Smt. Deepti Agarwal, New Delhi V. ACIT, New Delhi

ITA 4944/DEL/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7487 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 16-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Bogus Share capital; Principle of natural justice; Rule of consistency; Source of fund; Set aside
• Section: 68; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.4944/DEL/2016 ASSESSMENT YEAR: 2011-12 DEEPTI AGARWAL, C/O M/S PRA TAXINDIA, D-28, SOUTH EXTENSION, PART-I, NEW DELHI. PAN: AAMPA0573C VS ACIT, CIRCLE-53(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAKESH GUPTA & SHRI SOMIL AGGARWAL, ADVOCATES REVENUE BY : MS ASHIMA NEB, SR. DR DATE OF HEARING : 17.07.2019 DATE OF PRONOUNCEMENT : 25.07.2019 ORDER PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 18 TH JULY, 2016 OF THE CIT(A)-18, NEW DELHI, RELATING TO ASSES SMENT YEAR 2011-12. 2. THE GROUNDS OF APPEAL NO.1 AND 2 RAISED BY THE A SSESSEE READ AS UNDER:- 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO IN MAKING DISALLOWANCE OF RS.2,20,164/- U/S 36(L)(III) AND FURTHER ERRED IN ENHANCING THE DISALLOWANCE UNDER THE SAID, SECTION TO THE EXT ENT OF RS.4,19,436/- AND THAT ITA NO.4944/DEL/2016 2 TOO WITHOUT GIVING SHOW CAUSE NOTICE AND WITHOUT OB SERVING THE PRINCIPLES OF NATURAL JUSTICE. 2. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF LD. AO IN MAKING DISALLOWA NCE OF RS.2,20,164/- U/S 36(1 )(III) AND FURTHER ERRED IN ENHANCING THE DISA LLOWANCE UNDER THE SAID SECTION TO THE EXTENT OF RS.4,19,436/- IS BAD IN LAW AND AG AINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS AN INDIVIDUAL AND DERIVES INCOME FROM HOUSE PROPERTY, BUSINESS, CAPITAL GAIN AND OTHER SOURCES. THE BUSINESS IS CARRIED ON THROUGH A PROPRIETORSHIP CONCERN, M/S SU PERIOR FABRICS WHEREIN SHE IS ENGAGED IN DEFENCE SUPPLIES AND TENDER BUSINESS. S HE FILED HER RETURN OF INCOME ON 30 TH JULY, 2011 DECLARING THE TOTAL INCOME OF RS.1,05,1 7,045/-. THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED FROM THE PROFIT & LOSS ACCOUNT THAT THE ASSESSEE HAS CLAIMED INTEREST EXPENSES AMO UNTING TO RS.12,53,670/-. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE, HE OBSER VED THAT INTEREST FROM PNB OVERDRAFT ACCOUNT AMOUNTS TO RS.12,34,213/-. FROM THE BALANC E SHEET, HE NOTICED THAT THE ASSESSEE HAS MADE INVESTMENT FOR INDUSTRIAL PLOT AT GREATER NOIDA. ON BEING ASKED BY THE ASSESSING OFFICER TO EXPLAIN THE SOURCE OF THE INVESTMENT, IT WAS SUBMITTED THAT THE SOURCE OF FUNDING FOR THE INVESTMENT WAS FROM THE P NB OVERDRAFT ACCOUNT. THE ASSESSING OFFICER, INVOKING THE PROVISIONS OF SECTI ON 36(1)(III), DISALLOWED AN AMOUNT OF RS.2,23,164/- ON THE GROUND THAT INTEREST PAID I N RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF ASSET FOR EXTENSION OF EXISTING BUSI NESS OR PROFESSION PRIOR TO THE ASSET PUT TO BUSINESS USE SHALL NOT BE ALLOWED. ITA NO.4944/DEL/2016 3 4. IN APPEAL, THE LD.CIT(A) NOT ONLY UPHELD THE ACT ION OF THE ASSESSING OFFICER, BUT, ENHANCED THE SAME TO RS.6,39,600/-. THE RELEV ANT FINDING OF THE CIT(A) FROM PARA 5.1.9 ONWARDS READS AS UNDER:- 5.1.9 I HAVE CAREFULLY CONSIDERED THE ENTIRE G AMUT OF THE ISSUE. IT IS NOT DENIED THAT THE PROPERTY HAS BEEN PURCHASED WITH CH EQUES ISSUED FROM THE OVERDRAFT ACCOUNT MAINTAINED WITH PNB. THE COPIES O F THE ACCOUNT SUBMITTED IN THIS CONNECTION ALSO CORROBORATES THIS FACT. THE DE TAILS OF PAYMENT MADE IN THIS REGARD, AND AS GIVEN BY THE APPELLANT (PB 82), IS A S UNDER: 5.1.10 IT IS ALSO OBSERVED THAT THOUGH THERE ARE CE RTAIN CREDITS IN THIS ACCOUNT WHICH COULD HAVE BEEN FROM THE SALE PROCEEDS OF THE APPELLANT, IT IS IMPORTANT TO NOTE THAT AT THE TIME OF ISSUANCE OF THE CHEQUES FO R ACQUISITION OF THIS PROPERTY, THERE HAS BEEN DEBIT BALANCE IN THIS ACCOUNT WHICH IS CONTINUOUSLY FOUND TO REMAIN NEGATIVE (BARRING THE PERIOD FROM DEC 2008 T O JULY 2009.) THE BALANCE FOR THE PERIOD APRIL 2010 TO MARCH 2011 HAS PERSIST ENTLY BEEN NEGATIVE (I.E. HAS REMAINED A DEBIT BALANCE) RANGING FROM RS.60 LAKH T O AS HIGH AS RS.1.06 CRORE . THUS THE CONTENTIONS OF THE APPELLANT THAT THE SALE PROCEEDS WOULD HAVE BEEN MATERIALLY USED FOR ACQUISITION OF THE PLOT FALLS T O THE GROUND. 5.1.11 IN THAT VIEW OF THE MATTER, THE CONTENTION OF THE AO THAT WHEN THE PROPERTY HAS NOT BEEN PUT TO USE AND INTEREST BEARI NG FUND HAS BEEN USED FOR ACQUISITION OF THE PLOT, THE PROVISO TO SECTION 36 (I)(III) WOULD APPLY SQUARELY, CALLING FOR SUITABLE DISALLOWANCE IN THIS REGARD. I N FACT THE DISALLOWANCE OF INTEREST ON THE AVERAGE DEBIT BALANCE BEING HIGHER THAN THE TOTAL PURCHASE CONSIDERATION FOR THE PLOT I.E. RS.53,29,620/-, WOU LD CALL FOR DISALLOWANCE AT THE RATE OF 12% (THE RATE HAS NOT BEEN DISPUTED BY THE APPELLANT) I.E. RS.6,39,600/-. DATE PARTICULARS TYPE OF A/C PAYMENT BALANCE 01/08/2007 PUNJAB NATIONAL BANK CASH CREDIT 1,10,300.00 01/02/2008 PUNJAB NATIONAL BANK CASH CREDIT 17,90,000 31/03/2008 CLOSING BALANCE 19,00,300 01/04/2008 OPENING BALANCE 19,00,300 12/12/2008 PUNJAB NATIONAL BANK CASH CREDIT 9,18,126 31/03/2009 CLOSING BALANCE 28,18,426 01/04/2009 OPENING BALANCE 28,18,426 29 /08/2009 PUNJAB NATIONAL BANK CASH CREDIT 6,76,491 31/03/2010 CLOSING BALANCE 34,94,917 01/04/2010 OPENING BALANCE 34,94,917 30/06/2010 PUNJAB NATIONAL BANK CASH CREDIT 6,35,040 30/06/2010 PUNJAB NATIONAL BANK CASH CREDIT 6,10,785 01/01/2011 PUNJAB NATIONAL BANK CASH CREDIT 5,88,878 31/03/2011 CLOSING BALANCE 53,29,620 ITA NO.4944/DEL/2016 4 THE SAME WOULD BE DIRECTED TO BE DISALLOWED IN PLAC E OF RS.2,20,164/- MADE BY THE ASSESSING OFFICER. 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE LD. COUNSEL FOR THE ASSESSEE, MADE TWO-FOLD ARGUMENTS CHALLENGING THE ADDITION MADE BY THE ASSESSING OFFICER AND ENHANCED BY THE CIT(A). REFERRING TO PAGE 89 TO 156 OF THE PAPER BOOK WHICH CONTAINS THE ASSESSMENT ORDER FOR EARLIER YEARS, THE LD. COUNSEL SUBMITTED THAT IN THE PAST, NO DISA LLOWANCES WERE MADE ON ACCOUNT OF SUCH INTEREST PAID BY INVOKING THE PROVISIONS OF SE CTION 36(1)(III). EVEN IN ASSESSMENT YEAR 2008-09, ALTHOUGH THE ASSESSING OFFICER HAS MA DE DISALLOWANCE UNDER SECTION 36(1)(III), BUT, NOT ON ACCOUNT OF INVESTMENT IN TH E INDUSTRIAL PLOT. REFERRING TO THE BALANCE SHEET OF THE EARLIER YEAR, HE SUBMITTED THA T THE PROPERTY AT GREATER NOIDA IS APPEARING IN THE SCHEDULE OF INVESTMENTS. THE LOAN FROM PNB WAS ALSO APPEARING IN THE BALANCE SHEET LIABILITY SIDE. EVEN THE PLOT IS ALSO HELD BY THE ASSESSEE AS ON TODAY AND THE ASSESSING OFFICER EVEN IN THE SUBSEQUENT YE AR AFTER PASSING OF THIS ORDER HAS NOT MADE ANY DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III). RELYING ON VARIOUS DECISIONS, HE SUBMITTED THAT FOLLOWING THE RULE OF CONSISTENCY, THE ADDITION MADE BY THE ASSESSING OFFICER AND ENHANCED BY THE CIT(A) IS UNCALLED FOR. 7. REFERRING TO THE DECISION OF THE HON'BLE KARNATA KA HIGH COURT IN THE CASE OF CIT VS. SRIDEV ENTERPRISES (1991) 192 ITR 0165 (KAR .) , HE SUBMITTED THAT THE HON'BLE HIGH COURT IN THE SAID DECISION HAS HELD THAT WHERE IN PREVIOUS ASSESSMENT YEARS THE ITA NO.4944/DEL/2016 5 ASSESSEES CLAIM REGARDING THE INTEREST ON BORROWED CAPITAL WAS ALLOWED, IT WOULD NOT BE EQUITABLE FOR THE REVENUE TO TAKE A DIFFERENT ST AND IN RESPECT OF THE AMOUNTS WHICH WERE SUBJECT MATTER OF PREVIOUS YEARS ASSESSMENTS, CONSISTENCY AND DEFINITENESS OF APPROACH BEING NECESSARY. 8. REFERRING TO THE DECISION OF THE HON'BLE DELHI H IGH COURT IN THE CASE OF CIT VS. GIVO LTD., ITA NO.941/2010, ORDER DATED 27.07.2010 (DEL ), THE LD. COUNSEL DREW THE ATTENTION OF THE BENCH TO THE FOLLOWING OBSERVATION S OF THE HON'BLE HIGH COURT:- 4. WE ARE OF THE OPINION THAT AS IN PAST ASSESSME NT YEARS, THE INTEREST EXPENDITURE HAD BEEN ALLOWED, IT WAS NOT OPEN TO TH E ASSESSING OFFICER TO DISALLOW THE SAID EXPENDITURE IN THE YEAR UNDER CON SIDERATION. THE KARNATAKA HIGH COURT IN COMMISSIONER OF INCOME TAX VS. SRIDEV ENTERPRISES, (1991) 192 ITR 165 HAS HELD THAT A DEPARTURE FROM A FINDING IN RESPECT OF DEDUCTIONS PERMITTED DURING THE PAST YEARS WOULD RESULT IN A C ONTRADICTORY FINDING. 5. WE ARE ALSO OF THE VIEW THAT IT WOULD NOT BE EQU ITABLE TO PERMIT THE REVENUE TO TAKE A DIFFERENT STAND IN RESPECT OF EXPENSES WHICH WERE THE SUBJECT MATTER OF PREVIOUS YEARS ASSESSMENTS. IN OUR OPINION, CONSIS TENCY AND DEFINITENESS OF APPROACH BY THE REVENUE IS NECESSARY IN THE MATTER OF RECOGNIZING THE NATURE OF AN ACCOUNT MAINTAINED BY THE ASSESSEE SO THAT THE B ASIS OF A CONCLUDED ASSESSMENT IS NOT IGNORED WITHOUT ACTUALLY REOPENIN G THE ASSESSMENT. 9. REFERRING TO THE DECISION OF THE HON'BLE DELHI H IGH COURT IN THE CASE OF CIT VS. DD INDUSTRIES LTD. (2015) 117 DTR 355 (DEL ), HE SUBMITTED THAT THE HON'BLE HIGH COURT IN THE SAID DECISION HAS HELD THAT WHEN THE A SSESSEE IS POSSESSED OF MIXED FUNDS WHICH INCLUDE ITS OWN FUNDS IN SUFFICIENT QUANTITY, A PRESUMPTION THAT ITS OWN FUNDS WERE UTILIZED FOR THE ADVANCES IS TO BE DRAWN. IN EARLIER YEARS ALSO AN AMOUNT WAS ADVANCED FROM OUT OF SURPLUS FUNDS FOR PURCHASE OF SHOWROOM AND NO BORROWED FUNDS WERE UTILIZED FOR THESE ADVANCES AND NO DISALLOWANC E OF INTEREST PAID WAS MADE DURING ITA NO.4944/DEL/2016 6 THOSE YEARS IN ORDERS MADE UNDER 143(3) AND SINCE, IN THE INSTANT ASSESSMENT YEAR, FACTS WERE IDENTICAL, NO DISALLOWANCE COULD BE MADE. IT WAS HELD THAT DISALLOWANCE UNDER SECTION 36(1)(III) CANNOT BE EXTENDED TO ADVANCES G IVEN IN THE ASSESSMENT YEAR WHICH ARE OPENING BALANCE DURING THE YEAR. ACCORDINGLY, THE DISALLOWANCE MADE UNDER SECTION 36(1)(III) BY THE ASSESSING OFFICER WAS HEL D TO BE NOT PROPER AND THE ORDER OF THE TRIBUNAL WAS UPHELD. RELYING ON VARIOUS OTHER DECISIONS, HE SUBMITTED THAT FOLLOWING THE RULE OF CONSISTENCY NO DISALLOWANCE U /S 36(1)(III) IS CALLED FOR. 10. REFERRING TO THE DECISION OF MUMBAI BENCH OF TH E TRIBUNAL IN THE CASE OF PRANIK SHIPPING & SERVICES LTD. VS. ACIT, 19 TAXMANN.COM 1 07 (MUM), HE SUBMITTED THAT THE TRIBUNAL, FOLLOWING THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD., 313 ITR 340 (BO M ), HAS HELD THAT WHERE THE ASSESSEE HAS INTEREST FREE FUNDS AS WELL AS INTERES T BEARING FUNDS, THEN, PRESUMPTION WOULD BE THAT INVESTMENTS WERE MADE FROM INTEREST F REE FUNDS. WHERE INTEREST FREE FUNDS AVAILABLE AT THE DISPOSAL OF THE ASSESSEE WER E FAR IN EXCESS OF INTEREST FREE LOAN, NO DISALLOWANCE COULD BE MADE U/S 36(1)(III) OF THE ACT ON ACCOUNT OF SUCH INTEREST FREE ADVANCES. RELYING ON VARIOUS OTHER DECISIONS, HE SUBMITTED THAT WHEN THE OWN CAPITAL FUNDS OF THE ASSESSEE IS FAR MORE THAN THE INVESTMENT MADE AND THE BANK ACCOUNT MAINTAINED BY THE ASSESSEE IS A MIXED ONE, THEREFORE, NO DISALLOWANCE U/S 36(1)(III) IS CALLED FOR. ITA NO.4944/DEL/2016 7 11. HE FURTHER SUBMITTED THAT THE LD.CIT(A) WHILE E NHANCING THE DISALLOWANCE HAS NOT GIVEN ANY NOTICE OF ENHANCEMENT. THEREFORE, TH E SAME IS NOT SUSTAINABLE AS PER LAW. 12. IN HIS SECOND LIMB OF ARGUMENT, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SALE PROCEEDS USED TO BE DEPOSITED IN THE OD AC COUNT AND, THEREFORE, THIS IS A MIXED ACCOUNT. FURTHER, THE CAPITAL AND FREE RESER VES OF THE ASSESSEE AS ON 31 ST MARCH, 2011 IS RS.18.23 CRORES. THE INCOME DURING THE YEA R I.E., THE YEAR ENDING ON 31 ST MARCH, 2011 HAS BEEN SHOWN AT RS.1,06,89,129/-. 13. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED O N THE ORDER OF THE CIT(A). SHE SUBMITTED THAT THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS AND EACH YEAR IS A SEPARATE ASSESSMENT YEAR. MERELY BECAUSE THIS ISSUE WAS NOT EXAMINED IN PREVIOUS YEARS, IT CANNOT BE SAID THAT THE ASSESSING OFFICER CANNOT MAKE ADDITION U/S 36(1)(III) OF THE ACT IN THIS YEAR. R EFERRING TO THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF PUNJAB STAINLESS ST EEL REPORTED IN 324 ITR 396 AND THE VARIOUS DECISIONS RELIED ON BY THE LD.CIT(A) IN HIS ORDER, SHE SUBMITTED THAT THE LD.CIT(A) IS FULLY JUSTIFIED IN SUSTAINING THE ADDI TION U/S 36(1)(III) OF THE ACT. SO FAR AS THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE TH AT NO SEPARATE NOTICE OF ENHANCEMENT WAS GIVEN, SHE SUBMITTED THAT THE RECORDS OF THE CI T(A) HAS TO BE CALLED FOR. FURTHER, THE ASSESSEE HAS NOT ESTABLISHED THE COMMERCIAL EXP EDIENCY. SHE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE UPHELD AN D THE GROUNDS BE DISMISSED. ITA NO.4944/DEL/2016 8 14. WE HAVE CONSIDERED THE RIVAL ARGUMENTS AND PERU SED THE ORDERS OF THE ASSESSING OFFICER AND CIT(A). WE HAVE ALSO CONSIDERED THE VA RIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSING OFFICER, INVOKING THE PROVISI ONS OF SECTION 36(1)(III) MADE DISALLOWANCE OF RS.2,20,164/- ON THE GROUND THAT TH E ASSESSEE HAS DIVERTED ITS INTEREST BEARING FUNDS FOR PURCHASE OF AN INDUSTRIAL PLOT AT GREATER NOIDA WHICH HAS NOT BEEN PUT TO USE FOR BUSINESS. WE FIND THE LD.CIT(A) ENHA NCED THE DISALLOWANCE TO RS.6,39,600/-THE REASONS FOR WHICH HAS ALREADY BEEN REPRODUCED IN THE PRECEDING PARAGRAPHS. IT IS THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE THAT NEITHER IN THE PAST NOR IN THE SUBSEQUENT ASSESSMENT YEARS DISALLO WANCE IS MADE U/S 36(1)(III). FURTHER, THE OWN CAPITAL FUNDS OF THE ASSESSEE IS F AR MORE THAN THE INVESTMENT MADE IN THE INDUSTRIAL PLOT AND THE INCOME OF THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR IS MORE THAN 1.06 CRORES. THEREFORE, NO DISALLOWANC E U/S 36(1)(III) IS CALLED FOR. WE FIND MERIT IN THE ABOVE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE. IT IS AN ADMITTED FACT THAT IN THE PAST ASSESSMENT YEARS THE ASSESSIN G OFFICER HAS NOT MADE ANY DISALLOWANCE U/S 36(1)(III) ON ACCOUNT OF PURCHASE OF THIS INDUSTRIAL PLOT OUT OF BORROWED FUNDS. NO DISALLOWANCE HAS BEEN MADE IN AS SESSMENT YEAR 2009-10 AND 2010-11 AND ALTHOUGH DISALLOWANCE HAS BEEN MADE U/S 36(1)(III) FOR ASSESSMENT YEAR 2008-09, HOWEVER, THE DISALLOWANCE IS FOR SOME OTHE R REASONS AND NOT ON ACCOUNT OF INVESTMENT IN THIS PARTICULAR INDUSTRIAL PLOT. WE FURTHER FIND SUBSEQUENT TO PASSING OF THE ORDER FOR IMPUGNED ASSESSMENT YEAR WHICH WAS UP HELD BY THE CIT(A) ON 18 TH JULY, 2016, THE A.O. IN THE ORDER PASSED U/S 153A/143(3) FOR ASSESSMENT YEAR 2012-13, HAS NOT MADE ANY SUCH DISALLOWANCE. WE, THEREFORE, FIND MERIT IN THE ARGUMENT OF THE ITA NO.4944/DEL/2016 9 LD. COUNSEL FOR THE ASSESSEE THAT FOLLOWING THE RUL E OF CONSISTENCY NO DISALLOWANCE U/S 36(1)(III) IS CALLED FOR. EVEN OTHERWISE, THE BANK ACCOUNT OF THE ASSESSEE IS A MIXED ONE WHERE THE OWN FUNDS AS WELL AS THE BUSINESS REC EIPTS ARE DEPOSITED. THE OWN CAPITAL OF THE ASSESSEE IS FAR MORE THAN THE INVEST MENT MADE FOR THE INDUSTRIAL PLOT WHICH, ACCORDING TO THE ASSESSING OFFICER, HAS NOT BEEN PUT TO USE FOR BUSINESS PURPOSES. THE INCOME OF THE CURRENT YEAR OF THE AS SESSEE OF RS.1.06 CRORES IS MUCH MORE THAN THE INVESTMENT TOWARDS INDUSTRIAL PLOT. WE, THEREFORE, HOLD THAT NO DISALLOWANCE COULD BE MADE U/S 36(1)(III) ON ACCOUN T OF THE SAID INVESTMENT IN THE INDUSTRIAL PLOT IN VIEW OF THE DECISION OF THE HON' BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA). THE G ROUNDS OF APPEAL NO.1 AND 2 BY THE ASSESSEE ARE, THEREFORE, ALLOWED. 15. THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND OF APPEAL NO.3 FOR WHICH THE LD. DR HAS NO OBJECTION. ACCORDINGLY, THE SAME IS DISMISSED. 16. GROUNDS OF APPEAL NO.4 AND 5 ARE AS UNDER:- 4. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF-THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO IN MAKING AGGREGATE ADDITION OF RS.34,50,000/- ON ACCO UNT OF LOAN RECEIVED U/S 68 AND THAT TOO WITHOUT OBSERVING THE PRINCIPLES OF NA TURAL JUSTICE. 5. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF LD. AO IN MAKING AGGREGATE ADDITION OF RS.34,50,000/- ON ACCOUNT OF LOAN RECEIVED U/S 68 IS BAD IN LAW AN D AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.4944/DEL/2016 10 17. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERVED FROM THE BALANCE S HEET THAT THE ASSESSEE HAD SHOWN ADVANCES RECEIVED AMOUNTING TO RS.2,25,08,885/- DUR ING THE YEAR. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE TO DISCHARGE THE ONUS CAST U/S 68 OF THE IT ACT, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE CREDIT WORTHINESS OF THE FOLLOWING PARTIES WITH THE FOLLOWING REMARKS :- NAME OF PARTY NET ADVANCE RECEIVED REMARKS 1. MAHESH FINSEC PVT. LTD. RS.5,00,000 THE ASSESSEE FAILED TO FURNISH THE PAN/ITR/AUDITED FINANCIAL STATEMENTS. 2. INDIAN PROBUILD PVT. LTD. RS.29,50,000 THE CO.S I TRS FILED FOR A.Y. 11-12 AND 10-11 REVEALS LOSS RETURNS OF RS.(-) 76982 & RS.(-)18,05,827. FURTHER, THE RESERVES AND SURPLUS ACCOUNT SHOW CAPITAL RESERVE OF RS.1453532 FOR BOTH THE YEARS. 18. INVOKING THE PROVISIONS OF SECTION 68 AND OBSER VING THAT THE ASSESSEE FAILED TO DISCHARGE THE ONUS OF ESTABLISHING THE IDENTITY AND CREDIT WORTHINESS OF THE PARTIES AND GENUINENESS OF THE TRANSACTION, THE ASSESSING OFFIC ER MADE ADDITION OF RS.34,50,000/- TO THE TOTAL INCOME OF THE ASSESSEE. 19. IN APPEAL, THE LD.CIT(A) UPHELD THE ACTION OF T HE ASSESSING OFFICER BY RELYING ON VARIOUS DECISIONS. 20. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE AS SESSEE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO.4944/DEL/2016 11 21. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALL ENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE ADDITION OF RS.35,50,000/- RECEIVED BY THE ASSESSEE ON ACCOUNT OF ADVANCE AGAINST SALE OF SHARES. HE SUBMITTED THAT THE ASSESSEE IN THE INSTANT CASE HAD FILED THE CONFIRMATIONS OF THE TWO PARTIES, THEIR C OPIES OF THE INCOME-TAX RETURNS, BANK STATEMENTS, BALANCE SHEETS, ETC. IT IS NOT A CASE OF ANY ACCOMMODATION ENTRY AND BEFORE COMPLETION OF THE ASSESSMENT, THE ASSESSEE HAD REPA ID THE MAJOR AMOUNT OF THE ADVANCES SO RECEIVED. HE SUBMITTED THAT ON THE BASI S OF VARIOUS DETAILS FILED BY THE ASSESSEE, THE IDENTITY OF THE PARTIES AND GENUINENE SS OF THE TRANSACTION WERE NOT IN DOUBT AND THE ONLY DISPUTE IS REGARDING THE CREDIT WORTHINESS OF THE PARTIES IF AT ALL TO BE DISPUTED. REFERRING TO THE PAPER BOOK PAGE 58, WHICH CONTAINS THE BALANCE SHEET OF THE INDIAN PROBUILD PRIVATE LIMITED AS ON 31 ST MARCH, 2011, HE SUBMITTED THAT THE CAPITAL AND RESERVES AND SURPLUS OF THE SAID COMPAN Y STANDS AT RS.36,56,19,552/-. REFERRING TO PAGE 62 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BENCH TO THE DETAILS OF ADVANCES RECOVERABLE FOR THE YEAR ENDING 31 ST MARCH, 2011 WHERE THE NAME OF THE ASSESSEE DEEPTI AGRAWAL IS SHOWN AT RS.29,50 ,000.00 IN THE BOOKS OF INDIAN PROBUILD PRIVATE LIMITED. REFERRING TO PAGE 177 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BENCH TO THE LEDGER ACCOUNT OF IND IAN PROBUILD PRIVATE LIMITED AND SUBMITTED THAT THE ASSESSEE HAD ALSO RECEIVED AN AM OUNT OF RS.1 CRORE DURING THE F.Y. 2011-12 WHICH WAS ACCEPTED BY THE ASSESSING OFFICER IN THE ORDER PASSED U/S 143(3). REFERRING TO THE SAID PAGE, HE SUBMITTED THAT THE A SSESSEE HAD REPAID THE ENTIRE AMOUNT OF RS.1,29,50,000/- BETWEEN FEBRUARY, 2012 TO JULY, 2014. SO FAR AS MAHESH FINSEC PVT. LTD. IS CONCERNED, HE SUBMITTED THAT THE ALLEG ATION OF THE ASSESSING OFFICER THAT ITA NO.4944/DEL/2016 12 THE ASSESSEE FAILED TO FURNISH THE PAN, ITR, AUDITE D FINANCIAL STATEMENTS, ETC., IS CONTRARY TO WHAT HE HAS MENTIONED IN THE PRECEDING PARAGRAPHS. REFERRING TO PAGE 74 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BEN CH TO THE BALANCE SHEET AS ON 31 ST MARCH, 2011 WHEREIN THE SHARE CAPITAL & RESERVES AN D SURPLUS OF THE SAID COMPANY HAD BEEN SHOWN AT RS.53.78 CRORES. HE SUBMITTED THAT N AME OF THE COMPANY HAS SINCE BEEN CHANGED TO RPL CAPITAL FINANCE LTD., AFTER AMA LGAMATION AS APPROVED BY THE HON'BLE HIGH COURT. RELYING ON VARIOUS DECISIONS, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHEN THE ASSESSEE DISCHARGED THE ONU S CAST ON IT BY FURNISHING THE VARIOUS DETAILS TO SUBSTANTIATE THE IDENTITY AND CR EDIT WORTHINESS OF THE LOAN CREDITORS AND GENUINENESS OF THE TRANSACTION, NO ADDITION U/S 68 IS CALLED FOR. SO FAR AS THE VARIOUS DECISIONS RELIED ON BY THE LD.CIT(A) AS WEL L AS THE LD. DR ARE CONCERNED, HE SUBMITTED THAT THOSE DECISIONS ARE NOT APPLICABLE T O THE FACTS OF THE PRESENT CASE SINCE IT IS NOT A CASE OF BOGUS CAPITAL. REFERRING TO VARIO US PAGES OF THE PAPER BOOK, HE SUBMITTED THAT ALTHOUGH FULL DETAILS ARE GIVEN BEFO RE BOTH THE LOWER AUTHORITIES, THEY HAVE CLOSED THEIR EYES AND PROCEEDED IN AN ARBITRAR Y MANNER JUST TO BRING TO TAX AN AMOUNT OF RS.34,50,000/- BY SOME WAY OR THE OTHER. 22. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED O N THE ORDER OF THE ASSESSING OFFICER AND CIT(A). SHE SUBMITTED THAT BOTH THE LE NDERS DO NOT HAVE SUFFICIENT INCOME. FURTHER, NO INTEREST HAS BEEN PAID BY THE ASSESSEE TO THE ABOVE TWO PARTIES ALTHOUGH HUGE AMOUNT HAVE BEEN BORROWED FROM THEM. THEREFORE, IT CASTS A DOUBT REGARDING THE GENUINENESS OF THE TRANSACTION AND TH E CREDIT WORTHINESS OF THE LENDERS. ITA NO.4944/DEL/2016 13 SHE SUBMITTED THAT THE LD.CIT(A) HAS RIGHTLY CONFIR MED THE ADDITION MADE BY THE ASSESSING OFFICER U/S 68 OF THE IT ACT. 23. THE LD. COUNSEL FOR THE ASSESSEE, IN HIS REJOIN DER, SUBMITTED THAT INCOME SHOULD NOT BE THE CRITERIA TO ALLOW THE TRANSACTION AS LON G AS THE LENDER HAS SUFFICIENT SOURCE OF FUNDS TO ADVANCE SUCH MONEY. HE SUBMITTED THAT WHEN IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2012-13 WHICH WAS PASSED U/S 153A/1 43(3), THE ASSESSING OFFICER HAS NOT ADDED ANY AMOUNT U/S 68 OF THE IT ACT ON AC COUNT OF LOAN/ADVANCE OBTAINED FROM INDIAN PROBUILD PRIVATE LTD., THEREFORE, THE I DENTITY AND CREDIT WORTHINESS OF THE LOAN TRANSACTION STAND ESTABLISHED. 24. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE ASSESSING OFFICER AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. WE FIND THE ASSESSING OFFICER MADE AN ADDITION OF RS.34,50,000/ - U/S 68 OF THE IT ACT ON THE GROUND THAT THE ASSESSEE FAILED TO PROVE THE IDENTI TY AND EXISTENCE OF THE PARTIES ADVANCING THE SUM AND FAILED TO DISCHARGE THE ONUS OF ESTABLISHING THE IDENTITY AND CREDIT WORTHINESS OF THE PARTIES AND GENUINENESS OF THE TRANSACTION. WE FIND THE LD.CIT(A), RELYING ON VARIOUS DECISIONS UPHELD THE ACTION OF THE ASSESSING OFFICER. IN THE INSTANT CASE, THE ADDITION HAS BEEN MADE U/S 68 OF THE IT ACT, 1961 ON ACCOUNT OF ADVANCES RECEIVED FROM TWO PARTIES, NAMELY, MAHESH FINSEC PVT. LTD. RS.5 LAKHS AND INDIAN PROBUILD PVT. LTD. RS.29,50,000/-. SO FAR AS THE AMOUNT RECEIVED FROM INDIAN PROBUILD PVT. LTD., OF RS.29,50,000/- IS CONCERNED, IT IS AN ADMITTED FACT THAT THE ITA NO.4944/DEL/2016 14 ASSESSEE FILED THE CONFIRMATIONS, BANK ACCOUNT STAT EMENTS REFLECTING THE ADVANCES, ITR COPIES/AUDITED FINANCIAL STATEMENTS, ETC., WHICH HA S BEEN MENTIONED BY THE ASSESSING OFFICER AT PARA 5 OF THE ORDER AND WHICH READS AS U NDER:- THE ASSESSEE FURNISHED THE CONFIRMATIONS, BANK ACC OUNT STATEMENTS OF THE ADVANCERS REFLECTING THE SUMS AND THE ITR COPIES/AU DITED FINANCIAL STATEMENTS, VIDE ITS LETTERS DATED 22.10.2013, 28.01.2014 AND 0 3.02.2014. 25. FROM THE COPY OF THE LEDGER ACCOUNT OF THE SAID PARTY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, WE FIND, APART FROM THE AMOUNT OF RS. 29,50,000/- RECEIVED AS ADVANCE FROM INDIA PROBUILD PVT. LTD., THE ASSESSEE HAS ALS O RECEIVED ANOTHER ADVANCE OF RS.1 CRORE FROM THE SAID PARTY ON 18 TH MAY, 2011 AND THE ASSESSEE STARTED REPAYING THE AMOUNT OF RS.1,29,50,000/- BETWEEN FEBRUARY 2012 TO JULY, 2014 THE DETAILS OF WHICH ARE AS UNDER:- 15 TH FEBRUARY, 2012 - RS.25 LAKHS 13 TH MARCH, 2014 - RS.40 LAKHS 28 TH MARCH, 2014 - RS.36 LAKHS 24 TH JULY, 2014 - RS.28,50,000/- 26. A PERUSAL OF THE COPY OF THE ASSESSMENT ORDER P ASSED U/S 153A/143(3) ON 29 TH DECEMBER, 2016 SHOWS THAT NO ADDITION U/S 68 OF THE ACT HAS BEEN MADE IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF THE AMOUNT OF ADVANCE OF RS.1 CRORE RECEIVED FROM INDIA PROBUILD PVT. LTD. DURING ASSESSMENT YEAR 2012-13. THUS, WE FIND FORCE IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT W HEN THE ASSESSING OFFICER HAS NOT DOUBTED THE IDENTITY AND CREDIT WORTHINESS OF THE P ARTY AND GENUINENESS OF THE SAID ITA NO.4944/DEL/2016 15 ADVANCE OF RS.1 CRORE IN THE SUBSEQUENT YEAR, HOW C AN HE DISBELIEVE THE AMOUNT OF ADVANCE OF RS.29,50,000/- DURING THE CURRENT YEAR ESPECIALLY WHEN THE ASSESSEE HAS FURNISHED ALL THE DETAILS SUCH AS THE COPY OF CONFI RMATION, BANK ACCOUNT STATEMENTS REFLECTING THE ADVANCES SO RECEIVED, COPIES OF ITRS /AUDITED FINANCIAL STATEMENTS, ETC. FURTHER, THE AMOUNT SO OBTAINED AS ADVANCE HAS ALSO BEEN REPAID BY THE ASSESSEE IN THE SUBSEQUENT YEARS AND IT IS NOT A CASE OF BOGUS SHAR E CAPITAL. THEREFORE, VARIOUS DECISIONS RELIED ON BY THE CIT(A) AS WELL AS THE LD . DR ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. FURTHER A PERUSAL OF THE BALA NCE SHEET OF THE LOAN CREDITOR SHOWS THAT IT HAS GOT SUFFICIENT SHARE CAPITAL AND FREE R ESERVES OF ITS OWN AND, THEREFORE, MERELY BECAUSE THE ASSESSEE HAS INCURRED LOSS DURIN G THE CURRENT YEAR SHOULD NOT BE A GROUND FOR MAKING THE ADDITION U/S 68 ESPECIALLY WH EN IN SUBSEQUENT YEAR MORE THAN RS.1 CRORE HAS BEEN ACCEPTED BY THE ASSESSING OFFIC ER IN THE ORDER PASSED U/S 153A/143(3). WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS.29,50,000/-. 27. SO FAR AS THE AMOUNT OF RS.5 LAKHS RECEIVED FRO M MAHESH FINSEC PVT LTD. IS CONCERNED, WE FIND M/S MAHESH FINSEC PVT. LTD., HAS FILED THE RETURN OF INCOME FOR ASSESSMENT YEAR 2010-11 DECLARING TOTAL INCOME OF R S.2,35,251/- AND RS.26,97,925/- FOR ASSESSMENT YEAR 2011-12 IN THE NAME OF M/S RPL CAPITAL FINANCE LTD. AFTER ITS MERGER WITH THE SAID COMPANY. THE BALANCE SHEET OF RPL CAPITAL FINANCE LTD., AS ON 31 ST MARCH, 2011 SHOWS CAPITAL AND FREE RESERVES OF RS. 53.78 CRORES. WHEN THE ASSESSEE HAS FILED THE FULL DETAILS OF THE SAID LEN DER ALONG WITH THE COPY OF THE INCOME- ITA NO.4944/DEL/2016 16 TAX RETURN, AUDITED FINANCIAL STATEMENTS, BANK STAT EMENTS, CONFIRMATION, ETC., WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS DISCHA RGED THE ONUS CAST ON IT BY PROVING ALL THE THREE INGREDIENTS OF SECTION 68, NAMELY, TH E IDENTITY AND CREDIT WORTHINESS OF THE PERSONS AND THE GENUINENESS OF THE TRANSACTION. FU RTHER, IT IS NOT A CASE OF ISSUE OF ANY BOGUS SHARE CAPITAL WITH HIGH PREMIUM. WE, THEREFO RE, SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFIC ER TO DELETE THE ADDITION. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLO WED. 28. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEES IS PARTLY ALLOWED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 2 5.07.2019. SD/- SD/- (KULDIP SINGH) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMFBER DATED: 25 TH JULY, 2019 DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI