M/s P,Venkanna & Co, Pvt., Ltd, Palakol V. THE ACIT, CIRCLE - 1, Eluru

ITA 32/VIZ/2014

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9714 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 31-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T.S.N. MURTHY
• Keywords: Unexplained cash credit; Bogus Share capital; Revision of order; Source of fund; Non-deduction of tax; Onus to prove; TDS; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 40(a)(ia); 194C; 40a(ia); 194A

Judgement Text

ITA NO.32/VIZAG/2014 M/S. P. VENKANNA & CO. PVT. LTD., PALAKOL 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.32/VIZAG/2014 ( / ASSESSMENT YEAR: 2005-06) M/S. P. VENKANNA & CO. PVT. LTD. PALAKOL VS. ACIT, CIRCLE - 1, ELURU [PAN: AACCP2162R ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI T.S.N. MURTHY, DR / DATE OF HEARING : 09.11.2016 / DATE OF PRONOUNCEMENT : 25.11.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE CIT(A), VISAKHAPATNAM DATED 31.10.2013 AND IT PERTA INS TO THE ASSESSMENT YEAR 2005-06. ITA NO.32/VIZAG/2014 M/S. P. VENKANNA & CO. PVT. LTD., PALAKOL 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF TRADING IN LACE AND LACE PRODUCTS, FILED ITS RETURN OF INCOME FOR THE ASSESS MENT YEAR 2005-06 ON 1.11.2005 DECLARING TOTAL INCOME OF RS.17,13,890/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 196 1 (HEREINAFTER CALLED AS 'THE ACT') ON 27.12.2007 DETERMINING THE TOTAL INCOME OF RS.17,40,062/-. SUBSEQUENTLY, THE CIT, RAJAHMUNDRY VIDE ORDER U/S 263 OF THE ACT, SET ASIDE THE ASSESSMENT ORDER WITH A D IRECTION TO RE-ASSESS THE SAME DE-NOVO. THEREAFTER, THE ASSESSMENT WAS C OMPLETED U/S 143(3) R.W.S. 263 OF THE ACT ON 11.9.2009 DETERMINI NG THE TOTAL INCOME OF RS.79,11,680/- INTER-ALIA BY MAKING ADDITIONS OF RS.21,91,650/- U/S 40(A)(IA) OF THE ACT AND RS.39,80,000/- U/S 68 OF T HE ACT. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APP EAL BEFORE THE CIT(A). THE CIT(A) AFTER CONSIDERING THE EXPLANATI ONS FURNISHED BY THE ASSESSEE CONFIRMED ADDITIONS MADE BY THE A.O. TOWAR DS DISALLOWANCE OF INTEREST PAYMENTS AND TRANSPORTATION CHARGES U/S 40 (A)(IA) OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE AND ADDITION TOWARDS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT TOWARDS SHARE APPLICATION MONEY. AGGRIEVED BY THE CIT(A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.32/VIZAG/2014 M/S. P. VENKANNA & CO. PVT. LTD., PALAKOL 3 3. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ADDITION TOWARDS DISALLOWANCE OF INTEREST PAYMENTS AND TRANS PORTATION CHARGES U/S 40(A)(IA) OF THE ACT. THE ASSESSING OFFICER DI SALLOWED INTEREST PAID TO M/S. ANGLO FRENCH TEXTILES AMOUNTING TO RS.6,67, 909/- FOR FAILURE TO DEDUCT TDS U/S 194A OF THE ACT. THE A.O. WAS OF TH E OPINION THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS U/S 194A OF THE ACT, BUT FAILED TO DEDUCT SUCH TDS EVEN THOUGH THE PAYMENT OF INTEREST EXCEEDS THE SPECIFIED LIMITS PROVIDED U/S 194A OF THE ACT. SIM ILARLY, THE A.O. DISALLOWED TRANSPORTATION EXPENDITURE OF RS.15,23,7 06/- FOR FAILURE TO DEDUCT TDS U/S 194C OF THE ACT. IT IS THE CONTENTI ON OF THE ASSESSEE THAT M/S. ANGLO FRENCH TEXTILES IS A GOVERNMENT UND ERTAKING AND HENCE ANY PAYMENT MADE TO A GOVERNMENT UNDERTAKING, TAX N EED NOT BE DEDUCTED AT SOURCE. AS REGARDS DISALLOWANCE OF TRA NSPORTATION EXPENDITURE, THE ASSESSEE STATED THAT THERE IS NO C ONTRACT BETWEEN THE TRANSPORTERS AND THE ASSESSEE AND HENCE, THE PROVIS IONS OF SECTION 194C OF THE ACT DO NOT APPLY. ALTERNATIVELY, IT WAS CON TENDED THAT THE EXPENDITURE INCURRED UNDER THE HEAD INTEREST PAYME NT TO M/S. ANGLO FRENCH TEXTILES AND TRANSPORTATION EXPENDITURE FOUN D PAID WITHIN THE END OF FINANCIAL YEAR AND IN VIEW OF THE DECISION O F ITAT, VISAKHAPATNAM IN THE CASE OF M/S. MERILYN SHIPPING AND TRANSPORTE RS VS. ACIT, NO DISALLOWANCE CAN BE MADE UNDER THE PROVISIONS OF SE CTION 40(A)(IA) OF ITA NO.32/VIZAG/2014 M/S. P. VENKANNA & CO. PVT. LTD., PALAKOL 4 THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE, IN CASE THE EXPENDITURE INCURRED IS PAID WITHIN THE END OF THE FINANCIAL YE AR. 4. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IALS ON RECORD, WE FIND THAT THE A.O. HAD DISALLOWED INTEREST PAID TO M/S. ANGLO FRENCH TEXTILES AND TRANSPORTATION CHARGES UNDER THE PROVI SIONS OF SECTION 40(A)(IA) OF THE ACT, FOR NON-DEDUCTION OF TAX AT S OURCE U/S 194A & 194C OF THE ACT. IT IS THE CONTENTION OF THE ASSESSEE T HAT NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT, IF AMOUNTS INCURR ED IS PAID WITHIN THE SAME FINANCIAL YEAR. IN SUPPORT OF ITS ARGUMENTS, THE ASSESSEE RELIED UPON THE DECISION OF ITAT, VISAKHAPATNAM IN THE CAS E OF ACIT VS. MERILYN SHIPPING & TRANSPORTERS. WE FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF ACIT VS. MERILYN SHIP PING AND TRANSPORTERS (SUPRA), HAS EXAMINED THE ISSUE OF DISALLOWANCE OF EXPENDITURE SPECIFIED UNDER THE SAID PROVISIONS FOR NON-DEDUCTION OF TAX AT SOURCE UNDER RESPECTIVE PROVISIONS AND HELD THAT NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT, IF AMOUNTS HAVE BEEN ALREADY PAID WITHIN THE END OF THE FINANCIAL YEAR. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS NOT CORRECT IN DISALLOWING INTEREST PAID TO M/S. ANGLO FRENCH TEXTILES AND TRANSPORTATION CHARGES UNDER THE PROVISIONS OF SECT ION 40(A)(IA) OF THE ACT, FOR NON-DEDUCTION OF TAX AT SOURCE, ON AMOUNTS ALREADY PAID DURING ITA NO.32/VIZAG/2014 M/S. P. VENKANNA & CO. PVT. LTD., PALAKOL 5 THE FINANCIAL YEAR. AS REGARDS THE LD. D.R. ARGUME NTS THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF M/S. ME RILYN SHIPPING & TRANSPORTERS (SUPRA), WE FIND THAT THE COORDINATE B ENCH OF THIS TRIBUNAL IN THE CASE OF MUKUNDARA ENGINEERS AND CONTRACTORS VS. ACIT IN ITA NO.657/VIZAG/2014 DATED 22.7.2015 HAS CONSIDERED TH E ISSUE AND AFTER CONSIDERING THE OBJECTION OF THE REVENUE WITH REGAR D TO THE SPECIAL BENCH DECISION OF M/S. MERILYN SHIPPING & TRANSPORT ERS AND ALSO CONSIDERING THE RATIO OF A.P. HIGH COURT, IN THE CA SE OF JANAPRIYA ENGINEERING SYNDICATE (SUPRA), DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER IS REP RODUCED HEREUNDER: WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. CONSISTENT WITH THE VIEW TAKEN BY THE ITAT SPECIAL BENCH VISAKHAPATNAM AND ALSO IN THE LIGHT OF THE VIEW EXP RESSED BY THE HONBLE A.P. HIGH COURT IN THE CASE OF JANAPRIYA ENGINEERIN G SYNDICATE, WE ARE OF THE OPINION THAT THE PROVISIONS OF SECTION 40A(IA) OF THE ACT CANNOT BE MADE APPLICABLE IN RESPECT OF THE AMOUNTS ALREADY P AID BEFORE 31 ST MARCH. IN OTHER WORDS, THE A.O. IS DIRECTED TO RESTRICT THE DISALLOWANCE TO THE AMOUNTS PAYABLE AFTER 31 ST MARCH. WITH THESE OBSERVATIONS, GROUND NO.3 OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. 5. IN THIS VIEW OF THE MATTER AND ALSO RESPECTFULLY FOLLOWING THE RATIO OF COORDINATE BENCH, WE ARE OF THE VIEW THAT NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA) OF THE ACT, IF THE AMOUNT S HAVE BEEN PAID WITHIN THE END OF THE SAME FINANCIAL YEAR. HOWEVER , THE ASSESSEE HAS FAILED TO FILE NECESSARY EVIDENCES TO PROVE THE AMOUNTS PAID WITHIN THE END OF THE FINANCIAL YEAR. THEREFORE, W E SET ASIDE THE ITA NO.32/VIZAG/2014 M/S. P. VENKANNA & CO. PVT. LTD., PALAKOL 6 ISSUE TO THE FILE OF THE A.O. AND DIRECT THE A.O. T O EXAMINE THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND IF THE EXPENDITURE INCURRED TOWARDS INTEREST PAYMENTS AND TRANSPORTATION CHARGES HAVE B EEN PAID WITHIN THE SAME FINANCIAL YEAR, THEN THE A.O. IS DIRECTED TO DELETE THE ADDITIONS MADE U/S 40(A)(IA) OF THE ACT. IN OTHER WORDS, THE A.O. IS DIRECTED TO RESTRICT THE DISALLOWANCE TO THE EXTENT THE AMOUNTS REMAINING PAYABLE AT THE END OF THE FINANCIAL YEAR. 6. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N IS ADDITION OF ` 39,80,000/- TOWARDS UNEXPLAINED CASH CREDITS U/S 6 8 OF THE ACT. THE ASSESSING OFFICER MADE ADDITION OF ` 39,80,000/- TOWARDS SHARE APPLICATION MONEY, U/S 68 OF THE ACT FOR THE REASON THAT THE ASSESSEE FAILED TO DISCHARGE ITS INITIAL BURDEN BY FILING ID ENTITY, GENUINENESS OF THE TRANSACTIONS AND CREDITWORTHINESS OF THE PARTIE S TO PROVE THE SHARE APPLICATION MONEY. THE A.O. FURTHER OBSERVED THAT THE DIRECTORS OF THE COMPANY HAD INTRODUCED CAPITAL AGG REGATING ` 39,80,000/-, HOWEVER, NONE OF THE DIRECTORS HAVE FI LED INCOME TAX RETURNS TO PROVE THE SOURCES OF INCOME FOR CAPITAL CONTRIBUTION. THE A.O. FURTHER OBSERVED THAT THOUGH THE SHAREHOLDERS HAVE FILED THEIR INCOME TAX RETURNS SUBSEQUENT TO AN ORDER U/S 263 O F THE ACT, ON VERIFICATION OF INCOME TAX RETURNS FILED BY THE SHA REHOLDERS, IT WAS ITA NO.32/VIZAG/2014 M/S. P. VENKANNA & CO. PVT. LTD., PALAKOL 7 NOTICED THAT THE INCOME DECLARED BY THE SHAREHOLDER S IS INSUFFICIENT TO EXPLAIN THE SOURCES OF CAPITAL CONTRIBUTION IN THE COMPANY. THE A.O. FURTHER OBSERVED THAT THE SHAREHOLDERS HAVE BROUGHT IN THE SHARE APPLICATION MONEY BY WAY OF CASH, THEREFORE, OPINED THAT THE ASSESSEE FAILED TO PROVE THE GENUINENESS OF TRANSAC TIONS, ACCORDINGLY, MADE ADDITIONS U/S 68 OF THE ACT. IT IS THE CONTEN TION OF THE ASSESSEE THAT ALL THE 6 DIRECTORS/SHAREHOLDERS ARE INCOME TAX ASSESSEES AND ARE MAINTAINING BOOKS OF ACCOUNTS. T HE ASSESSEE FURTHER CONTENDED THAT THE ASSESSEE HAS FILED IDENT ITY, AND ALSO PROVED GENUINENESS OF TRANSACTIONS AND CREDITWORTHI NESS OF THE PARTIES TO EXPLAIN SHARE APPLICATION MONEY. ONCE T HE INITIAL BURDEN DISCHARGED, ADDITIONS CANNOT BE MADE TOWARDS SHARE APPLICATION MONEY IN THE HANDS OF THE COMPANY. IN SUPPORT OF I TS ARGUMENTS, RELIED UPON THE DECISION OF HONBLE SUPREME COURT, IN THE CASE OF CIT VS. LOVELY EXPORTS PVT. LTD. (2008) 216 CTR 195. 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IAL ON RECORD, WE FIND THAT THE A.O. MADE ADDITIONS TOWARDS SHARE APPLICATION MONEY U/S 68 OF THE ACT. THE A.O. WAS OF THE OPINI ON THAT THE ASSESSEE FAILED TO DISCHARGE ITS INITIAL BURDEN TO PROVE THE CREDITS. THE A.O. FURTHER WAS OF THE OPINION THAT THOUGH THE SHAREHOLDERS ITA NO.32/VIZAG/2014 M/S. P. VENKANNA & CO. PVT. LTD., PALAKOL 8 HAVE FILED THEIR INCOME TAX RETURNS, NONE OF THE SH AREHOLDERS HAVE SUFFICIENT SOURCE OF INCOME TO EXPLAIN THE INVESTME NT IN SHARE CAPITAL OF THE COMPANY. THE A.O. NEVER DOUBTED THE IDENTIT Y OF THE SHAREHOLDERS, BUT OPINED THAT THEY DO NOT HAVE SOUR CE OF INCOME. WE DO NOT FIND ANY MERITS IN THE FINDING OF THE A.O. FOR THE REASON THAT THE ASSESSEE HAS FILED NECESSARY EVIDENCES TO PROVE THE IDENTITY. THE ASSESSEE ALSO FILED COPIES OF INCOME TAX RETURN S OF THE SHAREHOLDERS, TO PROVE THE SOURCES OF INVESTMENT IN SHARE CAPITAL/SHARE APPLICATION MONEY IN THE COMPANY. TH EREFORE, WE ARE OF THE VIEW THAT THE ASSESSEE HAS DISCHARGED INITIA L BURDEN CAST UPON IT U/S 68 OF THE ACT, BY FURNISHING THE NAMES AND A DDRESSES OF THE PERSONS FROM WHOM IT HAD COLLECTED SHARE APPLICATIO N MONEY. ONCE THE ASSESSEE HAS FURNISHED THE NAME AND ADDRESS FRO M WHOM IT HAS COLLECTED SHARE APPLICATION MONEY, THEN THE DEPARTM ENT IS FREE TO PROCEED TO RE-OPEN THE INDIVIDUAL ASSESSMENT OF THE SUBSCRIBERS OF SHARE CAPITAL IN ACCORDANCE WITH LAW, BUT, THE A.O. CANNOT MAKE ADDITIONS TOWARDS SHARE APPLICATION MONEY IN THE HA NDS OF THE COMPANY. THIS VIEW WAS SUPPORTED BY THE FACT THAT THE LAW WAS AMENDED BY THE FINANCE ACT, 2012 W.E.F. 1.4.2013 SO AS TO BRING THE ALLEGED BOGUS SHARE APPLICATION MONEY TO THE TAX IN THE HANDS OF THE COMPANIES, IN CASE SHARE APPLICATION MONEY FOUND TO BE BOGUS. ITA NO.32/VIZAG/2014 M/S. P. VENKANNA & CO. PVT. LTD., PALAKOL 9 THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS ERR ED IN MAKING ADDITIONS TOWARDS SHARE APPLICATION MONEY U/S 68 OF THE ACT. 8. THE ASSESSEE RELIED UPON THE DECISION OF HONBLE SUPREME COURT, IN THE CASE OF CIT VS. LOVELY EXPORTS PVT. L TD. (2008) 216 CTR 195. THE HONBLE SUPREME COURT, UNDER SIMILAR CIRC UMSTANCES HELD THAT IF THE SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAME S ARE GIVEN TO THE A.O., THEN THE DEPARTMENT IS FREE TO PROCEED TO RE-OPEN THE INDIVIDUAL ASSESSMENT IN ACCORDANCE WITH LAW, BUT I T CANNOT BE REGARDED AS UNDISCLOSED INCOME OF THE ASSESSEE COMP ANY. 9. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE C ASE AND ALSO APPLYING THE RATIOS OF THE HONBLE SUPREME COURT, I N THE CASE OF CIT VS. LOVELY EXPORTS PVT. LTD., WE ARE OF THE VIEW TH AT ONCE THE INITIAL BURDEN IS DISCHARGED BY FILING IDENTITY OF THE SHAR EHOLDERS, THEN NO ADDITION CAN BE MADE U/S 68 OF THE ACT TOWARDS SHAR E APPLICATION MONEY IN THE HANDS OF THE ASSESSEE COMPANY. THEREF ORE, WE DIRECT THE A.O. TO DELETE THE ADDITIONS MADE TOWARDS SHARE APPLICATION MONEY U/S 68 OF THE ACT. ITA NO.32/VIZAG/2014 M/S. P. VENKANNA & CO. PVT. LTD., PALAKOL 10 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 25 TH NOV16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 25.11.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT M/S. P. VENKANNA & CO. PVT. LTD. , 42-5-22, LACE BUILDING, PALAKOL 2. / THE RESPONDENT THE ACIT, CIRCLE-1, ELURU 3. + / THE CIT, RAJAHMUNDRY 4. + ( ) / THE CIT (A), GUNTUR 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM