ITO 3(3)(4), MUMBAI V. WATER SYSTEMS INDIA P.LTD, MUMBAI

ITA 3174/MUM/2017

AI Insights

The case involves an appeal by the Revenue against the order of the Ld. CIT(A) which had deleted an addition of Rs.5,18,21,000 made under section 68 of the Income Tax Act, 1961. The addition was initially made by the Assessing Officer (AO) who suspected that the assessee company, M/s. Watermark Systems (I) Pvt. Ltd., was a beneficiary of accommodation entries from M/s. Basant Marketing Pvt. Ltd. (BMPL). The Ld. CIT(A) found that the assessee had substantiated the transaction with sufficient evidence, including loan confirmations and bank statements, and noted that similar issues had been resolved in favor of the assessee in previous assessment years. The Tribunal agreed with the Ld. CIT(A)'s decision, emphasizing the credibility of the documents and the financial standing of BMPL. Additionally, the Tribunal addressed a separate issue regarding disallowance under section 14A r.w. Rule 8D, where it upheld part of the disallowance related to demat charges but deleted the rest.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125742 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 20-02-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 01-05-2017
• Other Referred Cases: Jaikishan Dadiani vs ITO 4 SOT 138 (MUM), M/s Daga Global Chemicals Pvt. Ltd, M/s Basant Marketing Private Limited
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rule 8D
• Section: 68; 10; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM AND SHRI GAGAN GOYAL, AM आयकर अपील सं/ I.T.A. No.3174/Mum/2017 (निर्धारण वर्ा / Assessment Year: 2012-13) The Income Tax Officer- 3(3)(4) Room No. 672, 6 th Floor, Aayakar Bhavan, Mumbai- 400020. बिधम/ Vs. M/s. Watermark Systems (I) Pvt. Ltd. 112, B- Mittal Court, Nariman Point, Mumbai- 400021. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AAACW5751H (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) सुनवाई की तारीख / Date of Hearing: 21/02/2023 घोषणा की तारीख /Date of Pronouncement: 10/04/2023 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the Revenue against the order of the Ld. CIT(A)-08, Mumbai dated 28.01.2017 for AY. 2012-13. 2. The ground no. 1 of the appeal of the revenue is against the action of the Ld. CIT(A) deleting the addition of Rs.5,18,21,000/- made u/s 68 of the Income Tax Act, 1961 (hereinafter “the Act”). 3. Brief facts as noted by the AO are that the assessee had filed return of income on 30.09.2012 declaring total income at Rs.8,03,190/. Later, the case was selected for scrutiny. During the assessment proceedings, the AO noted that the assessee company is controlled by Shri Arun Dalmia and Shri Harsh Dalmia and they have floated several companies/concerns and the assessee company was one among them. The AO noted from a perusal of the copy of accounts of M/s. Basant Marketing Pvt. Ltd. (hereinafter “M/s. Basant/BMPL”) in the Assessee by: Shri A. K. Tibrewal/Saurabh Gupta Revenue by: Smt. Riddhi Mishra (CIT- DR) Smt. Mahita Nair (Sr. AR) ITA No.3174/Mum/2017 A.Y. 2012-13 M/s. Watermark System India P. Ltd. 2 assessee’s books of accounts and noted that during the year, there is brought forward credit balance of Rs.1,54,98,600/- and credit during the year of Rs.5,18,21,000/-. So the AO assumed that the assessee company is a beneficiary of the accommodation entries provided by M/s. Basant because, M/s. Basant appears as a creditors to the tune of Rs.4,55,24,100/- as on 31.03.2012. He confronted the assessee to prove the credit entries from M/s. Basant and pursuant to which the assessee stated that this was unsecured loan from M/s. Basant. According to the AO, the assessee failed to furnish satisfactory explanation regarding these credits and citing some enquiries conducted by CBI Authorities and Income Tax Department in the case of M/s. Basant/BMPL he drew adverse view against this transaction of assessee with M/s. Basant/BMPL. Therefore, he added u/s 68 of the Act Rs.5,18,21,000/-. Aggrieved, the assessee filed an appeal before the Ld. CIT(A) who was pleased to delete the same by holding as under: - “5.1.1 This ground relates to addition of Rs. 5,18,21,000/- u/s. 68, being loan taken by the appellant from a sister concern, M/s Basant Marketing Pvt Ltd. (BMPL). The Assessing Officer has discussed this at para 5 of his order. Similar addition, under similar facts and circumstances were made in the appellant's case for AY 2008-09 and decided ‘by me in Appeal No: CIT(A)-8/IT-407/14-15 vide order dated 25/8/2016 with the following remarks: — “7.3.6 The facts of the instant case have to be viewed in accordance with the ratio of the judgements cited above. As already mentioned, the Assessing Officer has not ITA No.3174/Mum/2017 A.Y. 2012-13 M/s. Watermark System India P. Ltd. 3 disputed the identity of the creditors, BMPL. He has also stated in the remand report that BMPL had received huge inflow of funds, which is supported by its bank statements. Assessing Office has also stated that these funds were received by BMPL through cheques, RTGS etc. and the appellant company was given loan ‘out of these funds. Most importantly, the Assessing Officer himself observed that the transactions though supported by proper evidence, “appears to be part of said bogus billing activity.” 7.3.7 It is noted that Commissioner of income Tax(A)-20, Kolkata, in his order for assessment year 2010-117 in the case of M/s Basant Marketing Private Limited has held BMPL as not fake or bogus. This fact is also not disputed by the Assessing Officer in his remand report. 7.3.8 Thus, it is seen that the identity of BMPL is established beyond doubt. It is also not disputed that BMPL had sufficient funds in its own books of accounts and reflected in bank statements, which establishes its creditworthiness. The appellant is not required to establish source of source as held in Jaikishan Dadiani vs ITO 4 SOT 138 (MUM). The appellant had offered explanation to the Assessing Officer but had not been able to submit all documentary evidences because the same were in custody of CBI. As already quoted above, in the appeal in the case of BMPL for AY 2010-11, the Id. CIT(A) 20, Kolkata had categorically observed that there is no material on record to back the finding that BMPL was involved in providing accommodation entry. The finding of fact of CIT(A) in that case has been accepted by the Department by not going in appeal against it. Thus, the genuineness of the transaction itself has been accepted by the Department. ITA No.3174/Mum/2017 A.Y. 2012-13 M/s. Watermark System India P. Ltd. 4 7.3.9 In view of the ratio of decisions cited above, facts and circumstances of the case as discussed and after giving due consideration to the observations of the Assessing Officer in his remand report, I do not find merit in the action of the Assessing Officer in making addition of Rs. 4,35,69,600/- u/s. 68 of the Act and the same is, therefore, deleted. These grounds of appeal are allowed.” 5.1.2 In the instant case, the Assessing Officer has treated the impugned credit balance of BMPL as “accommodation entry” and added the same u/s. 68, essentially being influenced by the background of the case. He has not brought forth any finding of fact to establish applicability of section 68 in the instant assessment order. All the relevant facts and circumstances of the creditor, BMPL was examined in the course of appeal proceedings for AY 2008-09 and was also subject of remand proceedings. Since there is no change in the nature of facts or status of BMPL, the above quoted decision in appellant's own appeal for AY 2008-09 applies fully to the instant ground of appeal. Accordingly, addition Rs. 5,18,21,000/- u/s. 68 is deleted. This ground is allowed. 5.2 Ground No. 2 5.2.1 This ground relates to disallowance of Rs. 2,37,991/- u/s 14A r.w. Rule 8D. The Assessing Officer has discussed this at para 6 of his order. Similar disallowance, under similar facts and circumstances were made in the appellant's case for AY 2008-09 and decided by me in Appeal No: CIT(A)-8/IT-407/14-15 vide order dated 25/8/2016 Disallowance u/s 14A r.w. Rule 8D(2)(ii) & iii were deleted. Disallowance u/s 8D(2)(iii) were upheld with the following remarks: ITA No.3174/Mum/2017 A.Y. 2012-13 M/s. Watermark System India P. Ltd. 5 However, in view w of the decision of Hon'ble ITAT in M/s Daga Global Chemicals Pvt. Ltd (supra), disallowance made u/s 14A r.w. Rule 8D(2)(i) in respect of demat charges é and STT is upheld to the extent it pertains to shares from which tax “exempt dividend has been earned during the year. Accordingly, Assessing Officer is directed to re-compute the disallowance of Rs. 3,66,134/- made under Rule 8D(2)(i) and restricted to the amount attributable to earning of income deemed as exempt u/s. 10 of the Act. This ground of appeal is partly allowed.” 