Xerces Technologies Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 2087/PUN/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93815 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 29-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Source of fund; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE: SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO. 2087 /PN/201 3 ASSESSMENT YEAR : 20 0 8 - 09 XERCES TECHNOLOGIES PVT. LTD., A-3/101, CAMELOT, LOHEGAON, VIMAN NAGAR, PUNE-411014 VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE (APPELLANT) (RESPONDENT) PAN NO. AAACX0419K ITA NO. 2243/PN/2013 ASSESSMENT YEAR : 200 8 - 09 DY. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE VS. XERCES TECHNOLOGIES PVT. LTD., A-3/101, CAMELOT, LOHEGAON, VIMAN NAGAR, PUNE-411014 (APPELLANT) (RESPONDENT) PAN NO. AAACX0419K REVENUE BY: SHRI SANTOSH KUMAR ASSESSEE BY: SHRI PRAMOD SHINGTE DATE OF HEARING : 29-04-2015 DATE OF PRONOUNCEMENT : 10-06-2015 ORDER PER VIKAS AWASTHY, JM:- THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND REVEN UE ASSAILING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS )-III, PUNE DATED 21-10-2013 FOR THE ASSESSMENT YEAR 2008-09. 2. THE ASSESSEE IN ITS APPEAL HAS RAISED TWO GROUNDS: (I). CONFIRMATION OF THE ADDITION OF RS.40,00,702/- AS UNSECURED LOAN RECEIVED FROM ONE OF ITS DIRECTOR. 2 ITA NOS. 2087 & 2243/PN/2013, A.Y. 2008-09 (II). AD-HOC DISALLOWANCE OF RS.2,00,000/- FROM TOTAL EXPENSES O F RS.21,18,054/-. 3. THE REVENUE IN ITS APPEAL HAS RAISED THREE GROUNDS. HOWEVER, THE CRUX OF GROUNDS RAISED IS, ADMISSION OF ADDITIONAL EVIDENCE IN VIOLATION OF RULE 46A OF THE INCOME TAX RULES, 1962. 4. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN T HE BUSINESS OF SOFTWARE DEVELOPMENT. THE ASSESSEE FILED ITS RETURN OF INC OME FOR THE IMPUGNED ASSESSMENT YEAR ON 29-01-2009 DECLARING TOTAL INCOME OF RS.9,58,520/-. DURING THE COURSE OF SCRUTINY ASSESSMENT THE ASSESSING OFFICER MADE CERTAIN ADDITIONS/DISALLOWANCE IN THE INCOME RETU RNED BY THE ASSESSEE. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30-12-2010, T HE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TA X (APPEALS). BEFORE THE FIRST APPELLATE AUTHORITY THE ASSESSEE FURNISHE D CERTAIN DOCUMENTS WHICH WERE NOT PRODUCED BY HIM BEFORE THE ASSESSING O FFICER. THE COMMISSIONER OF INCOME TAX (APPEALS) IN ORDER TO COMP LY WITH THE PROVISIONS OF RULE 46A OF THE INCOME TAX RULES, SENT THE D OCUMENTS TO ASSESSING OFFICER FOR COMMENTS AND REPORT. THE ASSESSING OFFICER VIDE REMAND REPORT DATED 10-07-2013 INTER ALIA OBJECTED TO ACCEPTANCE OF FRESH EVIDENCE AT THE FIRST APPELLATE STAGE. AFTER CONSIDE RING THE COMMENTS OF THE ASSESSING OFFICER IN REMAND REPORT, SUBMIS SIONS OF THE ASSESSEE AND DOCUMENTS PLACED ON RECORD, THE COMMISSION ER OF INCOME TAX (APPEALS) PARTLY ACCEPTED THE APPEALS OF THE ASSESS EE AND DELETED THE ADDITION WITH RESPECT TO (I) DISALLOWANCE OF CONSULTANCY CH ARGES, (II) DISALLOWANCE OF DEPRECIATION, (III) TREATING OF UNSECURED CREDITO RS AS 3 ITA NOS. 2087 & 2243/PN/2013, A.Y. 2008-09 INCOME U/S. 41(1) OF THE ACT AND (IV) RESTRICTED DISALLOWANCE OF OTHER EXPENSES TO RS.2,00,000/-. THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE DISALLOWANCE OF UNSECURED LOANS RS.40,00,702/- ALLEGEDLY EXTENDED BY THE DIRECTOR OF THE ASSESSEE COMPANY. AGAINST THESE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) BOTH, THE ASSESSEE AND THE REVENUE ARE IN APPE AL BEFORE THE TRIBUNAL. 5. SHRI PRAMOD SHINGTE APPEARING ON BEHALF OF THE ASSESS EE SUBMITTED THAT SHRI XERCES MULLAN IS THE PROMOTER DIRECTO R OF THE ASSESSEE COMPANY. SINCE, THE OPERATIONS OF THE ASSESSEE COMPANY HAD JUST COMMENCED THE BANK ACCOUNT OF SHRI XERCES MULLAN W AS OPERATED LIKE A CURRENT ACCOUNT ON BEHALF OF THE ASSESSEE. FROM THE SAID BANK ACCOUNT CHEQUES WERE ISSUED ON BEHALF OF THE ASSESSEE COMPANY. THE LD. AR FURTHER SUBMITTED THAT BALANCE OUTSTANDING REPRESENT S ACCUMULATED BALANCE ON ACCOUNT OF SERIES OF TRANSACTIONS. THE LD. AR I N SUPPORT OF HIS SUBMISSIONS PLACED ON RECORD LEDGER LOAN ACCOUNT OF D IRECTOR SHRI XERCES MULLAN IN THE BOOKS OF THE ASSESSEE. THE LD. AR CO NTENDED THAT THE DIRECTOR OF THE COMPANY HAD FURNISHED CONFIRMATION LETT ER AND COPY OF PAN CARD. WITH RESPECT TO SECOND GROUND OF APPEAL TH E LD. AR CONTENDED THAT AD-HOC ADDITION OF RS.5,00,000/- WAS MADE BY THE ASSESSING OFFICER. THE COMMISSIONER OF INCOME TAX (APPEALS) H AS REDUCED THE SAME TO RS.2,00,000/-. THE ADDITION HAS BEEN MADE WITHOUT ANY BASIS. THE COMMISSIONER OF INCOME TAX (APPEALS ) OUGHT TO HAVE DELETED THE ADDITION IN THE ABSENCE OF ANY ADVERSE MATERIAL. WITH RESPECT TO THE APPEAL OF THE REVENUE THE LD. AR CONTEND ED THAT THE DOCUMENTS FURNISHED BY THE ASSESSEE BEFORE THE COMMISSIO NER OF INCOME TAX (APPEALS) WERE FORWARDED TO THE ASSESSING OFFICE R. THE 4 ITA NOS. 2087 & 2243/PN/2013, A.Y. 2008-09 COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING REMAN D REPORT DELETED THE ADDITIONS. 6. ON THE OTHER HAND SHRI SANTOSH KUMAR REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIO NER OF INCOME TAX (APPEALS) WITH RESPECT TO DISALLOWANCE OF UNSEC URED LOANS AND CONFIRMING THE DISALLOWANCE OF OTHER EXPENSES. THE LD. DR CONTENDED THAT THE DOCUMENTS FURNISHED BY THE ASSESSE E IN RESPECT OF UNSECURED LOANS OF THE DIRECTOR WERE ALL SELF SERVING DOCUM ENTS. ALTHOUGH THE ASSESSEE HAD FURNISHED THE INFORMATION OF THE PERSONS WHO HAD EXTENDED LOAN, HOWEVER, CREDITWORTHINESS OF THE DIREC TOR WAS NOT ESTABLISHED. THE DIRECTOR HAD RETURNED HIS TOTAL INCOME FO R THE ASSESSMENT YEAR 2008-09 AS RS.1,50,820/- ONLY. WHEREAS , THE ALLEGED LOAN EXTENDED BY HIM TO THE ASSESSEE IS MORE THAN RS.4 0,00,000/-. THE SOURCE FOR FUNDING LOAN AMOUNT WAS NOT ESTABLISHED. IN RESPECT OF APPEAL BY THE REVENUE THE LD. DR SUBMITT ED THAT THE ASSESSEE HAD FURNISHED CERTAIN DOCUMENTS FOR THE FIRST TIM E BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE ASSESSING OFFICER HAD GIVEN SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO SUBMIT THE DOCU MENTS IN SUPPORT OF ITS CONTENTIONS. HOWEVER, THE ASSESSEE DELIBER ATELY WITHHELD THE INFORMATION AND RELEVANT DOCUMENTS FOR THE REASON BE ST KNOWN TO IT. THE COMMISSIONER OF INCOME TAX (APPEALS) ADMITTED THE DOCU MENTS AND GRANTED RELIEF TO THE ASSESSEE IN VIOLATION OF RULE 46A OF TH E INCOME TAX RULES. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUT HORITIES BELOW. WE WILL FIRST TAKE THE APPEAL OF THE REVENUE. THE REVENUE H AS ASSAILED THE 5 ITA NOS. 2087 & 2243/PN/2013, A.Y. 2008-09 ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) ON THE GROU ND THAT THE ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE WAS ACCEPT ED WITHOUT RECORDING THE REASONS AND IN VIOLATION OF RULE 46A OF THE INCOME TAX RULES. 8. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE FOR THE FIR ST TIME HAD FURNISHED CERTAIN DOCUMENTS BEFORE THE COMMISSIONER OF INC OME TAX (APPEALS) IN SUPPORT OF ITS CLAIM. THE ASSESSEE OUGHT TO H AVE FURNISHED SAID DOCUMENTS AT THE FIRST INSTANCE BEFORE THE ASSESSING OFFICER. HOWEVER, THE COMMISSIONER OF INCOME TAX (APPEALS) FORWARDED THE ENTIRE SET OF DOCUMENTS FURNISHED BY THE ASSESSEE TO THE ASSE SSING OFFICER FOR HIS COMMENTS. THE ASSESSING OFFICER FILED REMAND REPORT DAT ED 10-07-2013 AFTER EXAMINING THE DOCUMENTS. THUS, THE COM MISSIONER OF INCOME TAX (APPEALS) HAD GRANTED REASONABLE OPPORTUNITY TO THE ASSESSING OFFICER TO EXAMINE THE DOCUMENTS PRODUCED BY T HE ASSESSEE BEFORE HIM. THUS, THE CONTENTION OF THE REVENUE THAT THE PROVISIONS OF RULE 46A HAVE BEEN VIOLATED IS NOT ACCEPTED. THEREFORE, THE APPEAL O F THE REVENUE IS DISMISSED BEING DEVOID OF MERIT. 9. NOW, WE PROCEED TO DECIDE THE ISSUE RAISED IN APPEAL OF THE ASSESSEE. THE FIRST GROUND OF APPEAL IS WITH RESPECT TO D ISALLOWANCE OF RS.40,00,702/- IN RESPECT OF UNSECURED LOAN FROM THE DIRECT OR OF THE COMPANY. THE COMMISSIONER OF INCOME TAX (APPEALS) REJECTE D THE CONTENTIONS OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS: IT IS SETTLED POSITION OF LAW THAT TO ACCEPT A CREDIT AS GENUINE, THE ASSESSEE HAS TO NECESSARILY ESTABLISH THE IDENTITY O F THE PERSON, GENUINENESS OF THE TRANSACTION AND CREDITWORTHINESS OF THE PERSON. IN THE PRESENT CASE, THE DOCUMENTARY EVIDENCE ADDUCED ESTABLISHES THE IDENTITY OF THE PERSON. HOWEVER, MERELY BECAUSE A C REDITOR HAS BEEN IDENTIFIED, IT IS NOT ENOUGH TO SHOW THAT THE O NUS PLACED ON THE 6 ITA NOS. 2087 & 2243/PN/2013, A.Y. 2008-09 APPELLANT IS DISCHARGED. WHAT IS FURTHER REQUIRED IS SUFFICIENT EVIDENCE TO SHOW THE CREDITWORTHINESS OF THE CREDITOR S AND GENUINENESS OF LOANS. THE COPY OF THE RETURN OF INCOM E FILED SHOWS THAT THE CREDITOR HAS RETURNED A MERE TOTAL INCOME O F RS.1,50,820/- FOR THE A.Y. 2008-09 WHILE THE CREDIT BALANCE SHOWN TO BE OUTSTANDING IN HIS NAME IS RS.40,00,702/-. AS PER THE LE DGER A/C EXTRACT FURNISHED, THE ENTIRE EXPENDITURE IS INCURRE D DURING THE YEAR ITSELF. THE APPELLANT HAS ALSO NOT FURNISHED THE BANK A CCOUNT EXTRACT OF THE SAID PERSON FROM WHOM THE EXPENDITURE IS CLA IMED TO BE INCURRED NOR THE CAPITAL ACCOUNT OR BALANCE SHEET TO SHOW HIS FINANCIAL CAPACITY TO LEND MONEY TO THE EXTENT BEING CL AIMED. THUS, EVEN THOUGH THE CREDITOR IN QUESTION HAPPENS TO BE A DIRECTOR OF THE COMPANY AND HIS IDENTITY STANDS ESTABLISHED, THE APPELL ANT HAS FAILED TO PROVE THE CREDITWORTHINESS OF THE CREDITOR TO ADVANCE MONEY TO THE APPELLANT TO THE EXTENT BEING CLAIMED WITH COGE NT EVIDENCE. IN THE CIRCUMSTANCES, IT WOULD APPEAR THAT THE UNDISCLOSED INCOME OF THE APPELLANT WAS INTRODUCED IN THE NAME OF THE SAID PERSON. AT THIS JUNCTURE, REFERENCE CAN BE MADE TO THE FOLLOWING DECI SION OF CALCUTTA HIGH COURT. CIT VS. PRECISION FINANCE LIMITED 208 ITR 465 (CAL) IT IS FOR THE ASSESSEE TO PROVE THE IDENTITY OF THE C REDITORS, THEIR CREDITWORTHINESS AND THE GENUINENESS OF THE TRANSAC TIONS. MERE FURNISHING OF THE PARTICULARS IS NOT ENOUGH. MERE P AYMENT BY ACCOUNT PAYEE CHEQUE IS NOT SACROSANCT NOT CAN IT MA KE A NON- GENUINE TRANSACTION GENUINE. 10. BEFORE US THE ASSESSEE HAS FILED LOAN ACCOUNT OF THE DIRECTOR IN THE BOOKS OF THE ASSESSEE COMPANY. HOWEVER, THE QUESTION R AISED BY THE COMMISSIONER OF INCOME TAX (APPEALS) REGARDING THE SOURCE OF FUNDING THE ASSESSEE COMPANY REMAINED UNANSWERED. THE COMMISS IONER OF INCOME TAX (APPEALS) HAD RAISED A VERY VALID DOUBT, THAT IS , IF THE DIRECTOR HAS RETURNED HIS INCOME OF RS.1,50,820/- IN THE AS SESSMENT YEAR 2008-09, HOW HE CAN EXTEND LOAN OF RS.40,00,702/- TO THE ASSESSEE COMPANY. THE LD. AR HAS NOT BEEN ABLE TO PLACE ON RECORD FOR ANY COGENT 7 ITA NOS. 2087 & 2243/PN/2013, A.Y. 2008-09 EVIDENCE IN THE FORM OF BANK STATEMENT, STATEMENT OF ASSE T AND LIABILITY OF THE ASSESSEE ETC. TO DISPEL THE SHADOW OF DOUBTS. IT IS A WELL ACCEPTED PRINCIPLE THAT TO ACCEPT A CREDIT AS GENUINE ALL THE THREE CONDITIONS I.E. IDENTITY OF PERSON WHO HAS ACCEPTED THE LOAN, GENUINENESS OF TRANSACTION AND CREDITWORTHINESS OF THE PERSON EXTENDING LOAN HAS TO BE SATISFIED. IF ANY OF THE AFORESAID CONDITIONS ARE ABSENT THE LOAN TRANS ACTION COMES UNDER CLOUD. IN THE PRESENT CASE THE ASSESSEE HAS NO T BEEN ABLE TO ESTABLISH THE CREDITWORTHINESS OF THE DIRECTOR OF THE COMP ANY WHO HAS PURPORTEDLY EXTENDED LOAN. WE CONCUR WITH THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. ACCORDIN GLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 11. THE SECOND GROUND RAISED BY THE ASSESSEE IS WITH RESPECT T O AD-HOC DISALLOWANCE OF RS.2,00,000/- UNDER THE HEAD OTHER EXPEN SES. THE ASSESSEE HAS CLAIMED CERTAIN EXPENSES TOTAL AMOUNTING TO RS.21,18,054/-. THE DETAILS OF THE SAME ARE AS UNDER: TRAVELLING EXPENSES : RS.9,57,869/- TELEPHONE EXPENSES : RS.3,04,604/- OFFICE EXPENSES : RS.6,55,415/- BUSINESS PROMOTION EXPENSES : RS.2,00,166/- TOTAL : RS.21,18,054/- IN THE ABSENCE OF DETAILS OF EXPENDITURE, THE ASSESSING OFFIC ER MADE AD-HOC DISALLOWANCE OF RS.5,00,000/-. IN THE FIRST AP PEAL THE COMMISSIONER OF INCOME TAX (APPEALS) EXAMINED EACH AND EV ERY EXPENDITURE AND THEREAFTER, REDUCED THE DISALLOWANCE TO R S.2,00,000/-. WE DO NOT FIND ANY INFIRMITY WITH THE FINDINGS OF THE COMMISSIO NER OF INCOME TAX (APPEALS). ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALSO DISMISSED. 8 ITA NOS. 2087 & 2243/PN/2013, A.Y. 2008-09 12. IN THE RESULT, THE APPEAL OF THE REVENUE, AS WELL AS, AS SESSEE ARE DISMISSED BEING DEVOID OF MERIT. ORDER PRONOUNCED ON WEDNESDAY, THE 10 TH DAY OF JUNE, 2015 AT PUNE SD/- SD/- (R.K. PANDA) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 10 TH JUNE, 2015 RK/PS COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - III, PUNE 4 THE CIT - IV, PUNE 5 6 THE DR, ITAT, B BENCH, PUNE. GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE