M/S MORANI CARS PVT. LTD., JAIPUR V. ASSISTANT COMMISSIONER OF INCOME TAX, WARD-6, JAIPUR

ITA 184/JPR/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3213 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 13-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APPELLANTS REGISTERED PREMISES UNREASONABLE
• Keywords: Gift; Retrospective amendment; Question of law; Commercial expediency; TDS
• Section: 131; 68; 148; 143(3); 40(a)(ia); 271D; 208; 139(1); 44AB; 145(3); 22

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,’A’ JAIPUR Jh laanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM deys’k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 184/JP/2019 fu/kZkj.k o"kZ@Assessment Year :2011-12 M/s Morani Cars Private Ltd. 14, Bajaj Nagar, Jaipur cuke Vs. Assistant Commissioner of Income Tax, Circle-06, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAFCM 1226 N vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. Suhani Maharwal (CA) jktLo dh vksj ls@ Revenue by : Sh. A. S. Nehara (Addl.CIT) lquokbZ dh rkjh[k@ Date of Hearing : 14/06/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 26/07/2022 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, A.M. This appeal is filed by the assessee aggrieved from the order of the Commissioner of Income Tax (Appeal)-1, Jodhpur, camped at Jaipur [ Here in after referred as Ld. CIT(A) ] for the assessment year 2011-12 dated 19.12.2018 which in turn arises from the order passed by the ACIT, Circle-6, Jaipur passed under Section 143(3) of the Income tax Act, 1961 (in short 'the Act') dated 30.03.2014. ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 2 2. The assessee has marched this appeal on following grounds of appeal; “1. On the facts and in the circumstances of the case Ld. ACIT erred in disallowing and Ld. CIT(A) erred in sustaining the disallowances of the entire payment of rent by invoking of section 40A(2b) without considering the uses of premises for which rent was paid hence the disallowance may be restricted in accordance with actual use. 2. On the facts and in the circumstances of the case, Ld. ACIT erred in making addition by disallowing interest amounting to Rs. 2160000/- invoking the provision u/s 40A(2b) which is further reduced to Rs. 2023200/- by CIT(A) which is based purely on assumptions and presumptions which is unjustified illegal and liable to be quashed. 3. On the facts and in the circumstances of the case, Ld. ACIT as well as Ld. CIT(A) erred in adding Rs. 510000/- being the notional interest on advances without appreciating the submission of the assessee which is unjustified illegal and liable to be quashed. 4. On the facts and in the circumstances of the case, Ld. ACIT erred in disallowing 1474610/- (15% total expenses) out of various expenses which was further reduced to Rs. 983073/- (10% of total expenses) by CIT(A) which is based purely on assumptions and presumptions which is unjustified illegal and liable to be quashed. 5. On the facts and in the circumstances of the case, Ld. ACIT as well as Ld. CIT(A) erred in adding Rs. 109775/- of foreign travel without any reason liable to be quashed. 6. On the facts and in the circumstances of the case, Ld. ACIT as well as Ld. CIT(A) erred in adding Rs. 4760000/- u/s 68 out of share application money without considering the evidences and statements which is unjustified liable to be quashed. 7. On the facts and in the circumstances of the case, Ld. ACIT erred in making disallowance of Rs. 734800/- invoking the provision u/s 40a(ia) which was further reduced to Rs. 534800/- which is illegal and liable to be quashed. 8. The appellant prays to leave to add amend, delete or withdraw any of ground of appeal.” ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 3 3. The fact as culled out from the records is that the assessee is a private limited company and an authorized dealer of Hundai Cars providing sales and services of Hundai Cars. During the year under consideration the assessee company has derived income under the head income from profit and gains of Business or Profession from sales and services of cars. The assessee efiled its return of income for the Assessment Year 2011-12 on 29.09.2011 at total income of Rs. 34,40,330/-. The case of assessee selected for scrutiny under CASS. Assessment was completed u/s. 143(3) of the Act and various additions were made in the returned income of the assessee and finally the same was assessed at Rs. 1,49,94,510/-. The assessee filed appeal against this order before the ld. CIT(A) and assessee appeal was allowed in part and therefore, for the sustained addition assessee company has filed an appeal before us on various grounds. 4. During the course of hearing the ld. AR appearing on behalf of the assessee submitted as under:- “In A.Y 2011-12 return was filed u/s 139(1) .For A.Y 2010-11 the assessment was made u/s 143(3) read with section 148 of I.T Act 1961 for A.Y 2011-12 the assessment was made u/s 143(3).The assessment was done by making various disallowances and additions. In the first ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 4 appeal Ld. CIT (A) allowed some relief and also sustained some of the additions and disallowances. Against which assessee preferred this appeal. Assessee is a trader, deals in cars and regularly maintains books of accounts along with day to day and quantity wise & quality wise stock records, which are audited under Companies Act as well as Income Tax Act u/s 44AB. Now I am herewith dealing grounds of appeal. 1.Disallowance of Rent of Rs. 240000.00 (Ground of appeal no 1 of A.Y. 2011-12) Your honour AO noted that Rs.240000/- were paid to Shrimati Reshma Morani, wife of a director on account of rent. He stated that company was not able to prove the occupation of office since no light connection in the name of company was there. Therefore he disallowed entire amount u/s 40A (2b) stating that the amount paid is excessive and unreasonable. Your honour Company has been running a handsome amount of big business. Directors are forced to spend time right from early morning to late night. It is obvious in such circumstances to run the office from residence also. Company maintains the head office and registered office at A-14, Bajaj Nagar Enclave, Jaipur. All the meetings of Board of Directors are held at this place. Annual General Meetings are also held at this place. Directors are well stay for work of company at this place during early morning and late hours. All the correspondence including from Income Tax department are received and done from here. All these facts were submitted with AO. Copies of minute books (placed on 8 -15 of paper book) and Rent agreement are attached (placed on 16- 20 of paper book). Further your honour same gorund was allowed for AY 2011-12 by hon’ble ITAT Bench Jaipur 2-3 days before. Moreover, the rent was paid to Reshma Morani (Director) and such rent has duly been offered for taxation. This rent was subject to TDS and the same has been duly deducted and paid. It is worthy to note that the income of Smt. Reshma Morani was under highest tax bracket (copy of computation of total income and ITR V are enclosed (placed on 1-5 of paper book)), this proves that there was no intention to save income tax liability. ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 5 Ld AO invoked the provision of section 40A(2)(b) and treated entire rent excessive. Entire expenses can not be excessive in any circumstances. I therefore, request to quashed the disallowance. 2. Addition u/s 40A(2)(b) of Rs. 2160000.00 (Grounds of appeal No 2 of A.Y. 2011-12) Ld . AO made an addition of Rs. 2160000/- @ 1% P.A. on Rs. 18000000/- of interest free advances. In first appeal Ld.CIT (A) restricted this disallowance at Rs.2023200/- . Your honour Ld.AO dealt with this issue on page no 9 of his order and Ld.CIT(A) dealt this issue on page no 14 & 15 of his order. Both the authorities stated that the security given by assessee was unreasonably high and the rent was not on lower side as per market rate moreover the interest free security deposit was given to related parties; therefore the disallowance was made and sustained. Assessee has given advance deposit amounting to Rs. 10000000.00 to M/s Morani Motors Private Limited against rent vide the agreement executed between them on dated 01.03.2008. It was agreed between them that no interest will be payable on such advance. In accordance with agreement, assesse advanced Rs 1 crore without interest. Afterwards, assesse is not paying rent regularly but generally adjusted against such advance deposit. Copy of Rent agreement is enclosed (placed on 21-22 of paper book) and copy of a/c of Morani Motors is also enclosed on page no 23-24 of paper book So far as security deposit with General Handicrafts (P) Ltd. is concerned, the security deposit was not Rs. 6860000/- but it was Rs. 7400000/-. It was agreed between them that monthly rent payment will not be paid in cash but to be adjusted against this advance deposit. Both the advance and the security deposit were given in earlier years. To prove the fact I am herewith enclosing copy of account General Handicrafts (P) (placed on 25 of paper book). Your honour the properties were taken on rent and rent payment are proved on the fact without any dispute. The determination of amount of security can be made by both the effected parties. It is on land lord and tenant, who are better judge to determine the amount of security. And deposition such security is the business expediency. As held by Ho’ble Apex Court in case of S.A Builders that interest on monies borrowed from bank and lent to sister concern without charging interest is admissible if made as a measure of commercial expediency. ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 6 Alternatively,the advance was not made out of borrowed funds. Copies of bank account are with the file of AO. Copy of bank account for relevant period is also enclosed herewith (placed on 26-35 of paper book) as well as copy of balalnce sheet is enclosed on page no 51 of paper book. AO was bound to prove nexus between borrowed funds and security deposits. Without doing so, the addition is unwarranted. Your honour, here I want to place the decision of Hon`ble high court of Rajasthan in case of CIT Kota vs Ram Kishan Verma (copy of judgment is enclosed on page no 36-40 of paper book). In this case hon`ble High Court held that to the extent of his own capital the assesse could advance money without interest for business expediency or/and relatives and none can be forced to charge interest. In this case admittedly had it`s own fund, as referred to earlier and admittedly such funds being substantially higher than, even otherwise, the advances to the debtors, no notional interest or hypothetical interest could have been disallowed on such facts. The revenue has failed to prove nexus. Your honours this issue was also examined in the immediately preceding year by this hon’ble bench where Ld.AO had made identically similar disallowance of interest against interest free security deposit to same parties and of same amount. This bench has allowed the assessee appeal stating that no nexus was proved by AO as well as Ld.CIT(A) between interest bearing borrowing and interest free lending. I am herewith enclosing bank accounts of earlier years to prove that no funds were borrowed against these security deposits. Copy is enclosed on page no 41 to 50 of paper book. 3. Addition u/s 36(1) interest on interest free advance of Rs. 510000.00 (Ground no 3 from AY 2011-12) Your honour, Ld AO added Rs. 510000.00 out of interest on account of interest free advances for purchase of land. Assesse has own net worth of around Rs. 2.95 crores. Copy of Balance Sheet is attached on page no 51 of paper book. The purchase was not made out of borrowed funds. Copies of bank account are with the file of AO and also placed here on (placed on 26-35 of paper book) AO was bound to prove nexus between borrowed funds and purchase consideration paid. Entire advances were paid out of sales made. (Copy of agreement is enclosed on page no. 53-56 of paper book). This land was purchased to establish service centre for servicing and repairing of cars. The business expediency was proved beyond doubt as required by Apex Court in S.A.Builders case. ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 7 Further, Ld AO made this addition by invoking of section 36(1). Where- as, no loan was taken for purchase of land. Section 36(1) specifically disallows the interest payment on borrowed funds taken to purchase fixed assets upto the period before put to use. Since no funds were borrowed and no interest was paid the disallowance is illegal and to be quashed. Your honour, here I want to place the decision of Hon`ble high court of Rajasthan in case of CIT Kota vs Ram Kishan Verma (copy of judgment is enclosed 36-40 of paper book ). In this case hon`ble High Court held that to the extent of his own capital the assesse could advance money without interest for business expediency or/and relatives and none can be forced to charge interest. In this case admittedly had it`s own fund, as referred to earlier and admittedly such funds being substantially higher than, even otherwise, the advances to the debtors, no notional interest or hypothetical interest could have been disallowed on such facts. The revenue has failed to prove nexus. The decision of this bench is also relevant for this year. 4. Disallowance of Rs. 1474610/- out of various expenses: (Ground no 4 from AY 2011-12) Your honour Ld. AO disallowed 15% out of various expenditure, stated that the expenses were not fully opened for verification as whether incurred in connection with business activities of the assesee, which is further reduced at 10% by Ld CIT (A). These expenditure are given on page no. 12 of the assessment order. The reason behind the disallowance given by AO is very general and vague. The ld. AO mentioned that neither the complete ledger accounts nor the supporting vouchers were produced, further Ld.CIT(A) stated that keeping in view the facts of the case, nature and volume of appellant’s business, the element of personal use cannot be ruled out. Your honour, in case of company, expenses cannot be held disallowed being personal element ,if AO assumed any personal element was there than the proper course of action was to add such amount of personal element in the hands of beneficiary as perquisites.In case of Satinder Kapur, New Delhi vs ACIT, New Delhi on 12 January, 2018 ITAT delhi held that “Authorities below have made the disallowance on adhoc basis, that too without rejecting the books of account of the assessee. Moreover, the ld. Authorities below have failed to pin point any particular expenditure which was of disallowable nature. Therefore, adhoc disallowance made by the authorities below deserves to be ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 8 deleted in view of various judicial pronouncements made by higher courts” Further your honour, I am herewith enclosing details of all the expenses disallowed by ld. AO. Detail is started by a summary sheet which is placed on page no 57 of paper book in which the nature of expenditure debited into each head of expenditure is given. All the ledger of expenses is placed on page no 65-268 of paper book. A} Cleaning and sweeping expenditure is done for maintenance of showroom for which third party vouchers are available. B} For newspaper and security system, the expenditure are fully supported by external vouchers. C} Discount on sales and service, free service coupon charges, incentive and over time, brokerage, discount etc. are fully supported by external vouchers and generally paid through banking channels. D} Legal and Professional charges are fully supported by external vouchers and entirely paid through banking channel. E} Telephone and telex, postage and courier expenses are also fully supported by external vouchers. F} Printing and stationary expenses and remaining expenditure are generally paid to unorganised sector for which internal vouchers are available along with full name, address and the nature of expenditure and reason thereof are recorded. Your honour, according to Income Tax Act assesse is required to prove that expenditure are incurred wholly and exclusively for business purpose, The vouchers are meant to prove the nature of expenditure and the payee and the genuineness, Books of accounts are audited by Chartered Accountant under companies act as well as u/s 44AB and he did not point out any discrepancies even he did not reject books of accounts u/s 145(3) of I.T Act 1961. During the course of scrutiny proceedings books of accounts were produced before AO time to time as when he called for. Vouchers of expenditure are the part of books of accounts. Your honour, Ld. AO did not point out any specific expenses, which in his opinion not related wholly and exclusively for business purposes. Assessee is the big trader having huge turnover. It is upto him, what expenditure are necessary to run the business smoothly. ITAT DELHI ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 9 BENCH ‘C’ in case of Assistant Commissioner of Income-tax versus Ganpati Enterprises Ltd. IT Appeal No. 6112 Delhi) of 2012 [ASSESSMENT YEAR 2009-10] Date of pronouncement – 15.02.2013 held that in our opinion the Scheme of the Act does not authorize the Assessing Officer to make a disallowance according to his wishes, rather it provide that he should first point out the defects in the accounts of the assessee. In the finding extracted (Supra) it nowhere reveals what was the total amount of expenditure claimed by the assessee, which specific vouchers was not in accordance with law. In a just sweeping statement, the ld. AO observed that on verification, some of the expenses were found to be unverifiable, but what were those expenses, he should make out in the assessment order, only then he can disallow them. In case of ITAT Agra Bench in case of Ajay Kumar vs ITO (ITA no 423/Agr/2008) held that adhoc disallowances cannot be sustained. (Copy of order is enclosed 58-64 of paper book) 5. Disallowance of foreign travel expenses of Rs. 109775.00(Ground no 5 from AY 2011-12) Your honours, Travelling was done by Mr Lal Morani, Managing Director and key person of the Company. All the travelling was done for meetings held with Parent company for which the Company is doing work. M/s Hyundai Cars organizes meetings with the main dealers of India at various places and assesse is bound to attend such meetings. Entire proofs were filed before AO during assessment proceedings. Copies of such bills, bank statement are enclosed are herewith on page no 269-276 of paper book. Entire expenses are