE RECEIPT OF THE SAID AMOUNT . IN THE CIRCUMSTANCE THERE IS NO BASIS FOR HOLDING THE AMOUNT OUTSTANDING AS NON - GENUINE. 5.4.4 AS FAR AS THE REMAINING CREDITS APPEARING IN THE NAMES OF M/S INDIGO EDUTAINMENT PVT. LTD (RS.9,00,000/ - ), AND M/S DATABASE SOFTWARE TECHNOLOGY PVT. LTD (RS.69 ,21,000/ - ), THE APPELLANT SUBMITS THAT THESE ARE COMPANIES OF THE GROUP AND THERE HAS BEEN INTER - COMPANY TRANSACTIONS DEPENDING UPON THE REQUIREMENT OF FUNDS. THE CREDITORS ACKNOWLEDGE THE CREDITS BEING OUTSTANDING. 5.4.5 THUS, AS STALED ABOVE, THERE IS NO MERIT IN TREATING THE BALANCES INCOME U/S 28(IV). MOREOVER, THE ONUS OF ESTABLISHING IDENTITY, CREDITWORTHY; AND GENUINENESS ENVISAGED U/S 68 HAS ALSO BEEN DISCHARGED BY THE APPELLANT Z. FURNISHING CONFIRMATIONS, PAN NUMBERS ETC. THE CASE LAWS CITED UNDE R GROUND NO. 2 APPLY EQUALLY IN THE INSTANT ISSUE THE ADDITIONS APPEAR TO HAVE BEEN MADE BY THE ASSESSING ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 13 OFFICER PURELY ON THE BASIS OF FINDINGS BY THE ASSESSING OFFICER OF U/S. BMPL IN (HE ASSESSMENT YEAR 2010 - 11 THAT NO LONGER REMAINS RELEVANT NOW IN VI EW OF THE FACTS DISCUSSED ABOVE. IN THE CIRCUMSTANCES, THE ADDITION OF ALLEGEDLY UNPROVED CREDITS OF RS.2,57,77,000/ - MADE BY THE ASSESSING OFFICER FS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 8 . ON APPRAISAL OF THE ABOVE SAID FINDING, THE CIT(A) HAS APPLIED THE RATIO WHICH HE HAD ALREADY APPLIED WHILE DECIDING THE ISSUE N.1 ABOVE. THERE IS NO REMISSION OR WAIVER OF ANY AMOUNT IN THE BOOKS OF ACCOUNT OF THE APPELLANT . C REDIT S ALSO APPEARED IN THE NAME OF M/S. HFCL, M/S. BPPL, M/S. K.K. FINTRADE AND M /S. P. SHARMA (INTRA INFOTECH) WHICH WAS CARRY FORWARDED TO THE SUBSEQUENT A.Y. 2007 - 08 WHEREIN THE ASSESSMENT ORDER WAS PASSED U/S 143(3) OF THE ACT. THIS CONTROVERSY HAS BEEN ADJUDICATED BY THE CIT(A) IN THE APPEAL OF THE ASSESSEE RELEVANT TO THE A.Y. 20 07 - 08. THE CREDIT IN SUM OF RS.1.50 CRORES BELONGING TO M/S. HFCL WAS RETURNED BY ASSESSEE IN THE A.Y. 2012 - 13 AND IN THIS REGARD THE ENTRY HAS DULY BEEN RECORD IN THE ACCOUNT OF ASSESSEE AS WELL AS IN THE ACCOUNT OF M/S. BPPL. R EMAND REPORT ALSO SUBSTANT IATED THIS FACT. THE CREDIT WITH THE NAME OF THE M/S. INDIGO EDU TAINMENT PVT. LTD. (9,00,000/ - ) AND M/S. DATABASE SOFTWARE TECHNOLOGY PVT. LTD. (RS.69,21,000/ - ) WAS OUTSTANDING AND WAS DULY RECORD IN THE BOOKS OF ACCOUNT . THE IDENTITY , CREDIT - WORTHINESS, G ENUINENESS HAS BEEN PROVED BY ASSESSEE BY FURNISHING CONFIRMATIONS, PAN NUMBERS ETC. AND OTHER DOCUMENTS ACCORDINGLY DISCUSSED BY THE CIT(A) IN HIS ORDER . THE CLAIM OF THE ASSESSEE HAS ALLOWED. THE FACTS ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 14 ARE NOT DISTINGUISHABLE AT THIS STAGE ALSO. NO NEW E VIDENCE HAS BEEN PRODUCED. TAKING INTO ACCOUNT, ALL THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS DECIDED THE ISSUE JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO.3 9 . ISSUE NO. 3 IS IN CONNECTION WITH THE DELETION OF THE ADDITION OF RS.20,00,000/ - ON ACCOUNT OF UNPROVED SHARE APPLICATION. NO DOUBT THE REVENUE HAS CHALLENGED THE DELETION OF THE SAID DE CISION BUT ON APPRAISAL OF THE ORDER OF THE CIT(A), WE NOTICED THAT THE ADDITION HAS BEEN RAISED BY REVENUE IN THE A.Y. 2007 - 08 WHICH HAS BEEN DEALT BY CIT(A) IN HIS ORDER. THE FINDING OF THE CIT(A) ON THIS ISSUE IS HEREBY REPRODUCED AS UNDER FOR READY REF ERENCE: - 5.5.1 THIS GROUND RELATES TO ADDITION OF RS.20,00,000/ - ON ACCOUNT OF SHARE APPLICATION MONEY REFLECTED IN THE BALANCE SHEET OF THE APPELLANT. THE ASSESSING OFFICER HAS DISCUSSED THIS AT PAGE 6 OF HIS ORDER. HE HAS MADE THE ADDITION, 'TAKING TO C ONSIDERATION ABOVE HISTORY OF ASSESSES COMPANY CORROBORATED BY ADVERSE REPORT OF INVESTIGATING AGENCY OF CBI'S STATURE......' THERE IS NO OTHER INVESTIGATION, FINDING OR OBSERVATION BY THE ASSESSING OFFICER FOR MAKING THIS ADDITION. 5.5.2 IT IS NOTED TH AT THE SAME ADDITION HAS ALSO BEEN MADE IN THE SUBSEQUENT ASSESSMENT FOR AY 2007 - 08. THE ISSUE HAS BEEN DEALT IN DETAIL IN THE APPELLATE ORDER FOR THAT YEAR. THAT BEING THE CASE, ADDITION MADE IN THE INSTANT ASSESSMENT YEAR TANTAMOUNT TO DOUBLE TAXATION AN D IS, THEREFORE, NOT SUSTAINABLE, THIS GROUND OF APPEAL IS, ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 15 THEREFORE, ALLOWED AND THE ADDITION OF RS. 20,00,000/ - ON ACCOUNT OF SHARE APPLICATION MONEY IS DELETED. 10 . ON APPRAISAL OF THE ABOVE MENTIONED FINDING, IT IS QUITE CLEAR THAT THE ADDITION IN SUM OF RS.20,00,000/ - HAS BEEN RAISED IN THE A.Y. 2007 - 08, THEREFORE, THERE IS NO NEED TO RAISE THE ADDITION IN CURRENT YEAR BEING THE SAME WOULD BE TANTAMOUNT T HE DOUBLE TAXATION. ACCORDINGLY THE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE ALSO. NOTHING NE W EVIDENCE HAS BEEN PRODUCED SO TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORD INGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO.4 11 . UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETION OF THE ADDITION OF RS.10,000/ - RAISED U/S 14A R.W. RULE 8D OF THE ACT. THE AO RAISED THE ADDITION ON THE BAS IS OF INVESTMENT TO EARN THE EXEMPT INCOME IN VIEW OF THE PROVISION U/S 14A R.W. RULE 8D OF THE ACT. THE AO RAISED THE ADDITION IN SUM OF RS.10,000/ - ON THE BASIS OF THE DECISION M/S. GODREJ BOYCE LTD. VS. DCIT, 328 ITR 81 (BOM) . IT IS NOT IN DISPUTE THAT IN THE RELEVANT ASSESSMENT YEAR , THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME . THE CIT(A) HAS DELETED THE ADDITION ON THE BASIS OF THIS FACT THAT THE ASSESSEE HAS NO EXEMPT INCOME . T HE FINDING OF THE CIT(A) IS HEREBY REPRODUCED FOR READY REFERENCE: - ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 16 5.6.1 THIS GROUND OF APPEAL RELATES TO DISALLOWANCE OF RS.10,000 U/S 14A. THE ASSESSING OFFICER HAS SUMMARILY DISMISSED ALL EXPLANATION OFFERED BY THE APPELLANT AND MADE THE DISALLOWANCE RELYING ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S GO DREJ BOYCE LTD VS DCIT, 328 ITR 81 (BOM). 5.6.2 DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS NOT RECEIVED ANY DIVIDEND INCOME EXEMPT FROM TAX NOR HAS IT CLAIMED ANY EXEMPT INCOME. THE ASSESSING OFFICER HAS NOT CONSIDERED THE FADS OF THE CASE AND MADE THE DISALLOWANCE U/S. 14A IN A ROUTINE AND AUTOMATIC MANNER 5.6.3 THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO. LTD. VS. DCIT (328 ITR 81) (BOM) HAS HELD THAT RULE 6D IS NOT AUTOMATIC TO INVOKE RULE 8D, THE ASSESSING OFFICER SH OULD, AFTER CONSIDERING THE ACCOUNTS OF THE APPELLANT GIVE A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF SUCH EXPENDITURE IN RELATION: TO INCOME - WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT AND SUCH 'SATISFACTION' MUST BE A OBJECTIVE SATISFACTION. THIS IS EVIDENT FROM THE FOLLOWING' OBSERVATIONS OF THE HON'BLE HIGH COURT. 'SUBSECTION (2) OF SECTION 14A DOES NOT ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY RULE BO WITHOU T DETERMINING IN THE FIRST INSTANCE THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE SUBSECTION (2) OF SECTION 14A MANDATES THAT IT IS ONLY WHEN HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, THAT HE CAN PROCEED TO MAKE A DETERMINATION UNDER THE RULES;' 5.6.4 IN UNION BANK OF INDIA V. ACIT, ITA. NO. 5347/M/2007, HONBLE ITAT FOLLOWING THE DECISION IN THE CASE OF WIMCO SEEDLING LTD. V. DCIT 107 ITD 267 DELHI TM, HELD THAT ONLY EXPENDITURE WHICH HAS BEEN PROVED TO HAVE BEEN INCURRED IN RELATION TO THE EARNING OF TAX FREE INCOME, CAN BE DISALLOWED, AND THE SECTION CANNOT BE EXTENDED TO DISALLOW EVEN EXPENDITURE WHICH IS ASSUMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF EARNING THE TAX FREE INCOME. IN DELITE ENTERPRISES (ITA. NO. 2983/M/2005 (BOM) WHEREIN IT WAS HELD THAT IF THERE IS NO INCOME EARNED BY THE ASSESSEE WHICH IS CLAIMED TO BE EXEMPT, NO DISALLOWANCE U/S 14A CAN BE MADE. ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 17 5.6.5 IN FACTS AND CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE U/S 14A CANNOT BE UPHELD. THIS GROUND OF APPEAL IS ALLOWED. 12 . ON APPRAISAL OF THE ABOVE MENTIONED FINDING, IT IS QUITE CLEAR THAT THE CIT(A) HAS DELETED THE ADDITION ON THE BASIS OF THIS FACT THAT THE ASSESSEE DID NOT EARN THE EXEMPT INCOME IN THE RELEVANT ASSESSMENT YEAR AND ALSO RELIED UPON THE DECISION OF THE HONBLE ITAT MUMBAI BENCH IN C ASE OF UNION BANK OF INDIA VS. ACIT, ITA. NO. 5347/M/2007 AND THE DECISION OF BOMBAY HIGH COURT IN DELITE ENTERPRISES (ITA.NO. 2983/M/2005). IT IS SPECIFICALLY HELD THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME SO NO DISALLOWANCE U/S 14A OF THE ACT CAN B E MADE. ONLY INVESTMENT NOWHERE REQUIRE THE APPLICATION OF THE PROVISION U/S 14 A READ WITH RULE 8D. THE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE ALSO. I N VIEW OF THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITIO N IN SUM OF RS.10,000/ - IN VIEW OF THE PROVISIONS U/S 14A OF THE ACT. THIS ISSUE HAS BEEN DECIDED BY THE CIT(A) JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. IN THE RESULT, APPEAL FILED BY THE REVENUE IS HEREBY ORDERED TO BE DISMISSED. ITA. NO.1499/M/2017 ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 18 13 . THE REVENUE HAS FILED THE PRESENT APPEAL S AGAINST THE ORDER DATED 29.11.2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APP EALS) - 8 , MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 2007 - 08 . 14 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.29,55,500/ - MADE BY THE AO IN RESPECT OF UNPROVED CREDITORS. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.20,00,000/ - ON ACCOUNT OF UNPROVED SHARE APPLICATION MONEY. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.26,00,000/ - BEING LOSS ON SHARE TRADING ON SALE OF SHARES. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD . CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.10,000/ - U/S 14A OF THE ACT, 1961 OBSERVING THAT DISALLOWANCE U/S 14A CANNOT BE MADE IF EXEMPT INCOME HAS NOT BEEN EARNED. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 15 . THE FACTS OF THE PRESENT CASE ARE QUITE SIMILAR TO THE FACTS OF THE CASE NARRATED ABOVE WHILE DECIDING THE CASE IN ITA. NO. 1498/M/2017, THEREFORE, THERE IS NO NEED TO REPEAT THE SAME. HOWEVER THE FIGURE IS DIFFERENT. ISSUE N O.1 ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 19 16 . UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETION OF THE ADDITION OF RS.29,55,500/ - . THE SAID AMOUNT IS THE PART OF THE CREDIT BALANCE WHICH HAS ALREADY BEEN ADJUDICATED WHILE DECIDED THE ISSUE NO. 1 IN ITA. NO.1498/M/2017. THIS AMOUNT IS TH E CREDIT BALANCE IN THE BOOKS OF ACCOUNT WHICH HAS BEEN REFLECTED IN THE YEAR ALSO. THE CIT(A) DELETED THE SAME ON THE BASIS OF THE SAME GROUND WHICH HE HAD ALREADY DISCUSSED WHILE DECIDING THE APPEAL OF THE ASSESSEE FOR THE A.Y. 2006 - 07 . THE RELEVANT FIND ING IS HEREBY REPRODUCED AS UNDER: - 7.3.1 THIS GROUND RELATES TO ADDITION OF RS.1,79,55,500/ - AS UNAPPROVED CREDIT. ALTHOUGH THE AO HAS NOT SPECIFIED THE SECTION UNDER WHICH THE ADDITION IS MADE, IT CAN ONLY BE PRESUMED TO HAVE BEEN MADE AS UNEXPLAINED C ASH CREDIT U/S 68 OR CESSATION OF LIABILITY U/S 41(1) OF THE ACT. THEREFORE, BOTH THESE ASPECTS WILL HAVE TO BE EXAMINED AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 7.3.2 THE AO HAS DISCUSSED THIS ISSUE UNDER PARA 4 OF HIS ORDER. HE OBSERVED THAT THE AMOUNT OF RS.1,79,55,500/ - COMPRISES OF FOUR OUTSTANDING LIABILITY VIZ. RS.1,50,00,000/ - PERTAINING TO M/S. HIMACHAL FUTURISTIC COMMUNICATIONS LTD. (HFCL) RS.65,000/ - PERTAINING TO M/S. BUTTERFLY PROPERTIES PVT; LTD. RS.3,75,000/ - PERTAINING TO M/S. K.K. FINTRADE AND RS.25,15,500/ - PERTAINING TO M/S. P. SHARMA RESPECTIVELY. THESE LIABILITIES ARE APPEARING IN BALANCE SHEET. THE AO SPECIFICALLY ASKED FOR EXPLANATION OF NATURE OF TRANSACTIONS WITH HFCL. HOWEVER, ACCORDING TO THE ASSESSING OFFICER, THE APPELLA NT FAILED TO DO SO AND ALSO DID NOT FILE ANY CONFIRMATIONS FOR ANY OF THE ABOVE FOUR PARTIES. HE TREATED THE AMOUNTS AS 'UNAPPROVED' ON THE GROUNDS THAT A. NO DETAILED NOTE ON TRANSACTIONS WAS FURNISHED NOR ANY CONFIRMATIONS FILED, B. APP ELLANT FAILED TO ESTABLISH THAT THESE AMOUN TS WERE REALLY OUTSTANDING C. THE LENGTH OF OUTSTANDING BALANCE WAS NOT ESTABLISHED, D. THERE WERE ADVERSE REPORTS OF ACB/CBI IN THE CASE. 7.3.3 IN THE COURSE OF APPEAL PROCEEDINGS, IT WAS CONTENDED THAT THE IN FORMATION DESIRED BY THE ASSESSING OFFICER COULD NOT BE ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 20 FURNISHED AT THE TIME OF ASSESSMENT AS THE RECORDS OF THE COMPANY WERE UNDER SIEGE OF CBI/ACB, THE LARGEST AMOUNT PERTAINS TO HFCL BEING RS.1,50,00,000/ - FOR ASSESSMENT YEAR 2007 - 08. THE APPELLANT SUB MITTED CONFIRMATION, ITR AND BALANCE SHEET OF HFCL VIDE LETTER DATED 24/11/2014. IT IS NOTED THAT THE IMPUGNED BALANCE IS EXISTING FROM APRIL 2004. THIS FACT HAS ALSO BEEN RECORDED BY THE ASSESSING OFFICER IN HIS REASONS FOR REOPENING THE ASSESSMENT. 7.3.4 AS REGARDS THE REMAINING 3 PARTIES, THE APPELLANT SUBMITTED LEDGER BALANCE FOR FINANCIAL YEAR 2006 - 07 AND CONFIRMATIONS FROM THE PARTIES. TWO OF THOSE BALANCES APPEARED IN BOOKS PRIOR TO 2003 WHEREAS AMOUNT OF RS.25,15,500/ - APPEARS FROM FINANCIAL YEAR 20 05 - 06. THE APPELLANT FILED CONFIRMATIONS OF ALL THE FOUR PARTIES BEING ADDITIONAL EVIDENCE, THE DETAILS FILED WERE FORWARDED TO THE ASSESSING OFFICER FOR A REPORT U/S 250(4) OF THE ACT BY MY PREDECESSOR VIDE LETTER DATED 06/02/2015. THE ASSESSING OFFICER S UBMITTED THE REMAND REPORT VIDE LETTER DATED 31/08/2015. IT IS NOTED THAT THE ASSESSING OFFICER HAS NOT OBJECTED TO ADMISSION OF ADDITIONAL EVIDENCE. THERE IS NO DISPUTE THAT THE APPELLANT HAD NOT BEEN ABLE TO SUBMIT THE DOCUMENTS AS RECORDS WERE SEIZED BY CBI/ACB DURING THE PERIOD OF ASSESSMENT PROCEEDINGS. THE APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE FROM FILING THOSE EVIDENCES AND THE SAME IS UNDER EXCEPTIONS PROVIDED UNDER RULE 46A. THEREFORE, IN MY OPINION, THE ADDITIONAL EVIDENCES SUBMITTED BY THE APPELLANT PERTAINING TO THIS GROUND OF APPEAL AS WELL AS OTHER GROUNDS OF APPEAL ARE ADMISSIBLE AS ADDITIONAL EVIDENCE UNDER RULE 46A OF INCOME TAX RULES 1962. 7.3.5 ON THIS ISSUE THE REMAND REPORT OF {HE ASSESSING OFFICER MAKES COMMENTS UNDER PARA 6. IN R ESPECT OF HFCL, HE HAS ACCEPTED THAT OPENING AND CLOSING BALANCE WAS RS.1,50,00,000/ - , WHICH HAS BEEN PAID BACK IN FY 2012 - 13. HE FURTHER OBSERVED THAT HFCL HAD TAKEN AND ADVANCED HUGE LOANS DURING THE YEAR. FURTHER, LIABILITIES STOOD AT RS. 319.13 CRORES, ASSETS WERE RS.669.74 CRORE SALES TURNOVER HAD GONE UP FROM RS. 763.49 CRORE AS ON 31.03.2006 TO RS. 1143.20 CRORE IN THE CURRENT YEAR. HE FURTHER OBSERVED, 'THE MODUS OPERAND OF ARUN DALMIA GROUP NEEDS TO BE TAKEN INTO ACCOUNT WHILE EXAMINING THESE TRANS ACTIONS'. IN RESPECT OF BPPL, KKF AND P. SHARMA, THE ASSESSING OFFICER ACKNOWLEDGED CONFIRMATIONS AND ALSO ACCEPTED THE LOANS ARE 'QUITE OLD' APART FROM THESE OBSERVATIONS, THE ASSESSING OFFICER DID NOT OFFER ANY COMMENTS. ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 21 7.3.6 A BARE READING OF SECTION 6 8 SUGGESTS THAT IF ANY SUM IS FOUND CREDITED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE OF SUCH CREDIT FOUND IN THE BOOKS OR THE EXPLANATION OFFERED BY THE AS SESSEE, IN THE OPINION OF THE ASSESSING OFFICER, IS NOT SATISFACTORY, IT IS ONLY THEN THE SUM SO CREDITED MAY BE CHARGED TO INCOME - TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. THE EXPRESSION 'THE ASSESSEE OFFERS NO EXPLANATION' MEANS WHERE THE ASSESSEE OFFERS NO PROPER, REASONABLE AND ACCEPTABLE EXPLANATION AS REGARDS THE SUMS FOUND CREDITED IN THE BOOKS MAINTAINED BY THE ASSESSEE ACCORDINGLY, IN ORDER TO DISCHARGE THIS BURDEN, ASSESSEE IS REQUIRED TO PROVE THE (A) IDENTITY OF SHAREHOLDER (B) GE NUINENESS OF TRANSACTION AND (C) CREDIT WORTHINESS OF CREDITORS. 7.3.7 VARIOUS COURTS HAVE DISCUSSED THE ASPECTS OF BURDEN OF PROOF THAT LIES ON ASSESSEE. INFERENCE CAN BE DRAWN ABOUT THE NATURE OF EVIDENCE OFFERED, THE EXPLAINING THE CREDIT AND THE ACTION S OF AN ASSESSEE THAT WOULD CONSTITUTE REASONABLE DISCHARGE OF THAT BURDEN OF PROOF SOME OF THOSE CASES ARE MENTIONED HEREUNDER. I. SUPREME COURT IN CASE OF CIT V. P. MOHANAKALA {2007J 291 ITR 278 / 161 TAXMAN 169 HELD THAT THE EXPRESSION 'ASSESSEE OFFER S NO EXPLANATION' MEANS WHERE THE ASSESSEE OFFERS NO PROPER, REASONABLE AND ACCEPTABLE EXPLANATION AS REGARDS THE SUM FOUND CREDITED IN THE BOOKS MAINTAINED BY THE ASSESSEE. IT FURTHER HELD THAT THE OPINION OF THE AO FOR NOT ACCEPTING THE EXPLANATION OFFER ED BY THE ASSESSEE AS NOT SATISFACTORY IS REQUIRED TO BE BASED ON PROPER APPRECIATION OF MATERIAL & OTHER ATTENDING CIRCUMSTANCES AVAILABLE ON RECORD. THE OPINION OF THE AO IS REQUIRED TO BE FORMED OBJECTIVELY WITH REFERENCE TO THE MATERIAL AVAILABLE ON RE CORD. APPLICATION OF MIND IS THE SINE QUA NON FOR FORMING THE OPINION. II. CIT VS DAULA RAMRAWAT MULL (87' ITR 349}(SC) IT WAS HELD THAT ASSESSEE WAS NOT REQUIRED TO PROVE THE SOURCE OF THE SOURCE, ILK 190 ITR 396 (BOM): IT WAS HELD THAT THE ASSESSEE HAVING DISCHARGED THE INITIAL BURDEN, BY GIVING COMPLETE NAME AND ADDRESS OF THE BANKERS AND CONFIRMATION LETTERS, IT WAS FOR THE INCOME - TAX OFFICER TO SHOW THAT THE EXPLANATION RENDERED BY THE ASSESSEE WAS NOT TRUE, IV. CIT V. LOVELY EXPORTS (P.) LTD. [APPEAL NO 11993 OF 2007, DATED 11 - 1 - 2008]: ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 22 IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE - COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN TO THE AO, THEN THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS I N ACCORDANCE WITH LAW, BUT IT CANNOT RDED AS UNDISCLOSED INCOME OF THE ASSESSEE - COMPANY. V. CIT V FIRST POINT FINANCE LTD. 2006 286 ITR 477 RAJ, CIT V. BHAWANI OIL MILLS LTD. 49 DTR 212: WHERE IT IS FOUND THAT THE INVESTORS ARE GENUINELY EXISTING PERSON S, I HEY HAVE FILED CONFIRMATIONS IN RESPECT OF INVESTMENTS MADE BY THEM AND THEIR STATEMENTS ARE ALSO RECORDED, AMOUNT OF SHARE APPLICATION MONEY CANNOT BE TREATED AS UNEXPLAINED CASH CREDIT AND NO ADDITION CAN BE MADE UNDER SECTION 68. VI. SHREE BARKH ASYNTHETICS LTD V. ASSTT CIT [2006J 283 ITR 377 / 155 TAXRNAN 289 (RAJ.), UMA POLYMERS (P) LTD, V. DY. 07[2006) 101 TTJ 124 (JODH)(TM): WHERE THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE - COMPANY THROUGH BANKING CHANNEL, THE ASSESSEE HAS ONLY TO PROVE THE EXISTENCE OF PERSON IN WHOSE NAME SHARE APPLICATION MONEY IS RECEIVED. ONCE THE EXISTENCE OF INVESTOR IS PROVED, IT IS NO FURTHER BURDEN OF ASSESSEE TO PROVE WHETHER THE PERSON ITSELF HAS INVESTED THE SAID MONEY OR SOME OTHER PERSON HAS MADE INV ESTMENT IN NAME OF THAT PERSON THE BURDEN THEN SHIFTS ON THE REVENUE TO ESTABLISH THAT SUCH AN INVESTMENT HAS COME FROM ASSESSEE - COMPANY ITSELF, VII. CIT V GANGOUR INVESTMENT LTD. [2009] 179 TAXMAN 1 (DELHI}, CIT V. VICTOR ELECTRODES LTD [Z010J 329 ITR 271 (DELHI), DY CIT V. DOLPHINS MARBLES (P.) LTD. [2011] 129 ITD 163/ 10 TAXMANN.COM 75 (JAB.){TM), BHARTT SYNTEX LTD. V. DY. CIT 52 DTR 73 (JP.): ASSESSEE - COMPANY FILED LETTERS OF THE SHARE APPLICANT COMPANIES WROTE TO THE ACIT CONFIRMING THAT THEY HAD A PPLIED FOR SHARES IN THE ASSESSEE - COMPANY, GIVING DETAILS OF DRAFT, COPIES OF RESOLUTIONS PASSED BY BOD OF APPLICANT - COMPANIES BESIDES THEIR BANK STATEMENT/COPIES OF ACKNOWLEDGEMENT OF RETURNS, CERTIFICATES AND BALANCE SHEETS OF THE APPLICANT - COMPANIES WHE REIN INVESTMENT MADE IN THE ASSES SEE - COMPANY WAS SHOWN, PAN, ROC CERTIFICATE, IT HAD DISCHARGED THE ONUS WHICH LAY UPON IT UNDER SECTION 68 BY ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 23 ESTABLISHING THE IDENTITY AND CREDITWORTHINESS OF EACH SHAREHOLDER AND, THEREFORE, NO ADDITION COULD BE MADE UND ER SECTION 63. CIT V. ORISSA CORPN. (P.) LTD. [1986] 159 ITR 78 /25 TAXMAN 8QF (SC): IN THIS CASE ASSESSEE GAVE THE NAMES AND ADDRESSES OF THE CREDITORS. IT WAS IN THE KNOWLEDGE OF THE REVENUE THAT THE CREDITORS WERE INCOME - TAX ASSESSEES. THE REVENUE APA RT FROM ISSUING NOTICES UNDER SECTION 131 DID NOT PURSUE THE MATTER FURTHER. IT DID NOT EXAMINE THE SOURCE OF INCOME OF THE ALLEGED CREDITORS TO FIND OUT WHETHER THEY WERE CREDITWORTHY. THEREFORE, IT WAS HELD THAT IN THESE CIRCUMSTANCES, ASSESSEE COULD NOT DO ANY FURTHER AND IT HAD DISCHARGED THE BURDEN LAID ON IT. IX DY. CIT V. ROHINI BUILDERS [2002] 256 ITR 360 /[20Q3] 127 TAXMAN 523 (GUJ.) IF THE IDENTITY OF THE CREDITORS IS PROVED AND THE AMOUNTS ARE RECEIVED BY ACCOUNT - PAYEE CHEQUES, THE IN ITIATE BURDEN OF PROVING CREDIT IS DISCHARGED AND THE SOURCE OF CREDITS NEED NOT BE PROVED. X. CIT V. SAMTEL COLOR LTD. 64 DTR 46: IN THIS DECISION GIVEN BY THE DELHI HIGH COURT, IT WAS HELD THAT BY BRINGING ON RECORD EVERY POSSIBLE INFORMATION REGARDIN G THE DEPOSITORS INCLUDED IN THE APPLICATION FORM WHICH INCLUDED PARTICULARS OF APPLICANT/DEPOSITOR, TELEPHONE NO., PARTICULARS OF DEMAND DRAFT/CHEQUE THROUGH WHICH THE DEPOSIT WAS MADE, LAX STATUS OF APPLICANT AND OTHER DEPOSIT WITH THE ASSESSEE, IF ANY, ASSESSEE HAD DISCHARGED THE INITIAL LAID ON IT UNDER SECTION 68 AND ADDITION COULD NOT BE MADE MERELY FOR THE REASON THAT NO CONFIRMATION LETTERS WERE FILED IN RESPECT OF SOME OF THE DEPOSITORS XI. CLT V. ORISSA CORPN (P.} LTD, [1986] 159 ITR 78 /25 TAXM AN 8QF (SC) :LN THIS CASE ASSESSEE GAVE THE NAMES AND ADDRESSES OF THE CREDITORS. IT WAS IN THE KNOWLEDGE OF THE REVENUE THAT THE CREDITORS WERE INCOME - TAX ASSESSEE. THE REVENUE APART FROM ISSUING NOTICES UNDER SECTION 131 DID NOT PURSUE THE MATTER FURTHER . IT DID NOT EXAMINE THE SOURCE OF INCOME OF THE ALLEGED CREDITORS TO FIND OUT WHETHER THEY WERE CREDITWORTHY. THEREFORE, IT WAS HELD THAT IN THESE CIRCUMSTANCES, ASSESSEE COULD NOT DO ANY FURTHER AND IT HAD DISCHARGED THE BURDEN LAID ON IT. ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 24 XII. IN ONE/I F TRADING CO. LTD. V. COMMISSIONER OF INCOME - TAX (1963) 49 ITR 723 (BOM.), ONE OF THE QUESTIONS REFERRED TO THE BOMBAY HIGH COURT WAS WHETHER THERE WAS ANY MATERIAL BEFORE THE TRIBUNAL TO HOLD THAT A SUM STANDING IN THE BOOKS OF THE ASSESSEE TO THE CREDIT OF A THIRD PARTY BELONGED TO THE ASSESSEE. THE BOMBAY HIGH COURT DISCUSSED THE NATURE AND SIGNIFICANCE OF CASH CREDITS IN SUCH CASES AND OBSERVED AS FOLLOWS: 'WHEN CASH CREDITS APPEAR IN THE ACCOUNTS OF AN ASSESSEE, WHETHER IN HIS OWN NAME OR IN THE NAME O F THIRD PARTIES, THE INCOME - TAX OFFICER IS ENTITLED TO SATISFY HIMSELF AS TO THE TRUE NATURE AND SOURCE OF THE AMOUNTS ENTERED THEREIN, AND IF AFTER INVESTIGATION OR INQUIRY HE IS SATISFIED THAT THERE IS NO SATISFACTORY EXPLANATION AS TO THE SAID ENTRIES, HE WOULD BE ENTITLED TO REGARD THEM AS REPRESENTING THE UNDISCLOSED INCOME OF THE ASSESSEE WHEN THESE CREDIT ENTRIES STAND IN THE NAME OF THE ASSESSEE HIMSELF, THE BURDEN IS UNDOUBTEDLY ON HIM TO PROVE SATISFACTORILY THE NATURE AND SOURCE OF THESE ENTRIES AND TO SHOW THAT THEY DO NOT CONSTITUTE A PART OF HIS BUSINESS INCOME LIABLE TO TAX WHEN, R, ENTRIES STAND, RIOT IN THE ASSESSEE'S OWN NAME, BUT IN THE NAME OF THIRD PARTIES, THERE HAS BEEN SOME DIVERGENCE OF OPINION EXPRESSED AS TO THE QUESTION OF THE BUR DEN OF PROOF. THE INCOME - TAX OFFICER'S REJECTION NOT OF THE EXPLANATION OF THE ASSESSES, BUT OF THE EXPLANATION REGARDING THE SOURCE OF INCOME OF THE DEPOSITORS, CANNOT BY ITSELF LEAD TO ANY INFERENCE REGARDING THE NON - GENUINE OR FICTITIOUS CHARACTER OF TH E ENTRIES IN THE ASSESSEE 'S BOOKS OF ACCOUNT.' XIII. THE ASSESSEE HAVING DISCHARGED THE INITIAL BURDEN, BY GIVING COMPLETE NAME AND ADDRESS OF THE BANKERS AND CONFIRMATION LETTERS, IT WAS FOR THE INCOME - TAX OFFICER TO SHOW THAT THE EXPLANATION RENDERED BY THE ASSESSEE WAS NOT TRUE 190 ITR 396 (BOM). 7 3.8 AS REGARDS APPLICABILITY OF S. 41(1) IS CONCERNED, THE CAPTION HEADING OF SECTION 41(1) IS 'PROFITS CHARGEABLE TO TAX'. IN BUSINESS THERE ARE CIRCUMSTANCES WHERE A PERSON MIGHT HAVE INCURRED A LIABILITY BUT LATER ON HE NEED NOT HAVE TO PAY J| FOR ONE OR OTHER REASON THE INCOME TAX ACT BRINGS TO TAX SUCH LIABILITIES WHICH ARE NO MORE PAYABLE THE SECTION BRINGS IN TO ITS AMBIT BENEFIT IN CASH OR IN KIND OBTAINED BY A PERSON BY REMISSION OR CESSATION OF LIA BILITY. THE ONLY CONDITION IS THAT THE PERSON MUST HAVE OBTAINED A DEDUCTION OR ALLOWANCE IN HIS COMPUTATION OF INCOME FOR THE SAID LIABILITY IN ANY PREVIOUS YEARS. TO TABULATE THE SAME ONE NEEDS TO CONSIDER THE FOLLOWING MANDATORY POINTS, ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 25 THERE HAS TO B E A REMISSION OR CESSATION OF A LIABILITY OR THERE HAS TO BE RECOVERY OF ANY LOSS OR THERE HAS TO BE RECOVERY OF ANY EXPENDITURE THE LIABILITY MUST BE A TRADING LIABILITY AND NOT ON CAPITAL ACCOUNT THE PERSON IS ALLOWED DEDUCTION OR ALLOWANCE FOR TH E SAME IN YEAR 7.3.9 THE APPELLANT COMPANY HAS UNDISPUTEDLY NOT OBTAINED ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE DURING THE RELEVANT PREVIOUS YEAR AND AS SUCH THE FIRST PART OF THE PROVISION OF SECTION 41(1) IS NOT APPLICABLE. WITH REGARDS TO THE SECOND PART OF SECTION 41(1), THE APPELLANT COMPANY DID NOT DERIVE ANY BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF IN AS MUCH AS LIABILITY IN RESPECT OF ALL CREDITORS ARE ADMITTEDLY PAYABLE AS ON THE RELEVANT BALA NCE SHEET DATE AND AS SUCH THE SECOND OF THE PROVISION IS ALSO NOT APPLICABLE. 7.3 10 IN CASE OF REMISSION THERE HAS TO BE A WAIVER BY THE CREDITOR IN FAVOUR OF THE ASSESSEE EITHER UNILATERALLY OR THROUGH CONTRACTUAL AGREEMENT. TO THE EXTENT SUCH REMISSION OR WAIVER OF THE LIABILITY IS GRANTED ASSESSEE WOULD GET BENEFIT AND ACCORDINGLY TO THAT EXTENT SAME WOULD BE TAXABLE UNDER SECTION 41(1) SUBJECT TO THE BASIC CONDITION THAT SUCH LIABILITY REMITTED HAS BEEN TAKEN INTO ACCOUNT IN THE TRADING ACCOUNT OR IN THE PROFIT AND LOSS ACCOUNT IN THE CURRENT YEAR OR IN AN EARLIER YEAR THUS, THERE HAS TO BE A POSITIVE ACT ON THE PART OF THE CREDITOR IN THE CURRENT YEAR WHICH WOULD PROVIDE THE BENEFIT TO THE ASSESSEE BY WAY OF REMISSION. HOWEVER, IN THE PRESENT CASE, TH ERE HAS BEEN NO WAIVER FROM THE CREDITORS OF THE LIABILITY IN FAVOR OF THE ASSESSEE COMPANY AS EVIDENCE FROM THE LIST OF CREDITORS. 7.3.11 THE CONCEPT OF CESSATION IN SECTION 41(1) IMPLIES THAT LIABILITY OF THE ASSESSEE HAS CEASED TO EXIST IN THE YEAR UNDE R CONSIDERATION, EITHER BY OPERATION OF LAW, OR BY MUTUAL CONTRACT BETWEEN THE PARTIES OPERATION OF LAW WOULD INDICATE THAT LIABILITY HAS BECOME UNENFORCEABLE AT LAW I.E., THE LIMITATION PRESCRIBED FOR RECOVERY OF THE DUES BY THE CREDITOR HAS EXPIRED OR TH ERE IS A COURT DECREE OR ORDER FINALLY AGAINST THE CREDITOR THEREBY HE LOSES HIS RIGHT TO RECOVER THE MONEY FROM THE DEBTOR I.E , THE ASSESSEE. THUS IT IS EITHER EXPIRY OF LIMITATION OR A DECREE OF A COURT THAT WOULD MAKE THE LIABILITY CEASED TO EXIST. HOW EVER, A FURTHER CONDITION IS IMPOSED WHERE LIMITATION IS EXPIRED. IT IS THAT THE DEBTOR I.E., THE ASSESSEE SHOULD UNEQUIVOCALLY DECLARE HIS INTENTION NOT TO HONOR HIS LIABILITY WHEN PAYMENT IS DEMANDED BY THE CREDITOR. FURTHER, IF ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 26 THERE IS A CONTRACT BETWE EN THE 'AND THE CREDITOR DISCHARGES THE DEBTOR OF THE DEBT EITHER FULLY OR PARTLY THEN TO THE EXTENT THE DEBT IS DISCHARGED BY THE CREDITOR WITHOUT PAYMENT BY THE ASSESSEE, LIABILITY WOULD CEASE TO EXIST. THUS, THERE HAS TO BE AN EVENT FOR CESSATION OF LIA BILITY TO LAKE PLACE. HOWEVER, NOTHING LIKE THAT HAS HAPPENED IN THE CASE OF APPELLANT COMPANY DURING THE RELEVANT ASSESSMENT YEAR AND AS SUCH LIABILITY IN RESPECT OF SUCH CREDITORS CANNOT BE CONSIDERED AS CEASED TO EXIST. 7.3.12 CREDIT AMOUNT OUTSTANDING FOR SEVERAL YEARS CANNOT BE HELD AS CESSATION OF TRADING LIABILITY ON THE GROUND THAT ASSESSEE COULD NOT PROVE GENUINENESS OF THE TRANSACTIONS, WHERE ASSESSEE HAD ACKNOWLEDGED ITS (LABILITY SUCCESSIVELY OVER SEVERAL YEARS. FOR THIS CONCLUSION, RELIANCE IS PLACED ON [HE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF GTT, DELHI - H VS GEN EXPORTS PVT LTD. [2013] 35 TAXMANN.COM 540 AND CFT - IFF VS SHN VARDHAMAN OVERSEAS LIMITED J2011] 16 TAXMANN.COM 350/343 ITR 40D. 7.3.13 THE DELHI HIGH COURT IN THE CASE OF CIT - III VS SHRI VARDHAMAN OVERSEAS LIMITED [2011] 16 TAXMANN.COM 350/ 343 ITR 408 HAS FURTHER HELD THAT THE QUESTION WHETHER THE LIABILITIES WERE GENUINE OR NOT CANNOT BE EXAMINED IN THE ASSESSMENT PROCEEDING FOR THE YEAR UNDER CONSIDERATION (SUBSEQUENT YEARS) AND SUCH QUESTION COULD BE EXAMINE ONLY IN THE YEAR IN WHICH THE ENTRIES WERE FIRST MADE IN THE ACCOUNT OF THE SUNDRY CREDITORS. 7.3.14 UNPAID LIABILITIES CANNOT BE ADDED TO ASSESSEE'S INCOME BY THE ASSESSING OFFICER UNDER SECTION 41(1) MERELY BECAUSE THE Y REMAINED UNPAID FOR A SUFFICIENTLY LONG TIME. THE LEGAL POSITION IS THAT UNLESS THERE IS EVIDENCE TO SHOW THAT THE CREDITOR HAS REMITTED THE DEBT OR OTHERWISE BY OPERATION OF LAW THE LIABILITY TO PAY HIM HAS CEASED, THERE CAN BE NO BENEFIT ARISING TO THE ASSESSEE WITHIN THE MEANING OF CLAUSE (A) OF SECTION 41(1) UNLESS NOTICES WERE ISSUED TO THE CREDITORS AND THEY HAD STATED THAT THEY HAD GIVEN UP THE CLAIMS AGAINST THE ASSESSEE, NO DECISION COULD BE TAKEN BY THE AO, MERELY ON THE GROUND THAT THE DEBTS RE MAINED UNPAID M THE ASSESSEE'S BOOKS FOR A NUMBER OF YEARS, THAT THE LIABILITY HAD CEASED OR HAD BEEN REMITTED - CIT VS. HOTLINE ELECTRONICS LIMITED TAXMAN 245/18 TAXMAN.COM (DELHI). 7.3.15 THE FACT THAT THE CREDITORS REMAIN UNPAID EVEN AT THE TIME OF ASSES SMENT DOES NOT IMPLY THAT THE LIABILITY TOWARDS THESE CREDITORS AGAINST THE APPELLANT CEASES TO EXIST BECAUSE THESE CREDITORS ARE STILL ADMITTEDLY SUBSISTING IN THE BOOKS AND THEY HAVE FULI RIGHT LO ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 27 DEMAND THE SAME AT ANY TIME. THE ASSESSING OFFICER FAILED TO APPRECIATE THE FACT THAT THE LIABILITY IN RESPECT OF SUNDRY CREDITORS DID NOT CEASE BY THE LAPSE OF TIME AS THE LIMITATION OF TIME IS NOT A DETERMINING FACTOR IN THE MATTER RELATING TO REMISSION OR CESSATION OF LIABILITY AND EVEN IN THE CASE OF TIME BA RRED DEBT WHICH, THE CREDITORS WOULD NOT BE ABLE TO RECOVER, BY ENFORCING HIS RIGHT IN THE COURT, HIS RIGHT AS SUCH WILL NOT COME TO AN END AND, THEREFORE, LIABILITY WILL NOT CEASE TO EXIST. CESSATION WOULD TAKE PLACE IF NOT ONLY THE LIABILITY IS BARRED BY LIMITATION BUT ALSO ASSESSES EXPRESSES AFT UNEQUIVOCAL INTENTION NOT TO OWN THE LIABILITY EVEN WHEN OR BY OPERATION OF TAW OR THROUGH A CONTRACT BETWEEN THE PARTIES OR BY DISCHARGE OF THE DEBT. DEBTORS MAKING PART PAYMENT THEREOF TO ITS CREDITOR. HOWEVER, THERE IS NO SUCH FINDING BY THE ASSESSING OFFICER IN THE CASE OF THE ASSESSEE AND, HENCE, THE LIABILITY DOES NOT CEASE TO EXIST. 7.3.16 THE FACTS THAT THE IMPUGNED LIABILITIES TOWARDS THESE CREDITORS WHICH WERE BROUGHT FORWARD FROM EARLIER YEARS WERE OUTS TANDING AND NONE OF THESE CREDITORS HAVE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS ARE NOT IN DISPUTE. FURTHER THE APPELLANT HAS THE INTENTION TO MAKE THE PAYMENT TO SUCH CREDITORS IS EVIDENT FROM THE FACT THAT THEY ARE STILL REFLECTED IN THE BOOKS OF ACCO UNTS. HOWEVER, THE AO HAD NEITHER DISPROVED THE APPELLANT'S CLAIM RELATING TO THE IMPUGNED LIABILITY NOR DISCHARGED HIS ONUS TO PROVE THAT THE APPELLANT HAS OBTAINED THE BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF. MERELY BECAUSE THE APPELLANT OBTAINED BENEFIT OF REDUCTION IN EARLIER YEARS AND BALANCE IS CARRIED FORWARD IN THE SUBSEQUENT YEAR, IT WOULD NOT PROVE THAT THE TRADING LIABILITIES OF THE APPELLANT HAVE BECOME NON - EXISTENT FURTHER, WHEN THE APPELLANT CONTIN UES TO REFLECT OR RECORD THE LIABILITIES AS STILL PAYABLE AND APPELLANT DECIDED TO NOT TO WRITE THEM OFF UNILATERALLY, THE AO HAS HIGHER LEVELS OF RESPONSIBILITY AND HENCE HE HAS TO ESTABLISH WITH EVIDENCE THAT THE SAID BOOK ENTRIES ARE WRONG OR NOT BONAFI DE. THIS VIEW IS SUPPORTED BY THE DECISIONS OF THE TRIBUNAL IN THE CASES OF SHRI VARDHMAN OVERSEAS LTD. VS. ACIT (2008) 24 SOT 393 (DELHI) AND UTTAM AIR PRODUCTS PVT. LTD. DY. CIT (2006) 99 TTJ 718. THESE CONCLUSION ARE ALSO SUPPORTED BY JUDGEMENT OF HONB LE SC IN TIRUNELVELI MOTOR BUS SERVICE CO. LTD. V. CIT, 78 ITR 55. 7.3.17 IN THE INSTANT CASE, NOT ONLY DID THE APPELLANT DISCHARGE ITS ONUS OF ESTABLISHING IDENTITY AND CREDITWORTHINESS OF CREDITORS AND GENUINENESS OF TRANSACTION THE AO HAS ADMITTED THAT ALL THE ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 28 BALANCES WERE VERY OLD. IT IS SETTLED LAW THAT SUCH OLD BALANCES CANNOT BE ADDED U/S 68 FOR THE CURRENT YEAR. FURTHERMORE, AS DISCUSSED ABOVE, THE ADDITION CAN ALSO NOT BE MADE U/S 41(1). THEREFORE, ADDITION OF RS.1,79,55,500/ - AS UNPROVED CREDITOR S IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 14. ON APPRAISAL OF THE ABOVE MENTIONED FINDING, WE NOTICED THAT THE CIT(A) HAS DULY DISCUSSED THE EACH AND EVERY FACTS OF THE CASE AND ARRIVED AT THIS CONCLUSION THAT THE UN PAID LIABILITY CANNOT BE ADDED T O THE ASSESSEE S INCOME BY THE AO U/S 41(1) OF THE ACT M ERELY ON THE GROUND THAT THE SAME WAS UNPAID FOR SUFFICIENTLY LONG TIME. THE ENTRIES HAVE ALSO BEEN REFLECTED IN THE BOOKS OF ACCOUNT OF THE CREDITORS. THE ASSESSEE ALSO PROVED THE IDENTITY, CREDITWOR THINESS OF THE CREDITORS AND GENUINENESS OF THE TRANSACTION BY PRODUCING THE SUFFICIENT EVIDENCE ON RECORD. WE FOUND NO ILLEGALITY AND IRREGULARITY IN THE FINDING OF THE CIT(A) BECAUSE THERE IS NO DISTINGUISHABLE FACT ON RECORD. NO NEW EVIDENCE HAS BEEN PL ACED ON RECORD . TAKING INTO ACCOUNT, ALL THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS DECIDED THE MATTER OF CONTROVERSY JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THIS ISS UE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE . ISSUE NO.2 ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 29 1 7 . UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF RS.20,000/ - ON ACCOUNT OF SHARE APPLICATION MONEY. THE SAID AMOUNT WAS PAID BY M/S. GOLD MAN SECURITIES LTD. PRIORS TO 2003 AND THEREAFTER SHARES WERE ALLOTTED ON 01.04.2010. REQUISITE INFORMATION IN FORM 2 WAS FILED BEFORE ROC. RELEVANT DOCUMENTS WERE ALSO PRODUCED ON RECORD. THE AO RAISED THE ADDITION MERELY ON THE BASIS OF THE DOCUMENTS TENDER ED BY CBI /ACB IN VESTIGATION. THE CIT(A) HAS AFTER EXAMINING THE RELEVANT RECORD ARRIVED AT THIS CONCLUSION THAT THE IDENTITY HAS BEEN PROVED AND GENUINENESS OF TRANSACTION HAS BEEN PROVED AND CREDITWORTHINESS IS ALSO ON RECORD. APPLYING THE SAME RATIO OF FINDING WHICH HAS APPLIED BY THE CIT(A ) WHILE DECIDING THE ISSUE NO. 1, THE CLAIM OF THE ASSESSEE HAS BEEN ALLOWED. NO DOUBT THIS ISSUE HAS NOT BEEN DESCRIBED AND DISCUSSED BUT CIT(A) HAS MENTIONED THE PRINCIPLE WHICH HE HAD ALREADY APPLIED WHILE DECIDING THE ISSUE NO. 1. THE R ELEVANT RECORD AND REMAND REPORT ETC HAS BEEN CONSIDERED. NOTHING NEW EVIDENCE CAME INTO NOTICE TO WHICH IT CAN BE ASSUMED THAT THE FINDING OF THE CIT(A) IS PERVERSE . F INDING NO DISTINGUISHABLE MATERIAL TO INTERFERE WITH THE FINDING OF CIT(A) WE AFFIR M THE FINDING OF THE CIT(A) ON THIS ISSUE AT THIS APPELLATE STAGE. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REV E NUE. ISSUE NO.3 ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 30 18 . UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF RS.26,00,000/ - BEING LOSS ON SHARE TRADING ON SALE OF SHARES. THE ASSESSEE SHOWED THE LOSS OF RS.26,00,000/ - ON ACCOUNT OF SALE OF SHARES OF TIRUPATI FIBRES AND INDUSTRIES LTD. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASS ESSEE HAS SHOWN THE ARTIFICIAL LOSS , IN FACT , THE ASSESSEE DID NOT SUFFER FACTUAL LOSS, HENCE, DISALLOWED THE LOSS OF RS.26,00,000/ - AND ADDED TO THE INCOME OF THE ASSESSEE. AT THE TIME OF APPEAL BEFORE THE CIT(A), THE CIT(A) SOUGHT THE REMAND REPORT. REMAND REPORT SPEAKS ABOUT THE GENUINENESS OF THE CLAI M . T HE AO ADMITS THAT DEBIT NOTE CONTAINING THE DETAILS OF THE CERTIFICATE NUMBER, DISTINCTIVE NUMBERS OF THE SHARES AS ALSO ACKNOWLEDGEMENT OF SHARES HAVING BEEN RECEIVED BY THE CONCERNED BUYER ARE ON RECORD. THESE SHARES WERE PART OF THE STOCK IN TRADE O F THE APPELLANT COMPANY . T HE LOSS ARRIVING TO THE APPELLANT ON ACCOUNT OF THE TRANSACTION HAS RIGHTLY ACCRUED TO IT AND THE AO HAS BROUGHT NO FINDING ON RECORD TO DISPUTE THAT. AFTER THE EXAMINING THE RECORD WHEN THE AO FOUND GENUINENESS OF THE TRANSACTION AND ACCORDINGLY SUBMITTED THE REPORT BEFORE THE CIT(A) , THEREFORE, UNDOUBTEDLY, THE CIT(A) HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. THE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE ALSO. HENCE, WE ARE OF THE VIEW THAT THE CIT(A) HAS DECIDED THE MATTE R OF CONTROVERSY JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AGAINS T THE REVENUE. ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 31 ISSUE NO.4 19 . ISSUE NO. 4 IS IN CONNECTION WITH THAT THE DELETION OF THE ADDITION OF RS.10,000/ - U/S 14A R.W. RULE 8D OF THE ACT, 1961. THE AO RAISED THE ADDITION ON THE BASIS OF INVESTMENT TO EARN THE EXEMPT INCOME IN VIEW OF THE PROVISION U/S 14A R.W. RULE 8D OF THE ACT. THE AO RAISED THE ADDITION IN SUM OF RS.10,000/ - ON THE BASIS OF THE DECISION M/S. GODREJ BOYCE LTD. VS. DCIT, 328 ITR 81 (BOM). IT IS NOT IN DISPUTE THAT IN THE RELEVANT ASSESSMENT YEAR , THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME. T HE FINDING OF THE CIT(A) ON THIS ISSUE IS HEREBY REPRODUCED FOR READY REFERENCE: - 5.6.1 THIS GROUND OF APPEAL RELATES TO DISALLOWANCE OF RS.10,000 U/S 14A. THE ASSESSING OFFICER HAS SUMMARILY DISMISSED ALL EXPLANATION OFFERED BY THE APPELLANT AND MADE THE DISALLOWANCE RELYING ON THE DECISION OF HON'BLE BOMBAY HIGH COURT I N THE CASE OF M/S GODREJ BOYCE LTD VS DCIT, 328 ITR 81 (BOM). 5.6.2 DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS NOT RECEIVED ANY DIVIDEND INCOME EXEMPT FROM TAX NOR HAS IT CLAIMED ANY EXEMPT INCOME. THE ASSESSING OFFICER HAS NOT CONSIDERED THE F ADS OF THE CASE AND MADE THE DISALLOWANCE U/S. 14A IN A ROUTINE AND AUTOMATIC MANNER 5.6.3 THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO. LTD. VS. DCIT (328 ITR 81) (BOM) HAS HELD THAT RULE 6D IS NOT AUTOMATIC TO INVOKE RULE 8D, THE ASSESSING OFFICER SHOULD, AFTER CONSIDERING THE ACCOUNTS OF THE APPELLANT GIVE A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF SUCH EXPENDITURE IN RELATION: TO INCOME - WHICH DOES NOT FORM PART OF THE TOT AL INCOME UNDER THIS ACT AND SUCH 'SATISFACTION' MUST BE A OBJECTIVE SATISFACTION. THIS IS EVIDENT FROM THE FOLLOWING' OBSERVATIONS OF THE HON'BLE HIGH COURT. 'SUBSECTION (2) OF SECTION 14A DOES NOT ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIB ED BY RULE BO WITHOUT DETERMINING IN THE FIRST INSTANCE THE CORRECTNESS OF THE CLAIM OF THE ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 3 2 ASSESSEE. HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE SUBSECTION (2) OF SECTION 14A MANDATES THAT IT IS ONLY WHEN HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. T HE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, THAT HE CAN PROCEED TO MAKE A DETERMINATION UNDER THE RULES;' 5.6 .4 IN UNION BANK OF INDIA V. ACIT, ITA. NO. 5347/M/2007, HONBLE ITAT FOLLOWING THE DECISION IN THE CASE OF WIMCO SEEDLING LTD. V. DCIT 107 ITD 267 DELHI TM, HELD THAT ONLY EXPENDITURE WHICH HAS BEEN PROVED TO HAVE BEEN INCURRED IN RELATION TO THE EARNING OF TAX FREE INCOME, CAN BE DISALLOWED, AND THE SECTION CANNOT BE EXTENDED TO DISALLOW EVEN EXPENDITURE WHICH IS ASSUMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF EARNING THE TAX FREE INCOME. IN DELITE ENTERPRISES (ITA. NO. 2983/M/2005 (BOM) WHEREIN IT WAS H ELD THAT IF THERE IS NO INCOME EARNED BY THE ASSESSEE WHICH IS CLAIMED TO BE EXEMPT, NO DISALLOWANCE U/S 14A CAN BE MADE. 5.6.5 IN FACTS AND CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE U/S 14A CANNOT BE UPHELD. THIS GROUND OF APPEAL IS ALLOWED. 20 . ON APP RAISAL OF THE ABOVE MENTIONED FINDING, IT IS QUITE CLEAR THAT THE CIT(A) HAS DELETED THE ADDITION ON THE BASIS OF THIS FACT THAT THE ASSESSEE DID NOT EARN THE EXEMPT INCOME IN THE RELEVANT ASSESSMENT YEAR AND ALSO RELIED UPON THE DECISION OF THE HONBLE IT AT MUMBAI BENCH IN CASE OF UNION BANK OF INDIA VS. ACIT, ITA. NO. 5347/M/2007 AND IN VIEW OF THE DECISION OF BOMBAY HIGH COURT IN DELITE ENTERPRISES (ITA.NO.2983/M/2005). IT IS SPECIFICALLY HELD THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME SO NO DISALL OWANCE U/S 14A OF THE ACT READ WITH RULE 8D CAN BE MADE. THE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE ALSO. THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME . I N VIEW OF THE SAID CIRCUMSTANCES, WE ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 33 ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDIT ION IN SUM OF RS.10,000/ - RAISED IN VIEW OF SECTION 14A READ WITH RULE 8D. THIS ISSUE HAS BEEN DECIDED BY THE CIT(A) JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ITA. NO.1500/M/2017 21 . T HE REVENUE HAS FILED THE PRESENT APPEALS AGAINST THE ORDER DATED 29.11.2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 8, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE A. Y. 2009 - 10 . 2 2 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.1,11,85,000/ - MADE BY THE AO ON ACCOUNT OF UNPROVED CREDITS. 2. WHETHER O N THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.26,409/ - U/S 14A OF THE ACT, 1961 OBSERVING THAT DISALLOWANCE U/S 14A CANNOT BE MADE IF EXEMPT INCOME HAS NOT BEEN EARNED. 3. THE APPELLANT PRAYS T HAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. 2 3 . THE FACTS OF THE PRESENT CASE ARE QUITE SIMILAR TO THE FACTS OF THE CASE AS NARRATED ABOVE WHILE DECIDING THE APPEAL ABOVE IN ITA. NO. ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 34 1498/M/2017, THEREFORE, THE RE IS NO NEED TO REPEAT THE SAME. HOWEVER , THE FIGURE IS DIFFERENT. ISSUE NO.1 2 4 . UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF RS.1,11,85,000/ - MADE BY THE AO ON ACCOUNT OF UNPROVED CREDITS. THE LD. REPRESENTATIVE OF THE REVENUE HAS ARGUED THAT THE CIT(A) HAS WRONGLY DELETED THE ADDITION OF RS.1,11,85,000/ - , THEREFORE, THE FINDING OF THE CIT(A) IS NOT JUSTIFIABLE AND IS LIABLE TO BE SET ASIDE. HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS STRONGLY RELIED U PON THE ORDER PASSED BY THE CIT(A) IN QUESTION. BEFORE GOING FURTHER, WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD: - 7.3.1 IN THESE GROUNDS, THE APPELLANT HAS CONTESTED ADDITION OF CREDIT OUTSTANDING IN THE NAME OF (IS ASSOCIATE C ONCERNS, NAMELY: - M/S. BASANT MARKETING PVT. LTD (RS.84,00,000/ - ), M/S. INDIGO EDUTAINMENT PVT. LTD (RS.40,000/ - ), [GROUND NO.3. - M/S. STRUCTARCH DEVELOPERS PVT. LTD (RS. 60.000/ - ) AND M/S. SATYA SECURITIES LTD (RS 3,70,000/ - GROUND N O 4] - M/S. UDAIPUR PROPERTIES & FINANCE LTD (RS.15,00,000/ - ) AND M/S. PARTH TRADE LINKS PVT. LTD (RS.8,15.,000/ - ) [GROUND NO 5] 7.3.2 THE ASSESSING OFFICER HAS DEALT WITH THESE ADDITIONS UNDER PARAS 4,5 & 6 OF HIS ORDER IN THE COURSE OF HEARING EARLIER , THE APPELLANT FURNISHED DETAILED SUBMISSIONS AND EVIDENCES TO SUBSTANTIATE ITS CLAIM OF GENUINENESS OF CREDITS. THESE INCLUDED: - CONFIRMATION OF ACCOUNTS - LEDGER ACCOUNT - BANK STATEMENT HIGHLIGHTING THE TRANSACTION - BALANCE SHEET ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 35 7.3.3 THESE WERE DUL Y FORWARDED TO THE ASSESSING OFFICER TO SEEK REMAND REPORT. THE ASSESSING OFFICER HAS DISMISSED ALL EVIDENCES UNDER PARA 9 OF HIS REMAND REPORT MERELY EXPRESSING HIS SUSPICION HE HAS NOT DENIED OR CONTESTED IDENTITY OR CREDITWORTHINESS OF THE ABOVE MENTION ED PARTIES BUT DISMISSED ALL THE EVIDENCES BY OBSERVING, 'IN VIEW OF THE FACT THAT ARUN DAIMIA GROUP HAS FLOATED LARGE NUMBERS OF COMPANIES TO INDULGE IN TRANSACTIONS RUNNING INTO CRORES OF RUPEES EVEN IF SUPPORTED BY PROPER EVIDENCES, NEEDS TO BE CONSTRU ED AS PART OF SAID BOGUS BILLING ACTIVITY.' 7.3.4 SIMILAR ADDITIONS WERE MADE OF 'UNPROVED' CREDITS BY THE ASSESSING OFFICER IN APPELLANT'S CASE IN EARLIER YEARS AND HAVE BEEN CONSIDERED AND DECIDED BY ME IN APPELLANT'S APPEALS FOR AYS 2006 - 07 TO 2008 - 09. THE NATURE OF TRANSACTIONS, THE EVIDENCES SUBMITTED AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN REMAND REPORT WERE SIMILAR TO THOSE IN THE INSTANT APPEAL. IN MY ORDER FOR AY 2006 - 07, I HAVE EXAMINED IN DETAIL APPLICABILITY OF SECTION 68 ON SIMILAR FAC TS AND CIRCUMSTANCES AND RELIED ON SEVERAL CASE LAWS FOR ARRIVING AT A DECISION. IN MY APPELLATE ORDER FOR AY 2007 - 08. I HAD OBSERVED; 'IN THE INSTANT CASE, NOT ONLY DID THE APPELLANT DISCHARGE ITS ONUS OF ESTABLISHING IDENTITY AND CREDITWORTHINESS OF CRED ITORS AND GENUINENESS OF TRANSACTIONS, THE ASSESSING OFFICER HAS ADMITTED THAT AIL THE BALANCES WERE VERY OLD. IT IS SETTLED TAW THAT SUCH OLD BALANCES CANNOT BE ADDED U/S 68 FOR THE CURRENT YEAR' 7.3.5 FOLLOWING THE REASONING FOR MY EARLIER DECISIONS ON S IMILAR GROUNDS, LOOKING INTO THE SUBMISSIONS OF THE APPELLANT AND THE REMAND REPORT OF THE ASSESSING OFFICER IN THE INSTANT APPEAL, I AM OF THE OPINION THAT THE ABOVE ADDITIONS DESERVE TO BE DELETED. THESE GROUNDS OF APPEAL ARE ALLOWED. 25 . ON APPRAISAL O F THE ABOVE SAID FINDING, WE NOTICED THE MATTER OF CONTROVERSY HAS BEEN ADJUDICATED BY THE CIT(A) ON THE BASIS OF THE FINDING FOR THE A.Y. 2006 - 07 TO 2008 - 09 IN WHICH IT HAS BEEN ESTABLISH ED THAT THE IDENTITY , GENUINENESS OF TRANSACTION AND CREDITWORTHINES S OF THE CREDITORS HAS BEEN DULY PROVED. MERELY THE TRANSACTION IS VERY OLD, CANNOT BE THE BASE OF THE ADDITION . M OREOVER, THE REMAND REPORT SUBSTANTIATED THE CLAIM OF THE ASSESSEE ALSO. THE ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 36 FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE AND FINDING NO JUSTIF IABLE GROUND TO BE INTERFERE WITH AT THIS STAGE , WE DECIDE THIS ISSUE IN FAVOUR OF ASSESSEE . ISSUE NO.2 26 . UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETION OF THE ADDITION OF RS.26,409/ - U/S 14A OF THE I.T. ACT, 1961. NO EXEMPT INCOME WAS RECEIVED BY ASSESSEE . THE AO RAISED THE ADDITION ON THE BASIS OF INVESTMENT TO EARN THE EXEMPT INCOME IN VIEW OF THE PROVISION U/S 14A R.W. RULE 8D OF THE ACT. THE AO RAISED THE ADDITION IN SUM OF RS.26,409 / - ON THE BASIS OF THE DECISION M/S. GODREJ BOYCE LTD. VS. DCIT, 328 ITR 81 (BOM). IT IS NOT IN DISPUTE THAT THE RELEVANT ASSESSMENT YEAR THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME. T HE FINDING OF THE CIT(A) IS HEREBY REPRODUCED FOR READY REFERENCE: - 5.6.1 THIS GROUND OF APPEAL RELATES TO DISALLOWANCE OF RS. 10,000 U/S 14A. THE ASSESSING OFFICER HAS SUMMARILY DISMISSED ALL EXPLANATION OFFERED BY THE APPELLANT AND MADE THE DISALLOWANCE RELYING ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S GODREJ BOYCE LTD VS DCIT, 328 ITR 81 (BOM). 5.6.2 DURIN G THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS NOT RECEIVED ANY DIVIDEND INCOME EXEMPT FROM TAX NOR HAS IT CLAIMED ANY EXEMPT INCOME. THE ASSESSING OFFICER HAS NOT CONSIDERED THE FADS OF THE CASE AND MADE THE DISALLOWANCE U/S. 14A IN A ROUTINE AND AUTOM ATIC MANNER 5.6.3 THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO. LTD. VS. DCIT (328 ITR 81) (BOM) HAS HELD THAT RULE 6D IS NOT AUTOMATIC TO INVOKE RULE 8D, THE ASSESSING OFFICER SHOULD, AFTER CONSIDERING THE ACCOUNTS OF THE APPELLAN T GIVE A ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 37 FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF SUCH EXPENDITURE IN RELATION: TO INCOME - WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT AND SUCH 'SATISFACTION' MUST BE A OBJECTIVE SATI SFACTION. THIS IS EVIDENT FROM THE FOLLOWING' OBSERVATIONS OF THE HON'BLE HIGH COURT. 'SUBSECTION (2) OF SECTION 14A DOES NOT ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY RULE BO WITHOUT DETERMINING IN THE FIRST INSTANCE THE CORRECTNESS O F THE CLAIM OF THE ASSESSEE. HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE SUBSECTION (2) OF SECTION 14A MANDATES THAT IT IS ONLY WHEN HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM O F THE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, THAT HE CAN PROCEED TO MAKE A DETERMINATION UNDER THE RULES;' 5.6.4 IN UNION BANK OF INDIA V. ACIT, ITA. NO. 5347/M/2007, HONBLE ITAT FOL LOWING THE DECISION IN THE CASE OF WIMCO SEEDLING LTD. V. DCIT 107 ITD 267 DELHI TM, HELD THAT ONLY EXPENDITURE WHICH HAS BEEN PROVED TO HAVE BEEN INCURRED IN RELATION TO THE EARNING OF TAX FREE INCOME, CAN BE DISALLOWED, AND THE SECTION CANNOT BE EXTENDED TO DISALLOW EVEN EXPENDITURE WHICH IS ASSUMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF EARNING THE TAX FREE INCOME. IN DELITE ENTERPRISES (ITA. NO. 2983/M/2005 (BOM) WHEREIN IT WAS HELD THAT IF THERE IS NO INCOME EARNED BY THE ASSESSEE WHICH IS CLAIMED TO BE EXEMPT, NO DISALLOWANCE U/S 14A CAN BE MADE. 5.6.5 IN FACTS AND CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE U/S 14A CANNOT BE UPHELD. THIS GROUND OF APPEAL IS ALLOWED. 27 . ON APPRAISAL OF THE ABOVE MENTIONED FINDING, IT IS QUITE CLEAR THAT THE CIT(A) HAS DELETED THE ADDITION ON THE BASIS OF THIS FACT THAT THE ASSESSEE DID NOT EARN THE EXEMPT INCOME IN THE RELEVANT ASSESSMENT YEAR AND ALSO RELIED UPON THE DECISION OF THE HONBLE ITAT MUMBAI BENCH IN CASE OF UNION BANK OF INDIA VS. ACIT, ITA. NO. 5347/M/ 2007 AND IN VIEW OF THE DECISION OF BOMBAY HIGH ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 38 COURT IN CASE OF DELITE ENTERPRISES (ITA.NO.2983/M/2005). IT IS SPECIFICALLY HELD THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME SO NO DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D CAN BE MADE. THE FACT S ARE NOT DISTINGU ISHABLE AT THIS STAGE ALSO. I N VIEW OF THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION IN SUM OF RS.26,409 / - RAISED IN VIEW OF THE PROVISIONS U/S 14A OF THE ACT READ WITH RULE 8D . THIS ISSUE HA S BEEN DECIDED BY THE CIT(A) JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ITA. NO.1501 /M/2017 28 . T HE REVENUE HAS FILED THE PR ESENT APPEALS AGAINST THE ORDER DATED 29.11.2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 8, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 2011 - 12 . 29 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - '1. WHETHER ON THE FA CTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS.10,00,00,000/ - ON ACCOUNT OF UNSECURED LOANS U/S.68 OF THE I.T, ACT, 1961. 2. WHETHER ON THE FACTS AND CI RCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A ) WAS RIGHT IN DELETING THE ADDITION OF RS.15,20,700/ - ON ACCOUNT OF UNPROVED CREDITORS U/S,68 OF THE I.T. ACT,1961. 3. WHETHER ON THE FACTS AND CI RCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) WAS RIGHT IN DELETING THE ADDITION OF ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 39 RS10,32,138/ - B EING UNPROVED CREDIT BALANCES IN RESPECT OF LOANS & ADVANCES GIVEN U/S.68 OF THE I.T. ACT, 1961, 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD, CIT(A) WAS ERRED IN DELATING THE DISALLOWANCE OF RS.4,50,000/ - U/S.1 4A R.W.R. 8D WITHOUT APPRECIATING THE FACT THAT THE AMOUNT OF DISALLOWANCE U/S.14A OF THE IT ACT, 1961 HAS TO BE COMPUTED AS PER RULE 8D OF THE I.T. RULES 1962 AS HELD IN THE ORDER OF THE HONBLE HIGH COURT IN THE CASE OF M/S GODREJ & BOYCE MANUFACTURING CO. LTD. 5 . THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 6. THE APPELLANT CRAVES HAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' 30 . THE FACTS OF THE PRESENT CASE ARE QUITE SIMILAR TO THE FACTS OF THE CASE NARRATED ABOVE WHILE DECIDING THE APPEAL BEARING ITA. NO. 1498/M/2017, THEREFORE, THERE IS NO NEED TO REPEAT THE SAME. HOWEVER THE FIGURE IS DIFFERENT. ISSUE NO.1 31 . UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETION OF THE ADDITION OF RS.10,00,00,000/ - ON ACCOUNT OF UNSECURED LOANS U/S 68 OF THE I.T. ACT, 1961. BEFORE GOING FURTHER, WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD: - 5.2.1 THIS GROUND RELATES TO ADDITION OF RS.10 CRORES ON ACCOUNT OF SHARE PURCHASE TRANSACTION AND TREATING THE SAME AS UNEXPLAINED CREDIT. THE AO HAS DISCUSSED THIS ISSUE AT PAGE 3 OF HIS ORDER. HE HAS OBSERVED THAT THE APPELLANT HAD TAKEN THE IMPUGNED AMOUNT AS FRESH SECURED LOAN FROM M/S. S ATYA SECURITIES LTD., WHICH IS A GROUP COMPANY. THE APPELLANT FILED SUBMISSION DATED 10.03.2014 WHICH HAS BEEN SUMMARILY REJECTED BY THE AO ON THE BASIS OF INTIMATION ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 40 RECEIVED FROM DCIT CENTRAL CIRCLE - XXVIII, KOLKATA AND REPORT OF CBI. 5.2.2 IT IS NOTED TH AT THE APPELLANT HAD FILED CONFIRMATION OF M/S. SATYA SECURITIES LTD. AUDIT REPORT OF M/S. SATYA SECURITIES LTD. AUDITED BALANCE SHEET, ITR ETC. THUS, THE APPELLANT HAD DISCHARGED INITIAL ONUS TO ESTABLISH IDENTITY, CREDITWORTHINESS AND GENUINENESS IN THE CONTEXT OF SECTION 68 OF THE ACT. SIMILAR ADDITIONS IN RESPECT OF GROUP COMPANIES HAVE BEEN MADE BY THE AO FOR ASSESSMENT YEARS 2006 - 07 TO 2009 - 10 U/S 68 BY RELYING ON INVESTIGATION BEING CONDUCTED BY CBI. APPLICABILITY OF SECTION 68 SUCH CIRCUMSTANCES HAS BEEN DISCUSSED AND EXAMINED IN DETAIL BY ME IN MY APPELLATE ORDER FOR ASSESSMENT YEAR 2006 - 07 IN THE APPELLANTS OWN CASE. THE FACTS AND CIRCUMSTANCES RELATING TO THE ADDITION MADE, DOCUMENTS FURNISHED AND DISCHARGE OF ONUS BY THE APPELLAN T ARE SIMILAR IN THE INSTANT APPEAL. FOLLOWING THE REASONINGS GIVEN IN MY ORDER FOR ASSESSMENT YEAR 2006 - 07 IN THE APPELLANTS OWN CASE AND RELYING ON THE RATIOS OF SEVERAL DECISIONS CITED THEREIN, ADDITION OF RS.10 CRORES IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 3 2 . ON APPRAISAL OF THE ABOVE SAID FINDING, WE NOTICED THAT THE APPELLANT HAS SUBMITTED THE CONFIRMATION OF M/S. SATYA SECURITIES LTD, AUDIT REPORT OF M/S. SATYA SECURITIES LTD. AUDITED BALANCE - SHEET, ITR ETC. THE ASSESSEE HAS DISCHARGED THE INITIALLY ONUS TO ESTABLISH IDENTITY CREDITWORTHINESS AND GENUINENESS OF THE CLAIM. THE MATTER OF CONTROVERSY HAS BEEN DISCUSSED EXAMINED BY THE CIT(A) WHILE DECIDING THE APPEAL OF THE ASSESSEE FOR THE A.Y. 2006 - 07. FOLLOWING THE SAME RATIO OF FINDING , THE CIT(A) HAS ALL OWED THE CLAIM OF THE ASSESSEE. THE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE ALSO . T HEREFORE, WE FOUND NO ILLEGALITY AND INFIRMITY IN THE ORDER PASSED BY THE CIT(A) IN QUESTION. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AGAINST THE REV ENUE. ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 41 ISSUE NO.2 33 . UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETION OF THE ADDITION OF RS.15,20,700/ - ON ACCOUNT OF UNPROVED CREDITORS U/S 68 OF THE ACT. BEFORE GOING FURTHER, WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD. : - 5.3.1 THIS GROUND RELATES TO ADDITION OF RS 15,20,700/ - AS UNEXPLAINED CREDIT THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE ON PAGE 3 - 4 OF HIS ORDER. HE OBSERVED THAT DURING THE YEAR, THERE IS AUGMENTATION OF CREDIT BALANCE BY RS. 30,000/ - IN RESP ECT OF M/S BASANT MARKETING PRIVATE LIMITED (BMPL) AND LIST OF SUNDRY CREDITORS INCLUDES RS. 14,90,700/ - IN IHE NAME OF M/S CONSULTSHAH FINANCIAL SERVICES PRIVATE LIMITED (CFSPL). THE ASSESSING OFFICER HAS DISMISSED EXPLANATION AND EVIDENCES SUBMITTED BY T HE APPELLANT VIDE FETTER DATED 30/03/2014, 'HAVING REGARD TO ASSESSEES INDULGENCE IN SCRUPULOUS ACTIVITIES IN THE LIGHT OF FINDINGS OF INVESTIGATING AGENCIES'. 5.3.2 IT IS NOTED THAT THE APPELLANT HAD FILED CONFIRMATION OF M/S BMPL AND CFSPL, AUDIT REPORT S, AUDITED BALANCE SHEETS, JTR ETC. HAD DISCHARGED INITIAL ONUS TO ESTABLISH IDENTITY, CREDITWORTHINESS AND GENUINENESS IN THE CONTEXT OF SECTION 68 OF THE ACT. ALL THE FACTS AND CIRCUMSTANCES, NATURE OF EVIDENCES FILED AND SUBMISSIONS MADE ARE SIMILAR TO THOSE AT GROUND NO. 1 ABOVE. ACCORDINGLY, ADDITION OF RS.15,20,700/ - IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 34 . IN FACT THE CREDIT BALANCE OF RS.30,000/ - IN RESPECT OF M/S. BASANT MARKETING P. LTD. AND CREDIT BALANCE IN SUM OF RS.14,90,700/ - WITH T HE NAME OF M/S. CONSULTSHAH FINANCIAL SERVICES P. LTD WERE DISCUSSED BY THE AO AS NON GENUINE . THE APPELLANT FILED THE CONFIRMATION OF M/S. CFSPL, AUDITED REPORT, AUDITORS BALANCE - SHEET, ITR ETC. THE ASSESSEE INITIALLY DISCHARGED THE ONUS, THEREFORE, THE ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 42 F INDING NO APPLICATION OF THE PROVISION U/S 68 OF THE ACT , T HE CIT(A) HAS DELETED THE SAID ADDITION. THE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE ALSO. THEREFORE, WE FOUND NO ILLEGALITY AND INFIRMITY IN THE ORDER PASSED BY THE CIT(A) IN QUESTION. ACCORDI NGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE ISSUE NO.3 35 . ISSUE NO. 3 IS IN CONNECTION WITH THE DELETION OF THE ADDITION OF RS. 10,32,138/ - BEING UNPROVED CREDIT BALANCES IN RESPECT OF LOANS & ADVANCES GIVEN U/S 68 OF THE ACT. THE CIT(A) HAS GIVEN THE FOLLOWING FINDING.: - 5.4.1 THIS RELATES TO ADDITION OF RS.10,32,138/ - BEING AMOUNT RECEIVED FROM GROUP CONCERNS M/S. WATERMARK FINANCIAL CONSULTANTS LTD. (WFCL - RS.85,138/ - AND M/S. WATERMARK SYSTEMS (INDIA) PVT. LTD. (WFCL AND MS/ WSPL, AUDIT REPORTS, AUDTED BALANCE - SHEETS, ITR ETC. THUS, THE APPELLANT HAD DISCHARGED INITIAL ONUS TO ESTABLISH IDENTITY, CREDITWORTHINESS AND GENUINENESS IN THE CONTEXT OF SECTION 68 OF THE ACT. ALL FACTS AND CIRCUMSTANCES, NATURE OF EVIDENCES FILED AN D SUBMISSIONS MADE ARE SIMILAR TO THOSE AT GROUND NO. 1 ABOVE. ACCORDINGLY, ADDITION OF RS.10,32,138/ - IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 36 . THE AMOUNT IN QUESTION IN SUM OF RS.10,32,138/ - WAS RECEIVED FROM GROUP CONCERNS M/S. WATERMARK FINANC IAL CONSULTANTS LTD. IN SUM OF RS.85,138/ - AND M/S. WATERMARK SYSTEMS (INDIA) P. LTD. OF RS.9,47,000/ - . THE APPELLANT FILED THE CONFIRMATION LETTER FROM BOTH THE PARTIES , AUDIT REPORTS, AUDITED BALANCE - SHEETS, ITR ETC . AND INITIALLY THE DISCHARGED ITS ONUS . THE CIT(A) HAS ALSO RELIED UPON THE FINDING ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 43 WHICH HE HAD ALREADY GIVEN WHILE DECIDING THE APPEAL BEARING IN ITA. NO.1498/M/2017 FOR THE A.Y. 2006 - 07. THE FACTS ARE NOT DISTINGUISHABLE AT THIS STAGE ALSO. THEREFORE, WE FOUND NO ILLEGALITY AND INFIRMITY IN THE ORDER PASSED BY THE CIT(A) IN QUESTION. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE ISSUE NO.4 37 . UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE DELETION OF DISALLOWANCE OF RS. 4,50,000/ - U/S 14A R.W. RULE 8D OF TH E ACT. BEFORE GOING FURTHER, WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD.: - 5.5.1 THIS RELATES TO DISALLOWANCE OF RS.4,50,537/ - U/S 14A RULE 8D. THE AO HAS DISCUSSED THIS AT PARA IV./PG.5 - 6 OF HIS ORDER. HE OBSERVED THAT THE APPEL LANT HAS MADE LONG TERM INVESTMENTS IN SHARES AND DURING THE YEAR IT HAS EARNED DIVIDEND OF RS.994,000/ - CLAIMED AS EXEMPT. HE HAS REJECTED SUBMISSIONS OF THE APPELLANT AND APPLIED RULE 8D(2)(III) TO DISALLOW 0.5% OF AVERAGE INVESTMENTS AND INVENTORY. 5.5. 2 IT IS NOTED THAT THE APPELLANT IS IN THE BUSINESS OF SHARE TRADING AND HOLDS SHARES AS STOCK IN TRADE. FURTHER, DURING THE YEAR, THE APPELLANT HAS RECEIVED THE ENTIRE DIVINED ON SHARES OF JUST ONE COMPANY. HONBLE BOMBAY HIGH COURT HAS SETTLED THE ISSUE AS REGARDS DIVIDEND EARNED FROM SHARES KEPT AS STOCK IN TRADE IN CIT V INDIA ADVANTAGE SECURITIES LTD. (ITA. NO.1131 OF 2013 DATED 13 - 042015). THIS PRINCIPLE HAS BEEN REITERATED M HDFC BANK LTD VS DC/7; WRIT PETITION NO. 1753 OF 2016 DT.25/02/2016 - MOREOVE R, THE ASSESSING OFFICER HAS ALSO NOT EXPLAINED HIS DISSATISFACTION WITH THE CLAIM OF THE APPELLANT THAT NO DISALLOWANCE U/S 14A IS REQUIRED BUT HAS APPLIED R.8D(III) IN A ROUTINE AND MECHANICAL MANNER ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 44 5.5.3 IN PUKHRAJ CHUNILAL BAFNA V. DY. CIT [2014] 65 S OT 187/47 TAXMANN.COM 238 (MUM. - TRIB.) IT WAS HELD THAT THE ASSESSING OFFICER TO TRIGGER RULE 3D HAD NOT TO BE SATISFIED WITH THE CORRECTNESS OF CLAIM OF THE ASSESSEE AS REGARDS EXPENDITURE IN RELATION TO EXEMPT INCOME. HENCE, WITHOUT EXAMINING THE NATURE OF EXPENDITURE DISALLOWED BY THE ASSESSEE OR CORRECTNESS OF ALLOWANCE/DISALLOWANCE, THE ASSESSING OFFICER COULD NOT INVOKE RULE 3D 52.4 THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO LTD. VS. DCIT (328 ITR 81) (BOM) HAS HELD THAT RULE 8D IS NOT AUTOMATIC, TO INVOKE RULE BD, THE AO SHOULD, AFTER CONSIDERING THE ACCOUNTS OF THE APPELLANT GIVE A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT AND SUCH 'SATISFACTION' MUST BE A OBJECTIVE SATISFACTION THIS IS EVIDENT FROM THE FOLLOWING OBSERVATIONS OF THE HONBLE HIGH COURT: 'SUBSECTION (2) OF SECTION 14A DOES NOT ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY RULE BD WITHOUT DETERMINING IN THE FIRST INSTANCE THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. SUBSECTION (2) OF SECTION 14A MANDATES THAT IT IS ONLY WHEN HAVING REGARD TO THE A CCOUNTS OF THE ASSESSEE. THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM OF THE TOTAL INCOME UNDER THE ACT, THAT HE CAN PROCEED TO MAKE A DETERMINATION UNDER THE RULES;' 5.5.5 THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF AUCHTEL PRODUCTS LTD. VS ACIT 152 SOT 39] (MUM. - TRIB,) HAS HELD THAT THE ASSESSING OFFICER CANNOT MA KE THE DISALLOWANCE UNDER RULE 8 D OF THE RULES, WITHOUT RENDERING ANY OPI NION ON THE CORRECTNESS OF THE ASSESSEE'S CLAIM. THE RELEVANT EXTRACTS OF THE SAID DECISION ARE AS UNDER: 'THE CORRECT SEQUENCE, FOR MAKING ANY DISALLOWANCE UNDER SECTION 14A IS TO, FIRSTLY, EXAMINE THE ASSESSES CLAIM OF HAVING INCURRED SOME EXPENDITURE OF NO EXPENDITURE IN RELATION TO EXEMPT INCOME. IF THE ASSESSING OFFICER GETS SATISFIED WITH THE SAME, THEN THERE IS NO NEED TO COMPUTE DISALLOWANCE AS PER RULE 8D IT IS ONLY WHEN THE ASSESSING OFFICER IS RIOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 45 OF T HE ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE HAVING BEEN INCURRED IN RELATION TO EXEMPT INCOME, THAT THE MANDATE OF RULE 8D WILL OPERATE IN THE INSTANT CASE, THE AUTHORITIES BELOW HAVE DIRECTLY GONE TO THE SECOND STAGE OF COMPUTING DISALLOW ANCE UNDER SECTION 14A AS PER RULE 8D WITHOUT RENDERING ANY OPINION ON CORRECTNESS OR OTHERWISE OF THE ASSESSEE'S CLAIM IN THIS REGARD'. 5.56 IN THE DECISION IN THE CASE OF YATISH TRADING CO. PVT. LTD. VS. ACIT (456/M/2009), THE HON'BLE MUMBAI TRIBUNAL HEL D THAT THERE MUST BE A LIVE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE TAX - FREE INCOME THE ASSESSING OFFICER HAS NOT ESTABLISHED THAT. 5.5.7 IN VIEW OF THE ABOVE DECISIONS AND IN THE FACTS AND CIRCUMSTANCES OF THE CASE, ADDITION OF RS.4,50,537/ - U /S 14A R.W.R. 8D IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 38 . ON APPRAISAL OF THE ABOVE MENTIONED FINDING, WE NOTICED THAT THE AO NOWHERE EXAMINED THE CLAIM OF THE ASSESSEE. UNDOUBTEDLY, THE ASSESSEE EARNED THE DIVIDEND INCOME TO THE TUNE OF RS.994, 000/ - . THE ASSESSEE NOWHERE SHOWED THE EXPENDITURE TO EARN THE EXEMPT INCOME. THE CIT(A) HAS DELETED THE SAID ADDITION ON ACCOUNT OF NON - EXAMINATION OF THE CLAIM OF THE ASSESSEE . THE LD. REPRESENTATIVE OF THE DEPARTMENT HAS ARGUED THAT THE MATTER OF CONTRO VERSY IS REQUIRED TO BE DECIDED ON THE BASIS OF THE DECISION IN THE CASE OF MAXOPP INVESTMENT LTD VS. CIT (2018) 91 TAXMANN.COM 154 (SC). IN THE INSTANT CASE ALSO MATTER RELATES TO THE DIVIDEND INCOME ON STOCK OF SHARES HELD BY THE ASSESSEE. THEREFORE, IN THE SAID CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE MATTER OF CONTROVERSY IS REQUIRED TO BE ADJUDICATED ON THE BASIS OF FINDING OF THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD VS. CIT (2018) 91 TAXMANN.COM 154 (SC). HENCE, WE SET ASIDE TH E FINDING OF THE ITA. NO S . 1498 TO 1501 /MUM/201 7 2006 - 07, 2007 - 08 2009 - 10 & 2011 - 12 46 CIT(A) ON THIS ISSUE AND RESTORED THE MATTER BEFORE THE AO TO DECIDE THE MATTER OF CONTROVERSY AFRESH BY GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH LAW. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE REVEN UE AGAINST THE ASSESSEE. 39 . IN THE RESULT, THE APPEAL OF THE REVENUE ITA. NO. 150 1/M/201 7 IS PARTLY ALLOWED AND ITA. NO S . 1498 TO 1500/M/2017 ARE HEREBY ORDERED TO BE DISMISSED . ORDER PRONOUNCE D IN THE OPEN COURT ON 21.1 2 . 2018 . SD/ - SD/ - ( RAJESH KUMAR ) (AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBA I DATED : 21. 12. . 201 8 VIJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDE NT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI