Deputy Commissioner of Income Tax, Central Circle - 4(3), Mumbai V. M/s Lush Hotels And Entertainment Limited, Mumbai

ITA 2700/MUM/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 7336 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 30-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Depreciation; Source of fund; Rule 8D
• Section: 142(1); 14A; 143(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE S. RIFAUR RAHMAN, AM AND SHRI AMARJIT SINGH, JM आयकर अपील सं/ I.T.A. No. 2700/Mum/2019 (निर्धारण वर्ा / Assessment Year: 2013-14) DCIT, Central Circle-4(3) Room No.1921, 19 th Floor, Air India Building, Nariman Point, Mumbai-400021. बिधम/ Vs. M/s. Lush Hotels & Entertainment Ltd. (M/s. Lush Hospitality Ltd.) 10, Homi Modi Street, 2 nd Floor, Above Kapal Bank, Fort, Mumbai-400023. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AABCL2464P (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) सुनवाई की तारीख / Date of Hearing: 13/01/2022 घोषणा की तारीख /Date of Pronouncement: 09/03/2022 आदेश / O R D E R PER AMARJIT SINGH, JM: The revenue has filed the present appeal against the order dated 15.02.2019 passed by the Commissioner of Income Tax (Appeals) -02, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2013- 14. 2. The revenue has raised the following grounds: - “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition made by the Assessing Officer on account of share application money received from M/s. Third Eye Infrastructure Ltd. in spite of the fact that it had no taxable income and filed its return of income at Rs. Nil for the same Assessment Year. Assessee by: Shri N. R. Agrawal Revenue by: Shri Mehul Jain (Sr. AR) ITA No. 2700/Mum/2019 A.Y.2013-14 2 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition without appreciating the facts that the parties from whom M/s. TEIL had received funds were not having creditworthiness vis-a-vis the amount paid to M/s. TEIL by them respectively. 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition made by the Assessing Officer on account of depreciation on cars in spite of the fact that assessee could not prove the vehicles were used exclusively for business purposes.” 3. The brief facts of the case are that the assessee filed its return of income on 02.09.2013 declaring total loss to the tune of Rs.19,59,021/-. The return was processed u/s 143(1) of the I. T. Act, 1961. The case was selected for scrutiny. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee company was dealing in shares and securities as investment and trading similar as to mutual funds, FFI who invest in private equity funds. On perusal of the balance-sheet for A.Y.2013-14, it was observed that the trade payable increased amounting to Rs.8,77,30,000/-(220930000 – 133200000). An amount of Rs.8,77,30,000/- was increased on account of share application money under the head trade payable. The details of trade payables are as under: - Name of the applicant Op. Balance as on 1.4.2012 Recd. During the year Paid during the year Closing balance as on 31.3.2013 Om energy Ltd 4,39,50,000.00 - 8,00,000 4,31,50,000/- Third Eye Infrastructure Ltd 8,92,50,000.00 8,88,10,000.00 2,80,000 17,77,80,000 13,32,00,000.00 8,88,10,000.00 10,80,000.00 22,09,30,000.00 ITA No. 2700/Mum/2019 A.Y.2013-14 3 It was observed that an amount of Rs.8,8810,000/- as share application money was received from M/s. Third Eye Infrastructure Limited during the year under consideration. The notice was issued and after the reply of the assessee, The AO treated the same as un-genuine and raised the addition u/s 68 of the Act as unexplained cash credit. After some disallowance u/s 14A r.w. Rule 8D and disallowance of depreciation, the AO assessed the income to the tune of Rs.8,93,01,445/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who partly allowed the claim of the assessee but the revenue was not satisfied on the grounds mentioned above, therefore, the revenue has filed the present appeal before us. ISSUE NOs.1 & 2 4. We have heard the argument advanced by the Ld. Representative of the parties and perused the record. The Ld. Representative of the revenue has argued that the M/s. Third Eye Infrastructure Limited filed its return of income at Rs. Nil for the assessment year in question, therefore, the receipt of share application money from this company was nowhere genuine but the CIT(A) has wrongly allowed the claim of the assessee, therefore, the finding of the CIT(A) is not justifiable, hence, the same is liable to be set aside. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deem it necessary to advert the finding of the CIT(A) on this issue: - “5. I have gone through AO‟s order, submission and details filed by the appellant. I find that the appellant company has received an amount of Rs.888,10,000/- from M/s. TEL, through banking channel, ITA No. 2700/Mum/2019 A.Y.2013-14 4 on various dates during the year. M/s. TEIL is an existing share holder of the appellant company, as per its balance sheet. The details of investment along with confirmation, as called for by the AO, was furnished by the appellant company vide letter dated 21.12.2015. It was submitted before the AO that the said amount was received as share application money by way of cheque, the transaction was genuine and identity was proved since TEIL is a registered company. The PAN, balance sheet and confirmation from M/s TEIL was also filed in the course of assessment proceedings along with a reply submitted on 29.02.2016. As regards the details of transaction, it has been submitted by M/s TEIL, before the AO, that Lush Hospitality Ltd. was not a related party, share application forms were pending as share premium was yet to be finalized by the Board of the two companies, sources of funds and copy of income return for A.Y. 2013- 14 along with balance sheet was also submitted. 5.1. The AO has not accepted the said receipts as explained for the following reasons; i. The assessee as well as TEIL have failed to furnish documentary proof in respect of share application money such as copies of share application form, public offer letter and other documentary proof. ii. The explanation of the assessee as well as of TEIL that the source of share application money are from sale of investment/ sale of shares, sale of flat and refund of advances etc. was not found tenable since the investor, TEIL had failed to furnish copy of computation of total income and the sale of flat at Ireo Pvt. Ltd. is not reflected in the schedule of fixed assets. ITA No. 2700/Mum/2019 A.Y.2013-14 5 (iii) As regards refund of advance, it was observed that short term loans and advances have increased. Therefore, the AO has treated the said investment as unexplained cash credit and has made an addition of Rs. 888,10,000/-. 5.2 . I find that the appellant has furnished the confirmation, evidence regarding receipt of the funds from M/s TEIL through banking channel, cknowledgement of income tax return and balance sheet of M/s TEIL. purther, it is observed that the appellant has also furnished confirmations in respect of the source of funds in the hands of the M/s TEIL. The details regarding the source of funds in the hands of M/s TEIL and their confirmation have been examined „by the AO in the remand proceedings and no adverse comment has been made in the remand report received in this office on 20.12.2018. As regards, the various contentions of the AO for not i accepting the said receipts as explained, the explanation filed by the appellant and by the creditor, M/s.TEIL, is found to be satisfactory since the income on account of tol F sale of shares has been duly reflected in the Profit & Loss Account of of M /s.TEIL the amount shown to have been received on account of sale of flat flat by M/s. TEIL was the receipt/refund of advances paid in 2010 against purchase of flat and returned in 2012. 5.3 . In view of the above, I find that the appellant has verified the genuineness of the cash credits, the identity of and the capability to pay of the creditor. Although the appellant has submitted that verification of source of source is neither permissible nor required, I find that this contention is not acceptable in view of the proviso to Sec.68 inserted w.e.f. 01.04.2013 which requires the explanation not only of the appellant company but also of the creditor company. However, I find that in the present case, the appellant has becn able ITA No. 2700/Mum/2019 A.Y.2013-14 6 to verify the source of the cash credits as well as the source of source, by verifying the source of funds in the hands of M/s.TEIL. In view of the above discussion, the addition of Rs.888,10,000/on account of unexplained cash credit u/s.68 is not found to be justified and is hereby deleted. Ground No.1 is allowed.” 5. On appraisal of the above mentioned finding, we find that the assessee received an amount of Rs.888,10,000/- from M/s. Third Eye Infrastructure Limited through banking channel on various dates of year under consideration. The M/s. Third Eye Infrastructure Limited was the existing share-holder of assessee company. The amount was received as share application money by way of cheque. The transaction was found genuine and identity of TEIL was proved since TEIL was registered company. The PAN, balance-sheet and confirmation from M/s. TEIL was produced. The details regarding source of funds in the hands of TEIL and confirmation was also examined by AO during the remand proceeding. No adverse comment was made. The income on account of share has been duly reflected in the profit and loss account of M/s. TEIL. Identity creditworthiness and genuineness was examined by CIT(A) at length by considering the remand report and other document produced before him. Source of source has also been proved, we nowhere found any illegality and infirmity in the finding of the CIT(A), therefore, we affirm the finding of the CIT(A) on these issues and decide these issued in favour of the assessee against the revenue. ISSUE NO.3 ITA No. 2700/Mum/2019 A.Y.2013-14 7 6. Under this issue the revenue has challenged the allowance of claim of depreciation of Rs.4,66,017/-. Before going further, we deem it necessary to advert the finding of the CIT(A) on this issue: - “7.2 The AO has made the disallowance of entire depreciation claimed of Rs.10,12,554/- in respect of cars owned by the company on the grounds that the assessee did not furnish documentary evidence to prove that the cars were used for business purpose. I find that the cars are owned by the company and it has been stated the same has been used for the business purpose by the directors. In view of the decisions, cited by the appellant in para 7.1. above, I do not find any merit in the addition made by the AO. Accordingly, the addition of Rs.14,36,331/- made by the AO (although the correct amount should have been Rs.10,12,554/-) is deleted. This ground is allowed.” 7. The AO rejected the documentary evidence to prove the claim of the depreciation which was allowed on the basis of this fact that the cars were owned by company and used for business purpose by the directors. The explanation given by assessee was reproduced in para 7.1 of the CIT(A) order. The claim seems justifiable, therefore, we are of the view that the finding of the CIT(A) is quite correct which is not liable to be interfered with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue. ITA No. 2700/Mum/2019 A.Y.2013-14 8 7. In the result, the appeal filed by the revenue is hereby dismissed. Order pronounced in the open court on 09/03/2022 Sd/- Sd/- (S. RIFAUR RAHMAN) (AMARJIT SINGH लेखध सदस्य / ACCOUNTANT MEMBER न्यधनिक सदस्य/JUDICIAL MEMBER मुंबई Mumbai; ददनांक Dated : 09/03/2022 Vijay Pal Singh (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधिक िंजीकधर /(Dy./Asstt. Registrar) आिकर अिीलीि अनर्करण, मुंबई / ITAT, Mumbai