done wholly and exclusively business purposes. I request your honour to please allow the expenses as such. 6. Addition u/s 68 amounting to Rs. 4760000.00 (Ground no 6 from AY 2011-12) Akshita Morani Rs. 1495000.00 Akshita Morani is the income tax payer and filed her return of income regularly. She appeared and her statement was taken on oath, where She categorically admitted to subscribe the share capital as appeared in books of accounts. To prove creditworthiness, she filed her bank statement in which no cash deposits were there just before subscribing share capital. Therefore, identity, genuineness and creditworthiness have been proved, and there is no justification to add this amount. Smt. Durga Dei Morani Rs. 550000.00 ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 10 Being expired, her son stated on oath before Ld. AO and accepted the subscription of share capital. Jayesh Morani Rs. 250000 Confirmation of Jayesh Morani was filed. He also appeared and stated on oath and accepted the subscription of shares. He explained that he was working and getting salary. Being unmarried person, parents borne out all the expenses. He saved most of the income and invested accordingly. From the confirmation and statement he proved the identity, genuineness and creditworthiness. Lakshya Morani Rs. 75000.00 Confirmation and statement of father along with confirmation are there to prove the identity, genuineness and creditworthiness. Lovie Morani Rs. 95000.00 Confirmation and statement of father along with confirmation are there to prove the identity, genuineness and creditworthiness. Nanak Ram Morani Rs. 1225000.00 Nanak Ram Morani has been passed away. On his behalf, son appeared and stated on oath. He submitted that the father was businessman and income tax payer since 2005-06. Thereafter, being ill health, he gradually closed the business and off loaded all the stock and debts. Out of such realization, he invested the share capital. Ravi Morani Rs. 225000.00 Confirmation was filed. Share holder is income tax payer. He appeared and stated on oath and confirms the transaction. Sarika Morani Rs. 325000.00 Confirmation was filed. Share holder is income tax payer. Se appeared and stated on oath and confirms the transaction. Vinita Morani Rs. 270000.00 Confirmation was filed. Share holder is income tax payer. She appeared and stated on oath and confirms the transaction. She invested in share capital totaling Rs. 870000.00 out of which Rs. 270000.00 was invested in cash. ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 11 She has been paying good amount of income tax. Ld AO accepted creditworthiness and remaining ingredients regarding amount received through cheque but for Rs. 270000.00, Ld AO did not satisfied with genuineness. Your honour, Ld. AO was very much biased about the cash transactions. When a person personally appeared and stated on oath and explained his creditworthiness then how the genuineness comes in doubt simply saying that the transaction was made in cash. If the evidences are there, payer of cash and payee as well, affirmed and other relevant material support then the cash transaction has same value as bank transaction. In this case also the heavy sales were made in cash but Ld AO himself accepted the book results. Therefore, please quash the addition of Rs. 270000.00 L.C.Morani Rs. 250000.00 L.C.Morani is the director of Company and key managerial person. He is the man of means. He paid hefty income tax since long. He appeared many times before AO during scrutiny proceedings. He stated on oath. Ld AO also has no doubt about creditworthiness. But again he added the amount being received in cash. Statue book make specific provision to check the cash transactions vide u/s 40A(3), 269SS and 269T and penalty provision u/s 271D and 271E. The transactions of subscription of share capital were not caught by these provisions. But Ld AO was not ready to accept genuineness with plethora of evidences. Your honour, in most of the case identification and creditworthiness were proved as held by assessing officer himself. Ld AO did not accepted genuineness, being the receipts were from cash. He added all the amount treating cash deposit as unlawful, without having held where were it is unlawful. I fully accept and endorse the version of AO that assessee is required to prove the identity of payer, genuineness of transactions and creditworthiness of lender. Assessee by producing almost all the payers and in turn they have accepted the transaction taken place with assessee was able to establish the genuineness. Had only bank transaction is sacrosanct for genuineness then law makers categorically prohibit the cash receipts like section 40A(3), 269SS & 269T. Your honour Apex Court in case of Shreelekha Benerjee v. CIT 49 ITR 112 (SC) held that before the department rejects such evidence, it ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 12 must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof. It is within the range of these principles that such cases have to be decided. In another case hon`ble Supreme Court held in case of CIT v. K.S. Kannan Kunhi 87 ITR 395 (SC) that A.O must examine the merits of assessee’s explanation for Cash Credit in the books. No addition can be made by merely observing that the explanation is not satisfactory. In case of CIT v. Daulat Ram Rawatmull 87 ITR 349 (SC) held that the onus to prove that the apparent is not the real is on the party who claims it to be so. Further, the cash credits above are not the unsecured loan. These are share capital. And in case of share capital the onus to prove is lighter than unsecured loan. It was held that Once the identity and other relevant particulars of shareholders are disclosed, it is for those shareholders to explain the source of their funds and not for the assessee company to show wherefrom these shareholders obtained funds. It was held that Tribunal was justified in deleting addition in the hands of assessee company. CIT vs. Nishan Indo Commerce Ltd. (2014)101 DTR 413 (Calcutta High Court). It was held in another case that when two conditions had to be satisfied. First the transaction should be genuine, true and not a camouflaged, and secondly the transaction should be duly recorded in the books of the share applicants. In case any of the two conditions were not satisfied, it would be open to the A.O to act in accordance with the law and make appropriate additions if justified and mandated by Statute (AY. 200 1- 02). CIT vs. Kansal Fin cap Ltd. (2014)221 Taxman 151 (Mag.) (Delhi High Court). Your honour, in all the above cash credit against share application money, assessee produces, confirmations, Name & Addresses of depositors, PAN and bank accounts of them and the most important all have been produced and stated on oath and confirm the transaction. In view of above the addition based on preponderance of human probability is unjustified and liable to be quashed. 7. Disallowance u/s 40(a)(ia) ((Ground no 7 from AY 2011-12) Ld AO disallowed various expenses of Rs. 734800.00 for non- deduction of tax at sources as mentioned on page no 3 last para. In the first appeal, Ld CIT (A) allowed Rs. 200000.00 and remaining ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 13 disallowance was sustained. Copies of these expenses are enclosed on page no 278-283 of paper book. Your honour an amendment has been made by F.A 2014 w.e.f 01.04.2015 in section 40(a)(ia) of the Income Tax Act 1961 whereby it is provided that 30% of any sum payable to a resident shall be disallowed if tax is not deducted at source under Ch. XVIIB as against the 100% presently made. The purpose of this amendment was explained in the memorandum as under:- “the disallowance of whole of the amount of expenditure results into undue hardship and therefore in order to reduce the hardship, it is proposed that in case of non-deduction or non-payment of TDS on payment made to residents as specified in section 40(a) (ia) of the Act, the disallowance shall be restricted to 30% of the amount of expenditure claimed.” From the above it can be noted that amendment made by Finance Act 2014 is to remove unintended and undue hardship and therefore this amendment should be give retrospective effect as per the various decision stated below. 1. Supreme Court in Case of CIT vs. Vatika Township Pvt. LTD. 109 DTR 33 If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. 2. Amruta Quarry Works, Sabarkantha vs Assessee on 19 July, 2016 Since the amendment has been brought to remove the hardship caused to the assessee, the amendment assumes the character of being clarificatory in nature and is retrospectively applicable, I find merit in the contentions of the ld. Counsel for the assessee. Respectfully following the judgment of Vatika Township Private Limited (supra), the amendment brought in by Finance (No.2) Act of 2014 in Section 40(a)(ia), the same is held to be retrospective in nature; therefore, the amount to be disallowed u/s 40(a)(ia) should be restricted to 30% of the impugned amount placed on page no 285-287 of paper book. 3. Kanta Yadav, New Delhi vs Ito, Gurgaon on 12 May, 2017 6312/Del/2016. Placed on page no 288-290 of paper book. 4. ITAT Jaipur Bench Shri Rajendra Yadav vs. ITO ,ITA no.895/JP/2012 which is placed on page no 291-299 of paper book. ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 14 5. Smt. Sonu Khandelwal vs. ITO,ITA No.597/JP/2013. In view of above, the disallowance made by the AO be directed to be restricted to 30% of such amount. 5. The first ground in this appeal is against the disallowance of Rs. 2,40,000/- made by the AO and sustained by the ld. CIT(A). While confirming this addition the ld. CIT(A) has observed as under:- “6.2 I have considered the assessment order, appellant's submissions and documents on record. During the course of assessment proceedings the AO noticed that the assessee company had paid Rs. 2,40,000/- to its director Smt. Reshma Morani as rent towards company's registered address. The AO disallowed the same u/s 40A(2)(b) treating excess/unreasonable expenses as no business had ever been carried out at that address. During the course of appellate proceedings it was contended that the expenses incurred solely for the purpose of business and the amount was offered for taxation by the director Smt. Reshma Morani. On overall perusal of the case, I find the rent paid to the director unreasonable as there was no separate electric and water connection in the name of appellant company. As per the provisions of section 40A(2) of the Act, any unreasonable expenditure is disallowable. Identical issue has been covered by the Hon'ble High Court, Punjab & Haryana in the case of Subhash Chander Malik vs. DCIT [2015] 57 taxmann.com 180 (Punjab & Haryana) wherein the Hon'ble Court, upheld the disallowance made by the AO on account of excess rent paid. Further, The Hon'ble High Court, Delhi in the case of M.L.B.D. Books International vs. ACIT [2009] 184 Taxman 275 (Delhi)/[2009] 226 CTR 298 (Delhi) upheld the disallowance ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 15 made by the ( ( AO on account of unreasonable rent paid to its sister concern. This issue has also been dealt and decided against the appellant in appeal no Appeal No. 336/JPR/2015-16 for the AY 2010-11, order dated 19.12.2018. Accordingly, I find the rent paid for appellant's registered premises unreasonable and respectfully following the ratio laid down in the above mentioned case laws. I hereby upheld the addition made by the AO. The appellant company fails on this issue accordingly grounds with respect to this issue are treated as dismissed.” 6. In respect of this ground the ld. AR in addition to the written submission submitted before us that the similar addition was made in the case of their sister concern for same assessment year M/s. Morani Motors P. Ltd. in ITA no. 434/JP/2018. The relevant finding from the decision of the co-ordinate bench relied upon is extracted here in below 12. During the course of hearing, the ld. AR submitted that the assessee-company is an authorized dealer of Hyundai Cars and engaged in the sales and service of the cars. The directors of the assessee company are required to spend time right from early morning to late evening in such circumstances there are running their office from residence also. Further, the assessee company maintains the head office and registered office at A- 34, Kirti Nagar, Jaipur and all the meeting of Board of directors and shareholders are held at this place only. All the correspondence from the Income tax Department and other authorities are received at this address only. In support of the meetings of Board of Directors and the annual general meetings, copy of the minute books was placed on record. It was submitted that the rent was subject to TDS and the payment was made after deduction of TDS thereon. It was further submitted that the rent was paid to one of the directors of the assessee-company who was under the “highest tax slab” and in support, copy of his tax returns were submitted which ITA No. 434/JP/2018 Morani Motors Private Ltd, Jaipur vs. ACIT, Circle-06, ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 16 Jaipur 10 proves that there is no intention to avoid any income tax liability. It was further submitted that the AO invoked the provisions of Section 40A(2)(b) of the Act and has disallowed the whole of the rent payment however, the entire expenses cannot be considered as excessive and no comparable case has been submitted as to why the rent payment was excessive. It was accordingly submitted that the addition so made by the AO should be deleted. 7. Per contra ld. DR heavily relied upon the finding on the orders of the lower authorities on this issue and supported that the addition should sustained he has taken us through its findings of the lower authorities which have been taken note of and not been repeated for the sake of reiteration. 8. We have heard the rival contentions, perused the submission made before us and order of the lower authorities, on the similar issue the finding of the co-ordinate bench relied upon by the AR and ld. DR did not controvert the detailed finding given in the decision in sister concerns and facts and nature of addition being similar we respectfully following the co-ordinate bench decision, addition on the issue allow this ground and thus ground no. 1 raised by the assessee is allowed. 9. The second ground is in respect of disallowance of interest of Rs. 21,60,000/- u/s. 40A(2)(b) which was further reduced to Rs. 20,23,200/- by ld. CIT(A). The relevant finding of the ld CIT(A) while dealing with the said ground observed as under : “7.2 I have carefully considered the assessment order and appellant's submissions. The AO disallowed the interest expenses of Rs. 21,60,000/-corresponding to interest free security deposits with M/s General Handicrafts Pvt. Ltd. ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 17 and M/s Morani Motors Pvt. Ltd. on the grounds that substantial interest @ 12% to 15% had been paid by the assessee on his borrowings, whereas no interest had been charged from the abovementioned parties on unreasonable security deposits. Simply giving interest free advance to the concerns in which the family members have substantial interest does not sync with the provisions of the Statute. Also, adopting a business model of lending borrowed funds for carrying out business cannot be termed as qualifying business expediency. In the case of Munjal Sales Corpn. Vs. CIT was before the Hoh'ble Supreme Court, 2008] 298 ITR 298 (SC) as to whether once it was found that interest-free loans granted in August/September 1991 continued up to assessment year 1997-98; that said loans were advanced for business purpose; and that interest paid to third parties (partners) did not exceed 18/12 per cent per annum, assessee was entitled to deduction under section 36(1)(iii), read with section 40(b)(iv) answer was given in affirmative; applied meaning being that the reasonableness of interest being charged is as important as the business expediency. Similarly, in the case of Abhishek Industries Ltd, Punjab Haryana HC, [2006] 286 ITR 1 question arose whether once it is borne out from record that assessee had borrowed certain funds on which liability to pay tax is being incurred and on other hand, certain amounts had been advanced to sister concerns or others without carrying any interest and without any business purposes, interest to extent that advance had been made without carrying any interest is to be disallowed under section 36(1)(iii) ? Answer was in affirmative. I have also gone through the submissions of the appellant, however I find no force in its contention. I am of view of that the appellant had diverted interest bearing funds in giving interest free advances. In view of the provision of section 40A(2)(b) ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 18 of the Act, any undue benefit to specified persons as covered by these provisions is required to be disallowed to the extent provided. Therefore, disallowances are required to be made u/s 40A(2)(b). Hence, the AO rightly made the addition under Section 40A(2)(b) of the Act, which is confirmed. However, as pointed out by the appellant in his submissions, apparently, there is a calculation mistake in the assessment order; thus, interests should have been computed on Rs.1,68,60,000/- @12% amounting to Rs.20,2,3200/-. Accordingly, the disallowance of Rs.20,23,200/-is confirmed instead of Rs.21,60,000/- as worked out by AO. The ground No. 3 raised by the appellant regarding this issue stands dismissed.” 10. In respect of this ground the ld. AR in addition to the written submission submitted before us that the similar addition was made in the case of the assessee for A. Y. 2010-11 the case of the assessee in ITA No. 1088/JP/2018. The relevant finding from the decision of the co-ordinate bench relied upon is extracted here in below:- “17. We have heard the rival contentions and perused the material available on record. The assessee has explained the business necessity of taking the premises on rent and placing the security deposit. Further, the AO has not established the nexus between the interest bearing borrowed funds and amount placed as security deposit. Therefore, where the interest free funds are sufficient towards placing the security deposit and the commercial expediency of taking the premises on rent having been established and the rent payment has been allowed, there is no basis for notional disallowance of interest expenses. In the result, the addition so made by the AO is hereby set-aside. In the result, the ground of appeal is allowed.” ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 19 11. Per contra ld. DR for ground no. 2 also heavily relied upon the finding on the orders of the lower authorities on this issue and supported that the addition should sustained he has taken us through its findings of the lower authorities which have been taken note of and not been repeated for the sake of reiteration. 12. We have heard the rival contentions, perused the submission made before us and order of the lower authorities, on the similar issue the finding of the co-ordinate bench relied upon by the AR and ld. DR did not controvert the detailed finding given in the decision and nature of addition and facts being identical we respectfully following the co-ordinate bench decision as extracted here in above, the addition made by the lower authorities is vacated thus ground no. 2 raised by the assessee is allowed. 13. The third ground in this appeal is against the addition of notional interest of Rs. 5,10,000/- made by the AO and sustained by the ld. CIT(A). While confirming this addition the ld. CIT(A) has observed as under:- “8.2 I have considered the assessment order, appellant's submissions and documents on record. During the course of appellate proceedings the appellant submitted that the amount was given advanced for purchasing a factory plot being a business asset. It was stated before the AO that interest free advance had been given for acquiring ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 20 industrial land and it would be used for business purpose. Simply stating that appellant had own net worth of around Rs. 2.95 crores does prove nothing as it not the net worth but the available funds which need to be explained which the appellant has not brought on record. Facts of the case, relied upon by the appellant are different from the facts of the case of the appellant. The appellant is paying interest @12% to 15% on the unsecured loans taken by him and on other side he gave interest free advance to borrow an industrial land. This advance had been given against the fund received from sundry trade debtors. Therefore, the claim of the assessee i.e. fund received from trade debtors are not interest bearing funds is factually incorrect. Since the appellant company had not acquired that property till the year under consideration therefore as per section 36(1) of the Act, the interest paid on such capital is not allowable. It is seen that the appellant has diverted interest bearing funds in giving interest free advances. On overall perusal of the case, I find that the appellant could not prove that the amount of Rs. 42,50,000/- was given from non-interest bearing funds. Since, the appellant is paying interest @12% to 15% on the unsecured loans so he should have charged interest at the same rate from Smt. Vimla Barwa also. Thus it is held that the AO rightly added deemed interest of Rs. 5,10,000/- on advance of Rs. 42,50,000/-. The addition made by the AO is hereby sustained. The appellant fails on this issue and this ground is treated as dismissed.” 14. In respect of this ground the ld. AR submitted that Ld. AO added Rs. 510000.00 out of interest on account of interest free advances for purchase of land. Assessee company has own net worth of around Rs. 2.95 crores. Copy of Balance Sheet is attached on page no 51 of paper book. The purchase of land was ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 21 not made out of borrowed funds. Copies of bank account are with the file of AO and also placed here on 26-35 of paper book AO was bound to prove nexus between borrowed funds and purchase consideration paid. This land was purchased to establish service center for servicing and repairing of cars. The business expediency was proved beyond doubt as required by Apex Court in S.A.Builders case. In addition, the ld. AR relied upon the decision of the co-orindate bench in the assessee own case where in the it has been taken a view as extracted here in above holding that when the interest free funds are available and ld. AO failed to establish clear nexus of interest-bearing funds invested in interest free activities the addition of notional interest has no basis and is required to be deleted. 15. Per contra for this ground no. 3 also the ld. DR heavily relied upon the finding on the orders of the lower authorities on this issue and supported that the addition should sustained he has taken us through its findings of the lower authorities which have been taken note of and not been repeated for the sake of reiteration. 16. We have heard the rival contentions, perused the submission made before us and order of the lower authorities, on the similar issue the finding of the co-ordinate bench relied upon by the AR and ld. DR did not controvert the detailed finding given in the ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 22 decision and nature of addition and facts being identical we respectfully following the co-ordinate bench decision as extracted here in above while dealing with the ground no. 2, the addition made by the lower authorities is vacated and in terms of these observation ground no. 3 raised by the assessee is allowed. 17. The fourth ground in this appeal is against the disallowance of Rs. 14,74,610/- 15 % of various expenses which was further reduced to Rs. 9,83,073/- by the ld. CIT(A). While dealing the ground of the assessee the ld. CIT(A) has observed as under:- “9.2 I have considered the assessment order, appellant’s submissions and documents on record. The appellant had claimed expenses in P & L Account amounting to Rs. 98,30,733/- under the head General expenses, Conveyance & Travelling expense, Communication expenses etc. The AO noticed that the some of the expenses were not fully vouched, therefore, expressed apprehension regarding involvement of personal element not related to the business, he disallowed 15% of these expenses which results in an addition of Rs. 14,76,610/-. During the course of appellate proceedings, the appellant stated that all these expenses were incurred wholly and exclusively for the business purpose. Thus, it was contended that the disallowance made by the AO at Rs. 14,76,610/- deserves to be deleted. However, keeping in view the facts of the case, nature and volume of appellant's business, the element of personal use w.r.t. these expenses certainly cannot be ruled out. In such circumstances the disallowance of Rs. 14,74,610/- total unverifiable expenses ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 23 still seems to be on higher side. Considering these facts, the disallowance at 15% is hereby restricted to the tune of 10% of total expenses claimed by the appellant. Hence, the addition of Rs. 14,74,610/- on account of disallowance out of aforementioned expenses is restricted up to Rs. 9,83,073/-, the appellant gets relief of Rs. 4,91,537/-. This ground is treated as partly allowed.” 18. In respect of this ground the ld. AR of the assessee submitted that AO disallowed 15% out of various expenditure, stated that the expenses were not fully opened for verification as whether incurred in connection with business activities of the assesee, which is further reduced at 10% by Ld CIT (A). These expenditure are given on page no. 12 of the assessment order. The reason behind the disallowance given by AO is very general and vague. The ld. AO mentioned that neither the complete ledger accounts nor the supporting vouchers were produced, further Ld.CIT(A) stated that keeping in view the facts of the case, nature and volume of appellant’s business, the element of personal use cannot be ruled out. He further submitted that in case of company, expenses cannot be held disallowed being personal element ,if AO assumed any personal element was there than the proper course of action was to add such amount of personal element in the hands of beneficiary as perquisites. In case of Satinder Kapur, New Delhi vs ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 24 ACIT, New Delhi on 12 January, 2018 ITAT Delhi held that “Authorities below have made the disallowance on adhoc basis, that too without rejecting the books of account of the assessee. Moreover, the ld. Authorities below have failed to pin point any particular expenditure which was of disallowable nature. Therefore, adhoc disallowance made by the authorities below deserves to be deleted in view of various judicial pronouncements made by higher courts. 19. Per contra for this ground no. 4 the ld. DR heavily relied upon the finding on the orders of the lower authorities on this issue and supported that the addition should sustained based on the detailed finding of the AO he has taken us through its findings of the lower authorities which have been taken note of and not been repeated for the sake of reiteration. The ld. DR also submitted that the similar issue was in the case of assessee’s sister concern M/s. Morani Motors P. Ltd. where in the matter was set-a-side to examine the same afresh. 20. We have heard the rival contentions, perused the submission made before us and order of the lower authorities. It is not disputed by both the parties that the addition were made on adhoc basis. ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 25 There is no specific defected pointed out in the audited accounts by the lower authorities. The books of accounts were produced before the assessing officer along with the bills and voucher which were accepted and not rejected. The ld. AR of the assessee submitted that without rejection of books of account no addition should sustained, he has in his paper book at page 65-268 submitted all the details of expenses claimed. The ld. DR has not pointed any single objection to the said claim as to why the same is sent to the AO again for verification. The ld. AR on this issue relied upon the decision of Satinder Kapur, New Delhi Vs. ACIT. Respectfully following the co-ordinate bench decision on the similar facts and circumstance the ad-hoc addition without rejecting the books of account is vacated and thus the ground no. 4 raised by the assessee is allowed. 21. The fifth ground in this appeal is against the disallowance of foreign travel expenses to the extent of Rs. 1,09,775/- made by the AO and confirmed by the ld. CIT(A). The issue has been decided by the ld. CIT(A) at page 22 para 10.2 the same is extracted here in below :- ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 26 “10.2. I have considered the assessment order, appellant's submissions and documents on record. During the course of assessment proceedings, the assessee company was asked to provide to details of journey along with reasons and to provide supporting evidences that the expenses were related to the business of he appellant. In the absence of necessary evidence, I am not inclined to accept the claim of the appellant-company that the expenditure of Rs. 1,09,775/- was incurred wholly and exclusively for the purposes of business. It has to be appreciated that as per the requirement of section 37(1), it is for the tax payer to prove not only the fact that the expenditure was actually made but also the fact that the expenditure was wholly and exclusively in connection with business purposes. Thus here also the burden placed on the assessee in terms of Imperial Chemical Industries (India) (P.) Ltd. case (supra) also has not been discharged. Accordingly, the disallowance made by the learned Assessing Officer is hereby sustained.” 22. In respect of this ground the ld. AR of the assessee submitted that Travelling was done by Mr Lal Morani, Managing Director and key person of the Company. All the travelling was done for meetings held with Parent company for which the Company is doing work. M/s Hyundai Cars organizes meetings with the main dealers of India at various places and assesse is bound to attend such meetings. Entire proofs were filed before AO during assessment proceedings. Copies of such bills, bank statement are ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 27 enclosed are herewith on page no 269-276 of paper book. Entire expenses are done wholly and exclusively business purposes. 23. Per contra for this ground no. 5 the ld. DR heavily relied upon the finding on the orders of the lower authorities on this issue and supported that the addition should sustained based on the detailed finding of the AO he has taken us through its findings of the lower authorities which have been taken note of and not been repeated for the sake of reiteration. The ld. DR also submitted that based on the submission and copy of account the AO has disallowed only part of the expense which are in the nature of personal in nature not only that the bills produced are also not in the name of the company and therefore, the claim is not allowable. 24. We have heard the rival contentions, perused the submission made before us and order of the lower authorities. It is not disputed by both the parties that the AO has added part of expenditure the major expenditure disallowed is purchase of foreign currency in the name of director bills was also in the name of director and the ld. AR failed to support the reasons as to why the same is allowable. We found force in the arguments of the ld. DR and we do not find ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 28 error in the findings of the lower authorities on this issue and thus, the ground no. 5 is dismissed. 25. The ground no. six in this appeal is against the addition made by the AO u/s. 68 out of the share application money for an amount of Rs. 47,60,000/-. During the year under consideration the assessee has received the share application money from the following person as share application money:- S. No. Name No. of Share allotted Issue price of the shares Fresh share capital introduction during FY 2010-11 Cheque Cash 1. Ms. Akshita Morani 149500 10 1495000 1270000 225000 2. Ms Durga Devi 55000 10 550000 0 550000 3. Ms Jayesh Morani 25000 10 250000 0 250000 4. Mr. Lakshya Morani 7500 10 75000 0 75000 5. Ms Lovie Morani 9500 10 95000 0 95000 6. Mr. NR Morani 122500 10 1225000 0 1225000 7. Mr. Ravi 22500 10 225000 0 225000 ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 29 Morani 8. Smt. Sarika Morani 32500 10 325000 0 325000 9. Smt. Vinita Morani 87000 10 870000 600000 270000 10. Dr. LC Morani 25000 10 250000 0 250000 Total 536000 5360000 1870000 3490000 26. Based on the detailed observation on this issue ld. CIT(A) at page 34-40 confirmed the view of the ld. AO and confirmed the addition made the ld. AO. The relevant findings of the ld. CIT(A) is reiterated here in below to deal with the issue on hand:- “13.2 I have considered the assessment order, appellant's submissions and documents on record. The AO noted that the assessee company had received share capital of Rs. 53,60,000/-, out of which share capital worth Rs. 34,90,000/- was introduced in cash. The AO also noted that the all the share-applicants were either directors of the company or their family members. Accordingly, the AO issued summons u/s 131 to every share-applicant to examine the identity, creditworthiness and genuineness of the transaction. In response to summons the creditors appeared and submitted as under:- 1. Akshita Morani In response to summons issued to her, She appeared before AO and submitted bank statement. It was noticed that her bank account had just been used as a layer for ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 30 transferring money; an amount was received and then transferred to other accounts. She already had access to banking channels so it is not clear as what were the compelling circumstances that Rs. 2.25 Lacs was invested in cash as Share Application. The appellant had not submitted any evidence regarding the creditworthiness of the Akshita Morani and genuineness of transaction made by her although he proved the identity of creditor. 2. Smt. Durga Devi Morani In response of summons issued to her, her legal heir Shr. L. C. Morani was appeared before AO as she had passed away. Sh. Morani submitted that she had invested out of her personal savings, gifts from son/husband. Since, share application of Rs. 5,50,000/- was introduced by her in cash and no gift deed or any other cogent evidence was produced by Shri L. C. Morani. In such circumstances, the creditworthiness of Smt. Durga Devi and genuineness of transaction made by her remained unexplained. 3. Sh. Jayesh Morani Shri Jayesh Morani appeared in response to summons u/s 131, he had not filed return for A.Y. 2008-09, AY 09- 10, AY 10-11 and AY 11-12. He stated his job at Rs. 10,500/- per month and earned a salary of Rs. 20,000/- p.m. in cash as on 28.02.2014. He had not received any dividend from the appellant company till A.Y. 2013-14 therefore, it was not possible for him to save Rs. 2, 50,000/- out of his earnings. Since he had not filed any return of income and received salary in cash. In such condition, the appellant company could not have proved creditworthiness of Sh. Jayesh Morani and genuineness of transaction made by him. ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 31 4. Shri Lakshya Morani In response to the summons issued u/s 131, Shri Lal Morani, father of Shri Lakshya Morani, appeared and submitted an affidavit wherein it was stated that his son had been receiving cash gifts from his/her parents/grandparents/maternal grandparents and other relatives from time to time, therefore he had gathered more than Rs. 1,00,000/- during the A.Y. 2010-11. In support of this contention, Mr. Lal Morani had not submitted any gift deed. Thus, the appellant could not have proved the creditworthiness of Sh. Lakshya Morani and genuineness of investment of Rs. 75,000/- made by him. 5. Ms. Lavie Morani Ms. Lovie Morani made an investment of Rs. 95,000/- in cash. In response to the summons issued u/s 131, Shri Lal Morani, appeared and submitted an affidavit on behalf of Shri Jawahar Morani, father of Mr. Love Morani. In the affidavit, the name of the applicant was mentioned as Mr. Love Morani instead of Ms. Lovie Morani. However, Mr. Love Morani had not made any investment in the assessee company. Thus, the identity of the share-applicant had not been proved. When asked about Ms. Lovie, the assessee is submitting details of share investments in the hands of Mr. Love. Thus, the assessee is merely trying to cover up the whole issue of 'share capital, as is also clearly evident from the entire discussion and careful perusal of the facts and circumstances of the case. If I peruse the relevant contents of the affidavits wherein it was stated that Mr. Love Morani had been receiving cash gifts from his/her parents/grandparents/maternal grandparents and other relatives from time to time, therefore he had gathered ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 32 more than Rs. 1,20,000/- during the A.Y. 2010-11. In support of this contention, Mr. Lal Morani had not submitted any gift deed. Thus, the appellant could not have proved the creditworthiness of Mr. Love Morani and genuineness of transaction of Rs. 95,000/- made by him. 6. Shri Nanak Ram Morani Sh. Nanak Ram Morani invested Rs. 12.25 Lacs in cash during the year under consideration. In response of summons issued to him, her legal heir Shr. L.C. Morani was appeared before AO as he had passed away on 28.04.2011. Sh. L.C. Morani submitted that Shri N. R. Morani was running a retails business of clothes in village Narena. As per return of income the income of Mr. Nanak Ram Morani was Rs. 1,57,760/- in A.Y. 2005- 06, Rs. 1,82,010/- in AY 2006-07. Mr. L. C. Morani submitted that his father had wounded up his business in FY 2009-10. As a result of the wounding up process, the inventories were disposed and recoveries made from sundry debtors thereon he had invested Rs. 12,25,000/- in the appellant company. However regarding this contention, no evidence about the wounding up of business was given and no details about the cash received from wounding up business were revealed. Thus, the appellant failed to prove the creditworthiness of Sh. Nanak Ram and genuineness of transaction made by him. 7. Shri Ravi Morani Shri Ravi Morani appeared in response to notice u/s 131. He submitted that he set up a firm named M/s Morani Mobile in partnership of his mother the same was dissolved in FY 2010-11 and the cash proceeds earned thereon were invested in M/s Morani Cars Pvt. Ltd. However regarding this contention, no evidence about the ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 33 wounding up of business was given and no details about the cash received from wounding up business were revealed. It was noticed that the income of Sh. Ravi Morani was Rs. 1,52,045/- in the A.Y. 2011-12, therefore, he had not proved the investment of Rs. 2,25,000/- genuine. Thus, the appellant failed to prove the creditworthiness of Shri Ravi Morani and genuineness of transaction made by him. 8. Smt. Sarika Morani In response to summons issued to her u/s 131, she appeared and submitted that she set up a firm named M/s Morani Mobile in partnership with his son Ravi Morani (as discussed in above above para) and the same was dissolved in FY 2010-11 and the cash proceeds earned thereon were invested in M/s Morani Cars Pvt. Ltd. However regarding this contention, no evidence about the wounding up of business was given and no details about the cash received from wounding up business were revealed. It was noticed that the income of Smt. Sarika Morani was Rs. 1,60,245/- in the A.Y. 2011-12, therefore, she had not proved the investment of Rs. 3,25,000/- genuine. Thus, the appellant failed to prove the creditworthiness of Smt. Sarika Morani and genuineness of transaction made by her. 9. Smt. Vinita Morani In response to the summons issued u/s 131 of the IT Act, 1961, Smt. Vinita Morani appeared and submitted she earned commission income. Since of out of total investment of Rs. 8.70 lacs, she invested Rs. 6 lacs through cheque and Rs. 2.70 lacs in cash. Since Rs. 6,00,000/- was invested through cheque, she had proved her creditworthiness and genuineness of transaction. ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 34 However, genuineness of cash transaction of Rs. 2,70,000/-remained unexplained. 10. Dr. L.C. Morani Shri L.C. Morani appeared in response to the summons u/s 131. His invome was at Rs. 8,51,224/- therefore his creditworthiness had been proved. He had access to banking channels though he had invested in cash? The appellant had proved the identity and capacity of the creditor but failed to prove the genuineness of transaction made by Sh. L.C. Morani as transaction made in cash. 13.2.2 The appellant company furnished the affidavits with respect to investment by Sh. Lakshya Morani, Ms. Lovie Morani, the merely submissions of affidavit is not enough to discharge the onus cast upon the appellant. Identical issue has been covered by the Hon'ble ITAT, Chandigarh in the case of ACIT vs. Ashok Nayyar [2006] 10 SOT 92 (Chandigarh) wherein it was held as under:- "In the case of regular taxpayer and in the case of creditor who has filed the return for the first time ostensibly to explain the credit have got to be distinguished. Moreover, the surrounding circumstances and preponderance of probabilities are also to be taken into consideration in judging the evidence adduced by the assessee. It is well established principle of law that in the case of cash credits, it is the duty of the assessee to establish the identity of the creditor, capacity of the creditor to advance the loan and genuineness of the credit. The mere fact that confirmation has been filed or even affidavits have been filed or the money has been received by cheque is not enough to discharge the onus." The same principles of law have been laid down in the following cases:— ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 35 (i) CIT v. Nivedan Vanijya Niyojan Ltd. [2003] 263 ITR 6231 (Cal.); (ii) Rajshree Synthetics (P.) Ltd. v. CIT [2002] 256 ITR 331 2 (Raj.); (iii) Shankar Industries v. CIT [1978] 114 ITR 689 (Cal.) (iv)CIT v. Precision Finance (P.) Ltd. [1994] 208 ITR 4653 (Cal.). 13.2.3 The appellant could have proved the genuineness of one transaction made by Smt. Vinita Morani worth Rs. 6,00,000/- as the same was made through cheque but it is liability of the assessee to prove the three limbs within meaning of section 68 of the Act of all the credit entries fund in books of assessee. The Hon’ble High Court Punjab and Haryana in the case of Gumani Ram Siri Ram vs. CIT [ 1975] 98 ITR 337 held as under:- "68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof, or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The language of this section shows that it is general in nature and applies to all credit entries in whomsoever name they may stand, that is, whether in the name of the assessee or a third party. This section has, therefore, removed the distinction which was drawn in some decisions between the credits held in the name of the assessee and those held in the name of a third party. Under section 68 now the assessee has to prove that such third party was in a position to lend such sums and that he did, in fact, so lend to the assessee in order to satisfy the Income-tax Officer that the credits shown in the account books were genuine. This section has laid the ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 36 onus of proof on the assessee. The Income-tax Officer, therefore, called upon the assessee-firm to prove the source of the deposits by the two ladies and since he was not satisfied with the explanation given by the representative of the assessee-firm, he treated those two deposits as the income of the firm. Under the circumstances, no question of wrong placing of onus arises in the case and no question of law arises out of the order of the Income-tax Appellate Tribunal." 13.2.4 The Hon'ble Apex Court in the case of Roshan Di Hattiv. CIT [1977] 107 ITR 938 (SC) and Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC) held that the onus of proving the source of a sum of money found to have been received by an assessee is on him. Where the nature and source of a receipt, whether it be of money or other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source. 13.2.5 When all the creditors were called for verification, on being asked about the source of cash, the submitted extremely general and vague explanation without relying upon any evidence. Since most of the transaction were made in cash, in this connection I am of view that the appellant company had cash receipts from sale of vehicle and there were a number of expenses in cash therefore the appellant tried to introduce its own unaccounted money in the regular books of accounts through share- capital introduction. The appellant had not proved the creditworthiness of the creditors and genuineness of the transaction though had proved the identity of the some of creditors yet failed to prove all the three limbs within the meaning of section 68 of the Act. In view of facts of the case and legal position as discussed above, I hereby ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 37 upheld the addition made by the AO. This ground is treated as dismissed.” 27. In respect of this ground the ld. AR of the assessee relied upon the written submission filed by him and as extracted here in above. He also submitted that against the share application money, assessee produces the depositor, confirmations of each share applicant placed on record, PAN of depositors filed, bank account details placed on record and also statement on oath were recorded for all the share applicant and all have confirmed to have made the investment in the assessee company. Thus, the ld. AR of the assessee submitted that the primary burden as per the provisions of section 68 is established as affirmation of the all the share applicant is made and the genuineness of the transaction and creditworthiness of the applicants are clearly established. Merely the investment in majority of the amount is made in cash the AO disbelieved the transaction and added under section 68 of the Act. Considering the credit worthiness of the applicants, the amount realized by the assessee is quite reasonable and the addition made is required to be deleted. 28. Per contra for this ground no. 6 the ld. DR heavily relied upon the finding on the orders of the lower authorities on this issue and ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 38 supported that the addition should sustained based on the detailed finding of the AO he has taken us through its findings of the lower authorities which have been taken note of and not been repeated for the sake of reiteration. The ld. DR further submitted that when all the person having the bank account there is no reason as to why they have invested the money in the cash as share application money. The AO has clearly established that the capacity of the investor are not established fully and the director of the company failed to establish as to what the need to have the share application money to be accepted in cash. 29. We have heard the rival contentions, perused the submission made before us, orders of the lower authorities and also the decision relied upon on the issue on hand. It is not disputed in this case that all the 10 share applicants appeared in response to summons before the assessing officer, so their identity is already proved. Regarding the genuineness of transaction details of their PAN, bank statement and details of their source were furnished so as to established the capacity of the each share applicant. The same is incorporated in the assessment order and in the order of the CIT(A) and therefore, the same is not repeated. The only ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 39 grievance of the revenue that the assessee has accepted the majority amount in cash and the director of the company did not submit the clear reason as to why the share application money has been received in cash when the bank account transaction is possible in all most all the share application subscribers. Out of the total share application of Rs. 53,60,000/- the ld. AO has accepted Rs. 6,00,000/- given by Smt. Vinita Morani as explained (though the amount given by her in cash for Rs. 2,70,000/- is added u/s. 68) and rest of Rs. 47,60,000/- out of which Rs. 34,90,000/- by cash and Rs. 12,70,000/- received by cheque is added under section 68 of the Act. 30. Where an assessee has filed to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, the assessing Officer is entitled to draw the inference that the receipts are of an income nature and it is not necessary for him to locate their exact source. As the Supreme Court laid down in Kalekhan Mohammed Hanif v CIT, the onus is on the assessee to explain the nature and source of cash credits, whether they stand in the assessee’s account or in the account of a third party. The question of burden of proof cannot be made to depend exclusively upon the fact of a credit entry in the name of ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 40 the assessee or in the name of a third party. In either case, the burden lies upon the assessee to explain the credit entry, through the onus might shift to the Assessing Officer under certain circumstances. Where the assessee shows that entries regarding cash credit in a third party’s account are genuine and the sums were in fact received from the third party as loans or deposits, he has discharged the onus. In that case it is for the third party to explain the source of the moneys, and they cannot be charged as the assessee’s income in the absence of any material to indicate that they belong to the assessee. Here in this case assessee has established the identity, capacity and genuineness of the transaction so far as it relates to all the 10 share applicant. Based on the above facts and precedents applicable to these facts, as narrated above, we are of the considered view that the primary onus is discharged by the assessee so far as the share application money received in the year under consideration. Therefore, we are not inclined to accept the contention of the Assessing Officer in any manner and hence the addition so made by assessing officer is not sustainable and therefore, we vacate the addition so made based on the evidences placed before us and hold that the addition of Rs. ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 41 47,60,000/- is unwarranted and requires to be deleted. Thus, the Ground No. 6 raised by the assessee is hereby allowed. 31. The ground no. seven in this appeal is against the disallowance of Rs. 7,34,800/-. This disallowance is for following expenses claimed by the assessee company and were disallowed on contravention of provision of section 40(a)(ia) of the Act. S.No. Party Name Nature of payment U/s Total amount 1. Shyam & Co. Contract (Cleaning & Sweeping Expenses) 194C Rs.1,00,838.00 2. Bikaner Security Services Contract (Security Contract) 194C Rs. 1,82,616.00 3. Kapil Sisodiya Contract (workshop Repair outside 194C Rs. 2,51,346.00 4. Rajendra Kumar Jain (Dausa) Rent (payment made as on 01.03.2011 for advance rent for the period from April 2011 to august 2011) 194I Rs. 2,00,000.00 Total Rs. 7,34,800.00 32. The assessee has raised this issue before the ld. CIT(A) who has granted the relief of Rs. 2,00,000/-. The relevant finding of the ld. CIT(A) is as under:- ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 42 “5.2.2. The Division Bench observed in the above mentioned case observed that introduction of Section 40(a)(ia) had achieved the objective of augmenting the TDS to a substantial extent. The Division Bench also observed that when the provisions of procedures relating to TDS are scrupulously applied, it also ensured the identification of the payees thereby confirming the network of assessees and that once the assessee are identified it would enable the tax collection machinery to bring within its fold all such persons who are liable to come within the network of tax payers. These objects also indicate the legislative intent that the requirement of deducting tax at source is mandatory. The Act does not give any leverage to the assessee to make the payment without making TDS. Therefore, I found the AO’s action of disallowing the sum on which no TDS had been made, justifiable. The appellant gets relief of Rs. 2,00,000/- on this issue and rest of addition amount to Rs. 5,34,800/- is hereby upheld accordingly, this ground is treated as partly allowed.” 33. In respect of this ground the ld. AR of the assessee relied upon the written submission filed by him as extracted here in above. He also submitted that the law has been amended by the Finance Act, 2014 with effect from 01.04.2015 so as to the provision of section 40(a)(ia) of the Act and it has been provided that 30 % of any sum payable to a resident shall be disallowed if tax is not deducted at source as against the 100 % presently made in the case. For this purpose, he has drawn our attention to the ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 43 memorandum explaining the amendment and the same is extracted here in below “the disallowance of whole the amount of expenditure results into undue hardship and therefore, in order to reduce the hardship, it is proposed that in case of non-deduction or non payment of TDS on payment made to residents as specified in section 40(a)(ia) of the Act, the disallowance shall be restricted 30 % of the amount of expenditure claimed.” 34. The ld. AR further submitted that the since the amendment made is to remove the hardship the effect is to be given to retrospective and for this contention he relied upon the decision of Honourable supreme court in the case of CIT Vs. Vatika Township P. Ltd. 109 DTR 3 where in the apex court held that if a legislation confers a benefit on some persons but without inclicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. In terms of these observation, he prayed that the addition be restricted to 30 % of Rs. 5,34,800/- (the amount sustained by CIT(A)). 35. Per contra for this ground no. 7 the ld. DR relied upon the findings of the ld. CIT(A) and stated that the assessee may be given the relief as per law. ITA No. 184/JP/2019 M/s Morani Cars Pvt. Ltd., Jaipur vs. ACIT, Circle-06, Jaipur 44 36. We have heard the rival contentions, decisions and provision of law supported in the submission made before us and order of the lower authorities. The ld. DR did not controvert the averments made by the ld. AR so as to disallow the 30 % of Rs. 5,34,800/- , he also did not filed any decision against the contentions raised before us. Thus, relying upon the decision of the apex court and amendment in the law to reduce the hardship of the assessee we direct the AO to disallow only 30 % of Rs. 5,34,800/- under the provision of section 40(a)(ia) of the Act. In terms of this observation the ground no. 7 raised by the assessee is partly allowed. In the result the appeal of the assessee is partly allowed. Order pronounced in the open Court on 26/07/2022. Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼ jkBkSM deys’k t;arHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 26/07/2022 *Ganesh Kr. vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- M/s Morani Cars Pvt. Ltd. 2. izR;FkhZ@ The Respondent- ACIT, Circle-06, Jaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur. 6. xkMZ QkbZy@ Guard File {ITA No.184/JP/2019} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar