Wapmerr Consultancy & Financial Services P.Ltd, New Delhi V. ITO, Ward-27(2), New Delhi

ITA 2819/DEL/2022

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 1090 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: H
• Next Hearing Date: 26-06-2024
• Assessment Year: 2013-2014
• Appeal Filed On: 29-11-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MUSHTAQ AHMAD MIR
• Keywords: Unexplained cash credit; TDS
• Section: 68; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘H’ BENCH, NEW DELHI BEFORE SHRI CHELLA NAGENDRA PRASAD, JUDICIAL MEMBER, AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 2819/DEL/2022 [A.Y 2013-14] M/s Wapmerr Consultancy & Financial Vs. The I.T.O Services, Khijrabad, Ward - 27(2) New Friends Colony, New Delhi New Delhi PAN: AAACW 9526 G (Applicant) (Respondent) Assessee By : Shri Mushtaq Ahmad Mir, CA Department By : Shri Amit Katoch, Sr. DR Date of Hearing : 27.06.2024 Date of Pronouncement : 05.07.2024 ORDER PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:- This appeal by the assessee is preferred against the order of the ld. CIT(A) -8, Delhi – 9 dated13.12.2019 pertaining to A.Y 2013-14. 2 2. The grievances of the assessee read as under: Ground No.1 The Ld. CIT(Appeals) has erred in law and facts by confirming the erroneous order of the Assessing officer on the facts and in the law . On the facts and in the circumstances of the case he ought to have accepted the returned income. Ground No.2 The Ld. CIT(Appeals) has erred in law by confirming the disallowance of 50% of the expenses of Business Promotion on the plea that proper details were not filed. On the facts and in the circumstances of the case he ought to have accepted the whole expenditure as sufficient evidences like in the form of copies of bills and vouchers were produced. Ground 0.3 The Ld. CIT(Appeals) has erred in law and facts by confirming disallowance on account of amount of TDS ofRs.3,861/=. Gr ound 0.4 The Ld CIT(Appeals) is not justified in treating the issue of share capital against the accumulated credit balances over the years of the promoter Director as unexplained credit under section 68 and not considering the details along with confirmations and bank 3 details of the said Directors. other details are given in attachment . Ground 0.5 The Ld. CIT(Appeals) had wrongly charged interest u/s 234B at Rs. 10,22,400/-.” Ground 0.6 The assessee reserves the right to add, alter, delete, amend the grounds of appeal. Ground 0.7 Any other ground or grounds as may be urged at the time of hearing.” 3. Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules. 4. The assessee has filed an application for condonation of delay of 1020 days on the ground that the directors of the assessee are from Jammu and Kashmir and there was a communication gap between Delhi 4 and Srinagar and subsequently, due to Covid and closure of the country and business. The ld. counsel for the assessee relied upon the decision of the ITAT Ahmadabad Bench in the case of Saraswati Trust Vs. CIT Exemption in which 671 days were condoned. 5. We have heard the rival submissions and have perused the relevant material on record. The present appeal is late by 1020 days. Finding the reasons mentioned in the application for condonation of delay to be reasonable, the delay is condoned. 6. Ground Nos. 1 and 3 have not been pressed. The same are dismissed as not pressed. 7. Ground No. 2 pertains to the confirmation of disallowance of 50% of the expenses of Business Promotion. 8. Brief facts relating to this issue are that the Assessing Officer observed that the assessee company had claimed business promotion expenses of Rs. 2,80,269/-. The assessee was asked to justify the expenses with proper details. In response, the assessee filed some bills 5 but without names and address and to whom the payments were made. In the absence of proper detail the Assessing Officer disallowed 50% business promotion expenses. Accordingly, addition of Rs. 1,40,135/- was added to the income of the assessee. 9. Aggrieved, the assessee went in appeal before the ld. CIT(A) who was of the view that the assessee has furnished only part details and in some vouchers it was written ‘cash’. The ld. CIT(A) also found that the assessee was provided with several opportunities which the assessee failed to avail. In the absence of cogent evidences, the ld. CIT(A) confirmed the addition so made by the Assessing Officer. 10. Aggrieved, the assessee is in appeal before us and reiterated what has been stated before the lower authorities. The assessee ld. counsel for the assessee further contended that the disallowance is without any justification and result of guess work. The amounts paid in cash in small amounts are usual in the course of business and reasonable. 11. On the other hand, the ld. DR relied on the orders of the authorities below. 6 12. We have heard the rival submissions and have perused the relevant material on record. There is no dispute that the assessee has submitted some bills and cash vouchers for expenses made. In the ordinary course of business, small amounts of cash being paid is normal. In our considered opinion, once the income has been accepted, legitimate expenses incurred by the assessee in earning income have to be allowed. The Assessing Officer has made disallowance stating absence of proper details without elaborating the details required. We, therefore, do not find any justification in the disallowance made by the Assessing Officer and sustained by the ld. CIT(A). Ground No. 2 is allowed. 13. Ground No. 4 relates to the unexplained credit u/s 68 of the Act amounting to Rs. 91 lakhs. 14. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has issued share capital of Rs. 91 lakhs @ Rs. 10/- per share during the year under consideration. The assessee was asked to substantiate the genuineness of share capital received.In response, the directors of the assessee company replied that the share capital is merely conversion of current account balance of directors to 7 share capital. The Assessing Officer was not convinced and added the same u/s 68 of the Act. 15. In appeal, the ld. CIT(A) concluded that mere filing of papers in support of the transaction cannot be termed as genuine transactions. Accordingly, the ld. CIT(A) confirmed the action of the Assessing Officer. 16. Aggrieved, the assessee is in appeal before us. 17. Before us, the ld. counsel for the assessee vehemently stated that the directors of the company have converted their credit balances of their current account with the company, toward the share capital of the company. Each director has converted an amount of 45,50,000/- and against which shares were allott ed to the directors. Out of total share capital amounting to Rs. 91 lakhs, Rs. 40,85,355/- was standing against Mr. Ishfaq Mir, director of the company and an amount of Rs. 39,45,362/- against Mr. Mohd Iqbal Bhat, another director of the company as on 31.03.2012. The balance of Rs. 10,69,283/- was paid by two directors towards the various expenses of the company during the year under consideration. 8 18. Further the ld counsel of the assessee submitted that due to scarcity of the funds in the company, the directors/shareholders of the assessee had been incurring the expenses on behalf of the company. The expenses were made by Directors through cash or thorough their bank account and these payments stood to credit of the directors/shareholders of the assessee over the years. Subsequently, the accumulated credit was adjusted against the consideration for the share capital issued. 19. The ld. counsel for the assessee further contended that after examining the above referred reply , the Assessing Officer has himself noted that during the assessment year under consideration that the assessee had received not cash or bank consideration towards issuance of the shares but the assessee has received consideration on account of credit balance of current account w ith directors. 20. The ld. counsel for the assessee further submitted that an amount Rs .80,30,717/- is the opening balance for the year as per Balance Sheet and Ledger Accounts, which has been converted into share capital and balance of Rs. 10,69,283/ - is the capital introduced during the year in smaller amounts in the nature of various expenses of the company. 9 Hence, the addition is bad in law, therefore, liable to be deleted. 21. Per contra, the ld. DR vehemently contended that there is no evidence that the opening balance has been converted into share capital. Section 68 of the Act is applicable on the facts of the present case as there is credit in the books in the nature of share capital. 22. We have heard the rival submissions and have perused the relevant material on record. After careful consideration of the facts and submissions, we are of the considered view that the addition made by the Assessing Officer is unjustified and without any legal basis. An examination of the balance sheets and ledger accounts of the company with both the directors of the company shows that there was opening balance of Rs. 80,30,717/- as on 31.03.2012 which was converted into share capital. The balance amount of Rs. 10,69,283/- is the capital introduced by both the directors during the years in smaller amounts in the nature of various expense of the company. 10 23. We also note that the Assessing Officer has raised no doubts regarding the veracity of the ledger accounts. Conversion of opening balance of current account of the directors with the company into share capital in the name of the directors is legal and valid. We therefore are of the considered opinion that the assessee has explained the sources of capital introduced in its books. If the Assessing Officer had doubts about the veracity about the credit worthiness of the directors, it was incumbent upon him to take action against the directors of the company. As far as the assessee company is concerned, it has discharged its onus of substantiating the credit in its books of account. 24. We also find that the judgments relied upon by the Assessing Officer are quite distinguishable from the facts of the case in hand. Therefore, we direct the Assessing Officer to delete the addition of Rs. 91 lakhs. Ground No. 4 is allowed. 25. Ground Nos. 5, 6, and 7 are consequential in nature and therefore left undetermined. 11 26. In the result, the appeal of the assessee in ITA No. 2819/DEL/2022 is allowed in part. The order is pronounced in the open court on 05.07.2024. Sd/- Sd/- [CHALLA NAGENDRA PRASAD] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 05 th JULY, 2024. VL/ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) Asst. Registrar, 5. DR ITAT, New Delhi 12 Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr.PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr.PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order