4. Aggrieved by the aforesaid action of the Ld. CIT(A), the Revenue is before us. 5. We have heard both the parties and perused the records. We note that the assessee company has received unsecured loan of Rs.5,18,21,000/- from M/s. Basant/BMPL as on 31.03.2012. The fact of the assessee receiving this amount as loan from M/s. Basant/M/s. BMPL has been substantiated by the assessee by filing the loan confirmation from M/s. Basant/BMPL which is found placed at page no. 55 of PB. The assessee has also filed the following documents to prove the genuineness of the loan transaction: (i) A copy of loan confirmation from M/s. BMPL (ii) A copy of account statement of the assessee company in the books of account of M/s. BMPL (iii) A copy of bank statement of M/s. BMPL showing the transactions entered with the assessee company (iv) A copy of loan confirmation by the assessee company to M/s. BMPL ITA No.3174/Mum/2017 A.Y. 2012-13 M/s. Watermark System India P. Ltd. 6 (v) A copy of account statement of M/s. BMPL in the books of account of the assessee company (vi) A copy of bank statement of the assessee company showing the transactions with M/s. BMPL (vii) A copy of audited balance sheet of M/s. BMPL for FY 2011-12 (viii) A copy of income tax return for AY. 2012-12 (ix) A copy of share transfer form and supporting documents for transfer of shares of Avani Super Pvt. Ltd. by M/s. BMPL to the assessee company of Rs.4.30 crores. 6. In the light of the aforesaid documents and also the crucial facts that in the case of the lender/creditor i.e. M/s. BMPL (Basant), it is noted to have undergone scrutiny assessment for AY. 2012-13 vide order dated 27.03.2015 which order is found placed at page no. 16 to 19 of PB, wherein we find that returned income of M/s. Basant/M/s. BMPL has been accepted by the AO (ITO, Ward-8(1) Kolkata). And it has been brought to our notice that the letter written by AO of M/s. Basant Marketing Pvt. Ltd (M/s. BMPL) dated 23.02.2016 to the AO of assessee company informing about a fact that for AY. 2010-11 “no further appeal had been filed by the department against order of the Ld. CIT(A)- 20, Kolkata for the AY. 2010-11 on the merits as well as low tax implication. It may be mentioned here that the Ld. CIT(A)-20, Kolkata opined in his order that total income as declared by the assessee in its return to be assessed by not treating the assessee company as fake or bogus. The copy of the Ld. CIT(A)’s order is enclosed herewith for your kind perusal and necessary information.” ITA No.3174/Mum/2017 A.Y. 2012-13 M/s. Watermark System India P. Ltd. 7 7. And we note that the aforesaid fact has been acknowledged by the Ld. CIT(A) (supra) in the impugned order. Consequently, the identity of M/s. BPIL (Basant) which was undergone scrutiny assessment in the hands of the department cannot be doubted. And the transaction in question having taken place through banking channel; and since confirmation of lender viz M/s. BPIL that it has given loan to assessee to the tune of Rs.5.18 cr as on 31.03.2012 is on record, the genuineness needn’t be doubted. Coming to the creditworthiness of M/s. BPML, it is noted that the M/s. Basant marketing Pvt. Ltd. has got share capital of Rs.13,64,68,230/- as well as Reserve and Surplus of Rs.2,96,66,11,752/- (refer page no. 104 PB Balance-sheet of M/s. BMPL as on 31.03.2012) and since M/s. Basant has only given credit/loan of Rs.5,18,21,000/- to the assessee company, therefore, creditworthiness of M/s. Basant cannot be doubted. Therefore, the Ld. CIT(A) has rightly deleted the addition which action of Ld. CIT(A) is confirmed. 8. Coming to the ground no. 2 regarding disallowance u/s 14A of the Act made by the AO to the tune of Rs.2,37,991/-, the AO noted that the assessee has earned dividend income of Rs.1,304/- and therefore, he applied under Rule 8D of the Income Tax Rules, 1962 (hereinafter “the Rules”) and disallowed expenses by applying Rule 8D(2)(i) Rs.17,430/- (Demat Charges) and further disallowed under Rule 8D(2)(iii) of Rs.2,20,561/-. Thus total Rs.2,37,991/- was disallowed. ITA No.3174/Mum/2017 A.Y. 2012-13 M/s. Watermark System India P. Ltd. 8 9. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who deleted of Rs.2,20,561/- which was added under Rule 8D(2)(iii); and confirmed the addition of Rs.17,430/- (Demat Charges). Aggrieved the Revenue has filed this ground of appeal before this Tribunal against the deletion on account of Rule 8D(2)(iii). However, after hearing both parties, we note that assessee received dividend income only to the tune of Rs 1,304/-; and taking note of the facts and circumstance of the case, we are not inclined to interfere with the action of the Ld. CIT(A), and resultantly, dismiss this ground of appeal of the revenue. 10. In the result, all the appeals of the revenue stands dismissed. Order pronounced in the open court on this 10/04/2023. Sd/- Sd/- (GAGAN GOYAL) (ABY T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई Mumbai; दिनांक Dated : 10/04/2023. Vijay Pal Singh, (Sr. PS) ITA No.3174/Mum/2017 A.Y. 2012-13 M/s. Watermark System India P. Ltd. 9 आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनर्करण, मुंबई / ITAT, Mumbai