M/s H.M.M. Infra Ltd., Chandigarh V. ACIT, Circle 3(1), Chandigarh

ITA 1568/CHANDI/2019

AI Insights

The case involves M/s H.M.M Infra Ltd., the appellant, contesting the orders of the CIT(A) which upheld disallowances made by the AO under sections 36(1)(iii) and 68 of the Income Tax Act for the Assessment Year 2012-13. The primary issues were the disallowance of interest on capital work-in-progress and the treatment of unsecured loans as unexplained credits. The Tribunal examined the disallowances made and found that the assessee had already made a higher disallowance in its return, and thus, no further disallowance was warranted. Regarding the unsecured loans, it was established that these were actually payments for sales transactions, not loans, and thus should not be treated as unexplained credits under section 68.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127580 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-07-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 08-12-2019
• Other Referred Cases: CIT Vs. Abhishek Industries
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit
• Section: 131; 68

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “ए” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH ी आकाश द प जैन, उपा य एवं ी #व$म &संह यादव, लेखा सद+य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM ITA NO. 1568/Chd/ 2019 Assessment Year : 2012-13 M/s H.M.M Infra Ltd. # 2350/3, Mariwala Town, Manimajr, Chandigarh 160101 The ACIT, Circle-3(1), Chandigarh PAN NO: AAACH4280L Appellant Respondent ! " Assessee by : Shri T.N. Singla, C.A # ! " Revenue by : Smt. Amanpreet Kaur, Sr. DR $ % ! & Date of Hearing : 11/07/2023 '()* ! & Date of Pronouncement : 17/07/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Assessee against the order of the Ld. CIT(A)-1, Chandigarh dt. 18/10/2019 pertaining to Assessment Year 2012-13 wherein the assessee has taken the following grounds of appeal: 1. That the order of Learned C.I.T. (Appeals) is bad and against the facts and law. 2. That the CIT(A) has erred in upholding the disallowance u/s 36(i)(iii). 3. That the CIT(A) has erred in upholding Rs. 34,50,000/- as unexplained credit u/s 68. 4. That the appellant craves leave to add, alter, amend or withdraw any grounds of appeal before the final hearing. 2. Regarding first ground of appeal, briefly the facts of the case are that during the course of assessment proceedings, the AO observed that the 2 assessee has shown closing balance of capital work-in-progress(building) of Rs. 2,79,51,394/- which has not been put to use. It has been further observed that as per the Profit & Loss Account, the assessee has paid interest on secured loans. Thereafter, the assessee was asked to show cause as to why proviso to Section 36(1)(iii) should not be invoked in respect of capital work-in-progress and interest accordingly be not disallowed. In response, the assessee has submitted that no extension or expansion is made during the year under consideration and in case interest is to be capitalized, it should be made on average cost basis. Thereafter taking into consideration, the proviso to section 36(1)(iii) and the decision of the Hon’ble Punjab and Haryana High Court in case of CIT Vs. Abhishek Industries, the AO worked out the average interest @ 4.64% on capital work in progress and an amount of Rs. 12,00,539/- was disallowed under section 36(1)(iii) of the Act. 3. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) and it was contended that the AO has wrongly made disallowance under section 36(1)(iii) of the Act without considering the fact that the assessee has already made a disallowance of Rs. 12,28,265/- under section 36(1)(iii) of the Act and copy of the return of income as well as computation of income was submitted. However the findings of the AO were confirmed and against the said findings and the directions of the Ld. CIT(A), the assessee is in appeal before us. 4. During the course of hearing, the Ld. AR reiterated the submissions made before the Ld. CIT(A) and our reference was drawn to the return of income as well as computation of income filed by the assessee wherein the assessee has suo-motu disallowed a sum of Rs. 12,28,265/- under section 36(1)(iii) of the Act. It was accordingly submitted that where the assessee has already disallowed a sum of Rs. 12,28,265/- which is in any case higher than the disallowance of Rs. 12,00,539/- made by the AO, there should not be any further disallowance under section 36(1)(iii)of the Act. It was submitted that the Ld. CIT(A) has failed to take into consideration the suo-motu disallowance made by the assessee 3 while filing of its return of income and the same is very much apparent from the assessment records. It was accordingly, submitted that the addition so made and sustained by the Ld. CIT(A) be directed to be deleted. 5. Per contra, the Ld. DR has relied on the order of the lower authorities. It was submitted that during the assessment proceedings, the assessee has failed to substantiate the claim of deduction of interest paid on secured loans and has submitted that in case the interest is to be capitalized, the same should be on average basis and therefore basis the same the AO has worked out the present interest on average basis and has made the disallowance of Rs. 12,00,539/-. It was accordingly submitted that there is no infirmity in the order so passed by the Ld. CIT(A) and the ground of the appeal so taken by the assessee be dismissed. 6. We have heard the rival contentions and perused the material available on the record. On perusal of the return of income as well as computation of income, we find that the assessee has suo-motu made a disallowance of Rs. 12,28,265/- under section 36(1)(iii) of the Act, a fact which is apparent from the records and in view of the same, we do not see any justifiable basis for making a further disallowance of Rs. 12,00,539/- as made by the AO and confirmed by the Ld. CIT(A). In the result, the addition so made by the AO and confirmed by the Ld. CIT(A) is hereby deleted and the ground of appeal so taken by the assessee is allowed. 7. Regarding Ground No. 2, briefly the facts of the case are that during the course of assessment proceedings, the AO observed that the assessee has taken the unsecured loans of Rs. 34,50,000/- from M/s Santhosh Gill Earth Movers Pvt. Ltd. and to verify the genuineness of the said transaction, Commission under section 131 was sent to the ACIT, Circle 3(1), Jaipur and basis the inquiry conducted by the ACIT, Circle 3 , Jaipur , It was stated that M/s Santhosh Gill Earth Movers Pvt. Ltd. vide its letter dt. 23/01/2015 has submitted that no 4 unsecured loans was given to the assessee company. Further copy of the account was furnished by M/s Santhosh Gill Earth Movers Pvt. Ltd. showing that it had purchased trolly fabrication from the assessee company and periodic payments are made to the assessee and the balance amount due to the assessee is Rs. 1,82,750/-. Thereafter, the assessee was issued a show cause as to why the provision of Section 68 of the Act should not be applied in the case of the assessee. 8. In response, it was submitted by the assessee that M/s Santhosh Gill Earth Movers Pvt. Ltd. was the assessee’s customer to whom it had made regular sales and in the books of accounts, the Accountant has opened two accounts in the name of M/s Santhosh Gill Earth Movers Pvt. Ltd. where one account has credit balance and the other account has debit balance and where both accounts are taken into consideration, it will show balance receivable of Rs. 1,82,750/- which matches with the copy of the account furnished by the M/s Santhosh Gill Earth Movers Pvt. Ltd. during the course of inquiry done by the ACIT, Circle 3 , Jaipur. Thereafter, the Managing Director of the assessee company was also summoned under section 131 of the Act and his statement was recorded on oath wherein in response to the query raised by the AO, it was submitted by the Managing Director of the assessee company that M/s Santhosh Gill Earth Movers Pvt. Ltd. is their customer and they are supplying car carriers to them and their Accountant has opened two accounts in the books of the assessee inadvertently and in one account, he has recorded few receipts on account of sale and in another account, he recorded the sale and few receipts and where both accounts are clubbed, it will show net receivable on account of sale made to M/s Santhosh Gill Earth Movers Pvt. Ltd. It was submitted that all the transactions related to sale and receipts are duly recorded and it is only an accounting error and as such there is no difference an no money or credit on 5 account of any unsecured loans / advances have been taken from the said party which can been verified from their bank statement. 9. The submissions so filed and the statement so recorded were taken into consideration by the AO, however the same were not found acceptable. As per the AO, the onus lies on the assessee to prove the identity of the lender, credit worthiness and the genuineness of the transaction and in the instant case from the reply submitted to the ACIT, Circle-3, Jaipur by M/s Santhosh Gill Earth Movers Pvt. Ltd. the transaction is clearly not genuine. It was further held by the AO that the assessee has been maintaining the opening balance of Rs. 10,60,66,500/- as unsecured loan from M/s Santhosh Gill Earth Movers Pvt. Ltd. and it would be highly improbable that a company of such magnitude with regular and compulsory audit would commit such a mistake consistently for more than a year. In view of the same it was held that the assessee company has introduced unaccounted money of Rs. 34,50,000/- into the business and the same was treated as unexplained credit under section 68 of the Act. 10. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) and the submission made before the AO were reiterated and it was submitted that on merger of two accounts which have been opened inadvertently by the accountant of the assessee, there is no difference in the balance of the account as submitted by M/s Santhosh Gill Earth Movers Pvt. Ltd. The Ld. CIT(A) however confirmed the findings of the AO and has held that the assessee has failed to prove the identity, credit worthiness and genuineness of the unsecured loans from M/s Santhosh Gill Earth Movers Pvt. Ltd. and the addition so made by the AO was confirmed. 11. Against the said findings and the directions of the Ld. CIT(A), the assessee is in appeal before us. 6 12. During the course of hearing, the Ld AR taken us through the statement of the account of the assessee in the books of M/s Santhosh Gill Earth Movers Pvt. Ltd. and it was submitted that the said statement shows an opening balance of Rs. 373,000/- and closing balance of Rs. 1,82,750/-. Further our reference was drawn to the account statement of M/s Santhosh Gill Earth Movers Pvt. Ltd. in the books of the assessee company wherein in first account, there is a debit opening balance of Rs. 1,64,39,500 and a closing debit balance of Rs. 1,96,99,250/- and in the second account, there is opening credit balance of Rs. 1,60,66,500/- and the closing credit balance of Rs. 1,95,16,500/-. It was submitted that where both the accounts are consolidated and read in totality, it will show a closing debit balance of Rs. 1,82,750/- which matches with the closing credit balance of Rs 1,82,750/- as submitted by M/s Santhosh Gill Earth Movers Pvt. Ltd. during the course of inquiry before the AO at Jaipur. It was submitted that it is consistent stand of the assessee that all the transactions relates to sale made by the assessee to M/s Santhosh Gill Earth Movers Pvt. Ltd. and therefore all the payments are in respect of the sales so made by the assessee and merely because of the maintaining of two separate accounts in the books of the assessee, the very nature and the substance of the transactions cannot be changed. It was submitted that where the AO is not disputing the nature of transactions in the books of the M/s Santhosh Gill Earth Movers Pvt. Ltd. and where the same transactions find reflection in the books of the assessee company though in two separate accounts, the contention of the assessee is well supported and it was accordingly submitted that there is no basis for making the addition as so done by the AO and confirmed by the Ld. CIT(A). 13. It was further submitted that M/s Santhosh Gill Earth Movers Pvt. Ltd. is a regular customer of the assessee with whom it has been transacting in past many years and there are regular transactions of sales and respective receipt from the said entity. The AO has also issued a commission to the ACIT, Circle-3, 7 Jaipur who has also verified the existence of M/s Santhosh Gill Earth Movers Pvt. Ltd. and it was accordingly submitted that as far as the identity of M/s Santhosh Gill Earth Movers Pvt. Ltd. and the nature and genuineness of the transaction are concerned, the same are clearly established from the documentation available on record and on this account as well, there is no basis for making the addition under section 68 of the Act. 14. Per contra, the Ld. DR has relied on the findings of the lower authorities. 15. We have heard the rival contentions and purused the material available on record. On perusal of records, we find that there are four receipts totaling to Rs 34,50,000/- from M/s Santhosh Gill Earth Movers Pvt. Ltd. in the books of accounts of assessee company during the year under consideration and which have been brought to tax under section 68 of the Act. Besides these receipts, there are other receipts from M/s Santhosh Gill Earth Movers Pvt. Ltd. and which have not been disputed by the AO. We further note that these four receipts also find mention in the statement of the account of the assessee as furnished by M/s Santhosh Gill Earth Movers Pvt. Ltd. and which has been taken on record by the AO as part of submissions of M/s Santhosh Gill Earth Movers Pvt. Ltd. wherein vide its letter dt. 23/01/2015, it has submitted that no unsecured loans was given to the assessee company and all transactions are towards purchase and corresponding payments towards trolly fabrication from the assessee company as reflected in the account statement and the balance amount due to the assessee company at the end of the year is Rs. 1,82,750/-. This closing balance of Rs. 1,82,750/- matches with the account balance in the books of the assessee company where entries in the both the accounts are consolidated. Therefore, as far as identity of M/s Santhosh Gill Earth Movers Pvt. Ltd. is concerned, the same is not in dispute and as far as the nature and genuineness of the transactions are concerned, the same are clearly verifiable from the submissions and documentation so furnished by M/s Santhosh Gill Earth Movers 8 Pvt. Ltd. as payments towards regular supplies made by the assessee company. Therefore, merely recording these transactions in two separate accounts in the books of accounts of the assessee company would not result in re- characterization of the transactions ignoring the very substance of the transactions more so where the other party to the transaction doesn’t subscribe to such re-characterization and there is nothing on record to substantiate the same. The payments so received by the assessee company are clearly towards the sales effected by the assessee company which are clearly reflected in the books of accounts and thus, the nature and source of such payments are clearly established. In view of the same, we donot see any justifiable basis for making the additions u/s 68 of the Act. The same is hereby directed to be deleted and the ground of appeal so taken by the assessee is allowed. 16. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 17/07/2023. Sd/- Sd/- आकाश द प जैन #व$म &संह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा य / VICE PRESIDENT लेखा सद+य/ ACCOUNTANT MEMBER AG Date: 17/07/2023 ( + ! , - . - Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. $ / CIT 4. $ / 0 1 The CIT(A) 5. - 2 ग 4 5 & 4 5 678 ग9 DR, ITAT, CHANDIGARH 6. ग 8 : % Guard File ( + $ By order, ; # Assistant Registrar