M/s. TIRUPATI CONSTRUCTION, Ujjain V. The DCIT 2(1), Ujjain

ITA 522/IND/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5784 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 31-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJIV VARSHNEY
• Assessee Lawyers: N D PATWA
• Keywords: Bogus purchase; Business expenditure; Capital receipt; Onus to prove
• Section: 40A(3); 133(6); 68

Judgement Text

M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JM & SHRI N.S. SAINI, AM ITA NO. 522/IND/2014 A.Y.2010-11 M/S TIRUPATI CONSTRUCTION UJJAIN ::: APPELLANT VS DY. COMMR. OF INCOME TAX 2(1) UJJAIN ::: RESPONDENT APPELLANT BY SHRI ASHISH GOYAL & SHRI N.D. PATWA RESPONDENT BY SHRI RAJIV VARSHNEY DATE OF HEARING 4.7.2016 DATE OF PRONOUNCEMENT 1 4 .7.2016 O R D E R PER SHRI N.S. SAINI, AM THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(A), UJJAIN, DATED 18.6.2014. M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 2 2. GROUND NO. 1 OF THE APPEAL IS GENERAL IN NATURE AND HENCE REQUIRES NO SEPARATE ADJUDICATION. 3. IN GROUND NO. 2 THE GRIEVANCE OF THE ASSESSEE IS T HAT THE LEARNED CIT(A) ERRED IN SUSTAINING THE ASSESSMENT ORDER WHICH IS BARRED BY LIMITATION, PASSED WITHOUT JURISDIC TION, BAD IN LAW, CONTRARY TO MATERIAL AND LAW AND WAS ILLEGAL. 4. AT THE TIME OF HEARING, NO ARGUMENT WAS ADVANCED BY THE LEARNED COUNSEL FOR THE ASSESSEE AND HENCE THIS GR OUND OF APPEAL IS DISMISSED FOR WANT OF PROSECUTION. 5. GROUND NO. 3 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A) CONFIRMING THE DISALLOWANC E OF EXPENDITURE OF RS.3,51,72,500/- U/S 40A(3) OF THE A CT. 6. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A REAL ESTATE DEVELOPER AND ENGAGED IN SEVERAL REAL ESTATE PROJE CTS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE MADE PURCHASES OF LAND AGGREGATING TO RS.7,52,26,461/- FOR M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 3 TIRUPATI GARDEN, TIRUPATI AVENUE, TIRUPATI DHAM AND TIRUPATI JEWELS BUT FOR MAKING THE PURCHASE OF LAND, TH E ASSESSEE MADE PAYMENT OF PURCHASE CONSIDERATION BY CHEQUE AS WELL AS CASH THE DETAILS OF WHICH ARE AS UNDER : - SL. NO. DETAILS OF LAND PURCHASED NAME OF SELLER PURCHASE CONSIDERATION RS. PAYMENT BY CHEQUE RS. PAYMENT BY CASH RS. 1 SURVEY NO.1634/E E- 2, TEHSIL & DISTT UJJAIN SMT. PUKHRAJ AND OTHERS RS.2,25,00,000 1,46,00,000 79,00,000 2 LAND HAVING OLD NO.1/1389,NEW NO.64, DABRI PETHA UJJAIN SARDAR RANDHIR SINGH AND OTHERS 1,52,72,500 1,16,00,000 36,72,500 3 SURVEY NO. 1596/1/2, 1595,1596/1/1 PART, ETC. AT TEHSIL & DISTT. UJJAIN MADHUK AR RAO AND OTHERS 1,50,00,000 NIL 1,50,00,000 4 SURVEY NO. 1593, TEHSIL & DISTT UJJAIN NARENDR A SINGH AND OTHERS 66,00,000 NIL 66,00,000 5 SURVEY NO.94, VILL. DENDIYA, TEHSIL & DISTT UJJAIN HARI SINGH ANJANA 51,96,666 31,96,666 20,00,000 TOTAL 3,51,72,500 THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS M ADE CASH PAYMENT OF RS. 3,51,72,500/- TO VARIOUS PERSONS AGAINST THE PURCHASE OF LAND WHICH HE HAS SHOWN AS STOCK IN TRADE OF THE ASSESSEE. HE HELD THAT THE ASSESSEE HAS M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 4 VIOLATED THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND, THEREFORE, MADE THE ADDITION FOR THE ENTIRE AMOUNT OF RS.3,51,72,500/- TO THE INCOME OF THE ASSESSEE. 7. THE ASSESSEE BEING NOT SATISFIED WITH THE ORDER OF THE ASSESSING OFFICER CARRIED THE MATTER IN APPEAL BEFORE T HE LEARNED CIT(A). THE ASSESSEE CONTENDED THAT ALL THE PAYMENTS WERE MADE TO THE PARTIES WHO WERE NEW TO THE ASSESSEE FIRM AND THE ASSESSEE FIRM HAD ENTERED WITH SI NGLE TRANSACTION WITH THE SELLER. THE SELLERS INSISTED FOR CASH PAYMENT. IN SUPPORT OF THE SAME, THE ASSESSEE FILED C OPIES OF LETTERS AND AFFIDAVITS OF THE SELLER WITH ITS SUBMI SSION DATED 24.1.2014. IT WAS CONTENDED THAT THE CASH PAYMEN T WAS MADE UNDER BUSINESS EXPEDIENCY AS BUSINESS INTERES T WOULD HAVE SUFFERED DUE TO NON-AVAILABILITY OF GOODS AS THE LAND OF THE PROJECT WAS VERY VITAL FOR SUCCESSFUL COMP LETION OF THE PROJECT. IT WAS ALSO SUBMITTED THAT THE SALE CONSIDERATION WAS PAID AND AUTHENTICATED BY THE SUB- M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 5 REGISTRAR VIDE REGISTERED DEED. THE COPIES OF THE R ELEVANT PURCHASE DEED EXECUTED BY THE ASSESSEE FIRM WERE SUBMITTED WITH LETTER DATED 24.1.2014. IT WAS ALSO SUBMITTED THAT EXECUTION OF PURCHASE DEED BEFORE THE GOVERNMENT OFFICIAL WAS A PROOF OF GENUINENESS OF TRANSACTION AND PAYMENTS RECEIVED BY CHEQUE. IT WAS ALSO SUBMITTED THAT THE PURCHASE OF LAND WAS COMPLETED BY T HE ASSESSEE FIRM AFTER SETTLEMENT OF DISPUTE AFTER THE JUDGMENTS OF COURT AND THE SELLER REFUSED TO ACCEPT T HE CHEQUE DUE TO MISTRUST AND DOUBT ON THE TRANSACTION. COPIES OF THE COURT ORDER IN THE ASE OF LAND PURCHASED FROM MADHUKAR RAO MAHADIK AND OTHERS WERE FILED WITH THE LETTER DATED 24.1.2014. IT WAS ALSO SUBMITTED THAT IN C ASE OF LAND PURCHASED FROM SARDAR RANDHIR SINGH AND OTHERS FIR WAS FILED AGAINST THE PARTNER AND THE MATTER WAS UND ER VARIOUS LEGAL FORMALITIES. COPIES OF FIR AND SUBMISSIO NS MADE BEFORE THE HON'BLE HIGH COURT WERE ALSO FILED. I T WAS M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 6 SUBMITTED THAT DUE TO THIS LEGAL BATTLE AND INSISTENCE OF PARTY FOR CASH PAYMENT DUE TO DISBELIEF OF TRANSACTION WITH THE ASSESSEE FIRM, IN THE INTEREST OF BUSINESS AND UN DER DUE BUSINESS EXPEDIENCY, CASH PAYMENT WAS MADE. FURTHER IN THE CASE OF LAND PURCHASED FROM NARENDRA SING H AND OTHERS PAYMENT WAS MADE TO SHRI DASHRATH PATEL WHO WAS HAVING POWER OF ATTORNEY ON BEHALF OF THE SELLERS AS SELLERS WERE RESIDING IN VILLAGE KUDANA WHICH WAS NOT SERVED BY ANY BANK AND DID NOT HAVE ANY INTERCONNECTION WITH THE ASSESSEE FIRM, NECESSITY FOR CASH PAYMENT AND UNDER THIS GENUINE CIRCUMSTANCE AND BUSINESS EXPEDIE NCY, CASH PAYMENT WAS ESSENTIAL. COPIES AND AFFIDAVITS OF SHR I DASHRATH PATEL WERE FILED ON 24.1.2014. IT WAS, THEREF ORE, SUBMITTED THAT THE PAYMENTS WERE MADE UNDER BUSINESS EXPEDIENCY AND EXCEPTIONAL CIRCUMSTANCES AS POINTED OUT ABOVE. THEREFORE, THE DISALLOWANCE CANNOT BE MADE BY M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 7 INVOKING PROVISIONS OF SECTION 40A(3) OF THE ACT. H ENCE, IT WAS PRAYED THAT THE DISALLOWANCE MADE BE DELETED. 8. THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. HE HELD THAT IN HIS OPINION DISAL LOWANCE OF EXPENDITURE BEYOND THE SPECIFIED LIMIT BY MEANS O F CROSSED CHEQUE OR CROSSED DRAFT WAS FULLY JUSTIFIED. W ITH THE AMENDMENT MADE FROM 1.4.2009 THE ASSESSING OFFICER HAD NO DISCRETIONARY POWER THAN TO DISALLOW 100% OF EXPENDITURE IF THE PAYMENT WAS MADE IN VIOLATION OF S ECTION 40A(3) OF THE ACT. HE HELD THAT IN THE CASE OF THE AS SESSEE LAND PURCHASED WAS STOCK IN TRADE AND IN PURCHASING IT EXPENDITURE/PAYMENTS WERE MADE IN CASH AND, THEREFORE, IT FALLS WITHIN THE PURVIEW OF SECTION 40A(3) OF THE AC T. THE LEARNED CIT(A) FURTHER OBSERVED THAT THE ASSESSEE HAS C ITED CASE LAWS ON THE ISSUE THAT WHERE EXPENDITURE ON THE PURCHASE OF STOCK IN TRADE HAS NOT BEEN CLAIMED IN PROF IT AND LOSS ACCOUNT THEN NO DISALLOWANCE U/S 40A(3) CAN BE M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 8 MADE WHEREAS IN THE CASE OF THE ASSESSEE THE ASSESSEE HAS DEBITED AND CLAIMED ALL THE EXPENSES INCURRED ON PURCH ASE OF LAND INCLUDING THE PAYMENTS MADE IN CASH. THEREFORE , THE CASE LAWS APPLIED ARE DISTINGUISHABLE AND MISPLACE D. HE FURTHER OBSERVED THAT THE ASSESSEE HAS FURNISHED P AN OF SELLER PARTIES OF THE LAND AND IT IS CLEAR THAT MOST OF THE SELLER PARTIES WERE HAVING PAN AND BANK ACCOUNT NUMBERS AND, THEREFORE, THE ASSESSEE WAS IN A POSITION TO MAKE THE PAYMENT THROUGH ACCOUNT PAYEE CHEQUES AS REQUIRED U/S 40A(3) OF THE ACT. 9. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND ON THE OTHER HAND, THE LEARNED DR FULL Y JUSTIFIED THE ORDERS OF THE AUTHORITIES BELOW. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILA BLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT T HE M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 9 ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVE LOPER CARRYING OUT SEVERAL PROJECTS. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION PURCHASED LAND FOR ITS 4 PROJECTS AGGREGATING TO RS.7,52,26,461/-. THE ASSESSEE BESIDES MAKING CHEQUE PAYMENT FOR PURCHASE OF LAND ALSO MADE CASH PAYMENT OF RS.3,51,72,500/- IN CASH. THE ASSESSI NG OFFICER HELD THAT SINCE THE LAND PURCHASED BY THE ASSE SSEE WAS ITS STOCK IN TRADE AND IN THE PURCHASE OF WHICH THE ASSESSEE HAD MADE CASH PAYMENTS IN VIOLATION OF PROVISIONS OF SECTION 40A(3) OF THE ACT, THEREFORE, 100% OF THE PAYMENTS MADE IN CASH FOR PURCHASE OF LAND WAS DISALLOWABLE U/S 40A(3) OF THE ACT AND ACCORDINGLY MAD E THE ADDITION OFRS.3,51,72,500/- TO THE INCOME OF THE ASSESSEE. 11. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT AFTER THE AMENDMENT W.E.F. 1.4.2009 THE ASSESSING OFFICER HAD N O M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 10 DISCRETION BUT TO FOLLOW THE MANDATE OF SECTION 40A(3 ) OF THE ACT AND MADE DISALLOWANCE OF THE ENTIRE AMOUNT PAID IN CASH IN THE PURCHASE OF GOODS WHICH ARE STOCK IN TRADE OF THE ASSESSEE. HE ALSO HELD THAT THE ASSESSEE HAS RELIED ON VARIOUS DECISIONS TO CONTEND THAT WHERE PAYMENT WAS MAD E FOR PURCHASE OF GOODS, WHICH WERE HELD TO BE PART OF STOCK IN TRADE, NO DISALLOWANCE CAN BE MADE AS THE ASSESSEE HAS NOT CLAIMED THE SAME AS ITS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT BUT AS THE ASSESSEE HAS DEBITED THE EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT, THEREFOR E, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS FULLY JUSTIFIED. WE FIND THAT THE CONTENTION OF THE ASSESS EE IS THAT THE PAYMENT IN CASH FOR PURCHASE OF LAND WAS MADE IN EXCEPTIONAL CIRCUMSTANCES SUCH AS PURCHASE OF LAND WAS COMPLETED BY THE ASSESSEE FIRM AFTER SETTLEMENT OF DI SPUTES AND JUDGMENT OF COURT WHERE SELLERS REFUSED TO ACCEPT CHEQUE ON ACCOUNT OF MISTRUST AND DOUBT ON THE M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 11 TRANSACTION. LAND WAS PURCHASED FROM ONE SARDARSINGH AND OTHERS AGAINST WHOM FIR WAS LODGED AND OTHER LEGAL FORMALITIES WERE GOING ON IN THE HON'BLE HIGH COURT, THE LAND WAS PURCHASED FROM NARENDRASINGH AND OTHERS THROUGH THE AGENT DASHRATH PATEL HOLDING POWER OF ATTORN EY ON BEHALF OF THE SELLER SINCE THE SELLERS WERE RESID ING IN VILLAGE KUDANA WHICH WAS NOT SERVED WITH ANY BANK AND THAT ALL THE PAYMENTS WERE MADE BEFORE THE REGISTRAR WH O IS A GOVERNMENT OFFICIAL AS THE SELLERS WERE NOT WILLI NG TO ACCEPT THE CHEQUES, THEREFORE, IT WAS CONTENTION OF TH E LEARNED COUNSEL FOR THE ASSESSEE THAT THE TRANSACTION FE LL WITHIN THE EXCEPTIONS AS CARVED OUT IN THE PROVISO BE LOW SUB-SECTION (3A) TO SECTION 40A(3) WHEREIN IT HAS BE EN PROVIDED THAT NO DISALLOWANCE SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SUB-SECTION (3) AND THI S SUB- SECTION WHERE A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 12 A PERSON IN A DAY, OTHER THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE DRAFT, EXCEEDS RS.20,000/- IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES , AS MAY BE PRESCRIBED, HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATION OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS. THUS, WE FIND THAT THE ASSESSEE HAS MADE PAYMENT OF PURCHASE UNDER EXCEPTIONAL CIRCUMSTANCES OUT OF BUSINESS EXPEDIENCY AND ALSO FILED ALL THE RELEVANT DOCUMENTS AND EVIDENCE IN SUPPORT OF THE SAME BEFORE BOTH THE LOWE R AUTHORITIES AND THE LOWER AUTHORITIES HAVE NOT BROUGHT ANY MATERIAL ON RECORD BY VERIFYING THE SAME THAT THEY ARE F ALSE, BOGUS OR UNRELIABLE. THEREFORE, IN THE GIVEN CIRCUMS TANCES, WE ARE OF THE VIEW THAT THE ASSESSEE IS COVERED BY TH E EXCEPTIONS IN THE PROVISO BELOW SUB-SECTION (3A) TO SECTION 40A(3) AND NO DISALLOWANCE U/S 40A(3) CAN BE MADE IN THE HANDS OF THE ASSESSEE. M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 13 12. FURTHER WITH REGARD TO THE CONTENTION OF THE ASSESSEE THAT THE LAND PURCHASED WAS SHOWN AS PART OF ITS CLOSING STOCK THEREBY NO EXPENDITURE HAVING BEEN CLAI MED IN THE PROFIT AND LOSS ACCOUNT DURING THE YEAR UNDER CONSIDERATION IN THE COMPUTATION OF BUSINESS PROFITS , NO DISALLOWANCE U/S 40A(3) CAN BE MADE BY THE ASSESSING OFFICER. WE FIND THAT BEFORE THE ASSESSING OFFICER T HE ASSESSEE FILED TAX AUDIT REPORT AND SUBMITTED THAT IT IS EVIDENT FROM THE TAX AUDIT REPORT THAT THE ASSESSEE HAS NOT CLAIMED EXPENDITURE AND ENTIRE COST OF LAND AND DEVELOPMENT WORK IS CARRIED FORWARD TO NEXT ASSESSMENT YEAR WHICH FACT HAS NOT BEEN DISPUTED EITHER BY THE ASSESSING OFFICER OR THE LEARNED CIT(A). THEREFORE, AS NO EXPENDITURE HAVING BEEN CLAIMED BY THE ASSESSEE IN TH E PROFIT AND LOSS ACCOUNT WHILE COMPUTING ITS TOTAL INCO ME, NO DISALLOWANCE U/S 40A(3) CAN BE MADE. OUR ABOVE VIEW IS FORTIFIED BY THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 14 IN THE CASE OF M/S SARAL MOTORS AND GENERAL FINANCE LTD. VS. ACIT (2009) 121 ITD 50 (DEL) WHEREIN IT WAS HELD THAT THERE CANNOT BE DISALLOWANCE OF EXPENDITURE WITHOUT ANY CLAIM OF ALLOWANCE OF EXPENDITURE HAVING BEEN MADE. THEREFORE, THE DISALLOWANCE IN THE INSTANT CASE U/S 40 A(3) CANNOT BE MADE ON THIS COUNT ALSO. WE, THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DELETE THE DISALLOWANCE OF RS.3,51,72,500/- AND ALLOW THIS GROUND OF APPEAL. 13. IN GROUND NO. 4 OF THE APPEAL THE GRIEVANCE OF TH E ASSESSEE IS THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED I N SUSTAINING THE DISALLOWANCE OF RS.13,34,400/- UNDER TH E HEAD BOGUS PURCHASES. 14. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFI CER OBSERVED THAT THE ASSESSEE HAS MADE PURCHASES OF RS.15,79,400/- FROM SHRI KAILASH PORWAL. IT WAS FOUND THAT OUT OF THE TOTAL PURCHASES RS.2,45,000/- WAS PAID B Y M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 15 CHEQUE AND THE BALANCE AMOUNT WAS PAID IN 74 INSTALMENTS OF RS.18,200/-. THEREFORE, THE ASSESSING OFFICER DISALLOWED THE PURCHASES OF RS.13,34,400/- FO R WHICH THE PAYMENTS WERE MADE IN CASH BY THE ASSESSEE HOLDING IT TO BE BOGUS AS THE ASSESSEE COULD NOT PRO DUCE THE ORIGINAL BILLS OF PURCHASES AND ALSO NOT PRODUCED S HRI KAILASH PORWAL BEFORE HIM FOR VERIFICATION. 15. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 16. BEFORE US ALSO, THE LEARNED COUNSEL FOR THE ASSESS EE BESIDES SUBMITTING THAT THE PAYMENTS WERE MADE FOR PURCHASES MADE AT THE SITE OF CONSTRUCTION AND THAT THEY WERE MADE THROUGH VOUCHERS COULD NOT PRODUCE THE PURCHASE BILLS FOR PURCHASES MADE. THE LEARNED DR, O N THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES B ELOW. WE FIND THAT THE ASSESSING OFFICER HAS HIMSELF ALLOWED DEDUCTION FOR PURCHASES OF RS.2,45,000/- MADE FROM M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 16 KAILASH PORWAL. THUS, PART OF THE PURCHASES WAS ACCEPTED FROM THE SAID PARTY BY THE ASSESSING OFFICER AS GENUIN E. HE HAS DOUBTED THE PURCHASES OF RS.13,34,400/- ONLY F OR THE REASON THAT PAYMENTS WERE MADE IN CASH FOR THEM. TH E ASSESSING OFFICER HAS BROUGHT NO MATERIAL AFTER VERIFIC ATION TO SHOW THAT THE PURCHASES WERE BOGUS AND THE ASSESSEE HAS SHOWN THE SAME IN ITS PROFIT AND LOSS ACCOUNT TO REDUCE ITS PROFIT. NO MATERIAL HAS BEEN BROUGHT ON REC ORD AFTER COMPARING THE MATERIAL CONSUMED IN THE YEAR UNDER APPEAL AND IN EARLIER YEAR TO SHOW THAT THE PURCHASES ARE INFLATED BY THE ASSESSEE. IT CAN BE A CASE WHERE THE ASSESSEE DUE TO BUSINESS NECESSITY HAS TO MAKE PAYMENT S FOR MATERIALS THROUGH VOUCHERS IN CASH BUT THAT ALONE CANNOT BE A GROUND FOR DISALLOWING THE GENUINE BUSINES S EXPENDITURE OF THE ASSESSEE. IN OUR CONSIDERED VIEW, SUSPICION HOWSOEVER GRAVE CANNOT TAKE PLACE OF PROOF AN D ENTITLE THE ASSESSING OFFICER TO MAKE DISALLOWANCE OF M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 17 GENUINE BUSINESS EXPENDITURE CLAIMED BY THE ASSESSEE. THEREFORE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND VACATE THE DISALLOWANCE. THIS GROUND OF APPEAL IS ALLOWED. 17. IN GROUND NO. 5 AND 6 THE GRIEVANCE OF THE ASSES SEE IS THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN CONFIRMI NG THE ADDITION OF RS.2,30,00,000/- MADE U/S 68 OF THE ACT AN D DISALLOWING THE INTEREST PAID THEREON OF RS.2,79,808/ -. 18. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFI CER OBSERVED THAT THE ASSESSEE HAS RECEIVED UNSECURED LOANS FROM THE FOLLOWING THREE PARTIES :- 1. M/S EAST WEST FINVEST INDIA LTD. RS.75 LACS 2. M/S JAYANT SECURITIES & FINANCE LTD. RS. 80 LACS 3. M/S K.K. PATEL FINANCE LTD. RS. 75 LACS HE OBSERVED THAT THE ASSESSEE WAS PAYING INTEREST ON T HESE LOANS AT VERY SMALL RATE OF 3.6% WHEREAS INTEREST PAYMEN T M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 18 TO OTHER RANGES FROM 7% TO 21.6%. ACCORDING TO HIM, CHARGING OF SUCH LOW INTEREST RATE ON THE HUGE AMOUNT OF LOANS RAISES DOUBT. IN ORDER TO VERIFY THE IDENTITY AN D GENUINENESS OF THE PARTIES, NOTICE U/S 133(6) OF THE ACT WAS ISSUED ON 26.12.2012 ASKING THESE PARTIES TO FURNISH DETAILS ON OR BEFORE 4.1.2013. NO REPLY WAS RECEIVED TILL 7.2.2013. THEREAFTER THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE ALL THE DIRECTORS OF THE THREE CO NCERNS AND TO PRODUCE THE BANK STATEMENT REFLECTING THE SOURC E OF THE AMOUNT ADVANCED AS UNSECURED LOAN. THE ASSESSEE SUBMITTED REPLY ON 22.2.2013 BUT FAILED TO PRODUCE DIRECTORS OF THE COMPANY. THE ASSESSING OFFICER FUR THER NOTED THAT THE ASSESSEE ALSO FAILED TO PRODUCE THE BANK STATEMENTS AND EXPLAIN THE SOURCE OF THESE AMOUNTS THROUGH BANK TRAILS ADVANCE BY THESE PARTIES TO VERIFY T HE CREDIT WORTHINESS OF THESE PARTIES. THE ASSESSEE SUBM ITTED BEFORE THE ASSESSING OFFICER THAT THE PARTIES HAVE INF ORMED M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 19 HIM THAT NO NOTICE U/S 133(6) WAS RECEIVED BY THEM. THE ASSESSING OFFICER NOTED THAT THE NOTICES WERE DESPATC HED AT THE ADDRESSES GIVEN BY THE ASSESSEE AND, THEREFORE, TH E CONTENTION OF THE ASSESSEE IS REJECTED. THEREFORE, T HE ASSESSING OFFICER MADE ADDITION OF RS.2,30,00,000/- AN D DISALLOWED THE INTEREST PAYMENT OF RS.2,79,808/- MAD E TO THESE PARTIES. 19. BEFORE THE LEARNED CIT(A) IT WAS CONTENDED THAT TH E ASSESSEE FURNISHED COPY OF RETURN OF INCOME OF THE L OAN CREDITORS. THE LEARNED CIT(A) OBSERVED THAT IN THE R ETURN OF INCOME THE PARTIES WERE HAVING LOSS/VERY SMALL POSITIV E INCOME AND HE, THEREFORE, INFERRED THAT IT WAS NOT POS SIBLE TO GIVE HUGE LOANS BY THE SAID COMPANIES. 20. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT THE ASSESSEE FILED M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 20 (I) COPY OF CONFIRMATION LETTERS FROM THE LOAN CREDIT ORS. (II) COPY OF LEDGER ACCOUNT OF THE ASSESSEE FIRM IN B OOKS OF THREE COMPANIES. (III) COPY OF BANK STATEMENT OF THE ASSESSEE COMPANIES FROM WHERE THEY HAVE TRANSFERRED THE LOAN AMOUNT TO THE ASSESSEE FIRM. (IV) COPY OF INCOME TAX RETURN, PAN AND BALANCE SHEET OF THE THREE COMPANIES FOR THE YEAR UNDER APPEAL. (V) COPY OF ASSESSMENT ORDERS (VI) COPY OF BANK STATEMENT OF THE ASSESSEE FIRM WHERE IN CREDIT OF UNSECURED LOANS IS ACCEPTED AND APPEARING. (VII) COPY OF LOAN ACCOUNT OF THE LOAN CREDITORS IN TH E BOOKS OF THE ASSESSEE FIRM (VIII) COPY OF LEDGER ACCOUNT OF LOAN CREDITORS IN TH E BOOKS OF THE ASSESSEE FIRM FOR THE YEAR OF REPAYMENT ALONG WIT H COPY OF BANK STATEMENT FROM WHERE THE AMOUNT OF REPAYMENT HAS BEEN MADE AND (IX) COPY OF TDS CERTIFICATE FOR TDS MADE ON INTEREST PAID TO THE PARTIES. IT WAS, THEREFORE, SUBMITTED THAT THE ASSESSEE FIRM DU LY DISCHARGED ITS ONUS THAT THE LOAN WAS GENUINELY ACCEPTE D THROUGH BANKING CHANNEL FROM THE COMPANIES AND DISCHARGED ITS ONUS TO PROVE THE TRANSACTION. IT WAS ARG UED THAT MERELY BECAUSE THE DIRECTORS OF THE COMPANY COULD NOT M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 21 BE PRODUCED BY THE ASSESSEE, IT CANNOT BE HELD IN THE LIGHT OF OVERWHELMING EVIDENCE FILED BY THE ASSESSEE THAT T HE LOANS ARE NOT GENUINE OR THAT THERE WAS NO CREDIT WORTHINESS OF THE PARTIES TO ADVANCE SUCH LOAN. IT WAS ARGUED THAT THE ASSESSEE WAS REQUIRED TO PROVE THE SOURC E OF CREDIT IN ITS BOOKS OF ACCOUNTS AND NOT ABOUT THE S OURCE OF SOURCE. HENCE, IT WAS PRAYED THAT THE ADDITION MADE SHOULD BE DELETED. 21. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 22. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE SIDES. IN THE INSTANT CASE DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS RECEIVED RS.2,30,00,000/- FROM THREE COMPANIES AND ALSO MADE INTEREST PAYMENT OF RS.2,79,808/-. THE ASSESSING OFFICER DISALLOWED THE SAME ON THE GROUND THAT THE ASSESSEE HAS MADE INTEREST PAYMENT AT A VERY SMALL RATE OF INTEREST OF 3.6% WHEREAS IN M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 22 OTHER CASES INTEREST PAYMENT RANGED FROM 7% TO 26.1%. THEREFORE, IT RAISED A DOUBT THAT THE LOANS WERE NOT GENUINE. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT FR OM THE COPIES OF INCOME TAX RETURN IT IS SEEN THAT THESE CO MPANIES HAVE SHOWN LOSS/SMALL AMOUNTS OF INCOME AND, THEREFORE, THE LOAN CREDITORS DID NOT HAVE CREDIT WORTHINESS TO ADVANCE THE SUM OF MONEY TO THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE H AD FILED OVERWHELMING EVIDENCE SUCH AS CONFIRMATION LETT ERS FROM THE LOAN CREDITORS, LEDGER COPIES OF THE ACCOUNT S IN THE BOOKS OF THE LOAN CREDITORS, COPY OF BANK STATEMENT OF THE LOAN CREDITOR, COPIES OF INCOME TAX RETURN AND BALANCE SHEET, COPY OF ASSESSMENT ORDER, THE LOANS HAVE BEEN RECEIVED THROUGH BANKING CHANNEL AND THE ASSESSING OFFICER HAS BROUGHT NO MATERIAL AFTER VERIFYING THESE EVIDENCES TO SHOW THAT THE LOANS RECEIVED BY THE ASSES SEE M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 23 DURING THE YEAR ARE NOT GENUINE OR LOAN CREDITORS DID NOT HAVE THE CREDIT WORTHINESS TO ADVANCE SUM OF MONEY TO THE ASSESSEE. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS RE CEIVED THE AMOUNT THROUGH BANKING CHANNEL AND HAS ALSO FILED CONFIRMATION OF LOAN CREDITORS TOGETHER WITH PAN, COP Y OF INCOME TAX RETURN AND BALANCE SHEET TOGETHER WITH ASSESSMENT ORDER IN SUPPORT OF THE LOAN RECEIVED BY T HE ASSESSEE. WE FIND THAT SINCE THE RATE OF INTEREST PAID BY THE ASSESSEE ON THE SAID LOAN WAS 3.06% AND TO OTHER CREDIT ORS IT WAS 7% TO 26.1% THE ASSESSING OFFICER DOUBTED THE GENUINENESS OF THE LOAN TRANSACTION HE HAS BROUGHT NO MATERIAL ON RECORD AFTER MAKING INQUIRIES ON THE BASIS OF MATERIAL FILED BY THE ASSESSEE TO SHOW THAT THE LOAN CREDITORS ARE NOT GENUINE OR THAT THEY HAD NO CREDIT WORTHINESS TO ADVANCE THE SUM OF MONEY TO THE ASSESSEE . WE FIND THAT THE LEARNED CIT(A) ALSO ON THE BASIS OF SUSPICION WHILE VERIFYING THE INCOME TAX RETURNS OF THE M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 24 COMPANIES HAVING FOUND THAT THEY HAVE RETURNED LOSS/MEAGRE AMOUNT OF PROFIT, HELD A DOUBT THAT THE LOAN CREDITORS ARE NOT GENUINE. IN OUR CONSIDERED VIEW, N O SUSPICION HOWSOEVER GRAVE, CANNOT TAKE PLACE OF PROOF. AFTER INVESTIGATION, THE ASSESSING OFFICER IS REQUIR ED TO BRING MATERIAL ON RECORD TO SHOW THAT THE LOAN TRANSACTIO NS ARE NOT GENUINE OR THAT THE CREDIT WORTHINESS OF THE LOAN CREDITORS IS DOUBTFUL. MERELY FROM THE RETURN OF I NCOME FILED IT CANNOT BE DECIPHERED WHETHER THE LOAN CREDIT ORS HAD THE CREDIT WORTHINESS TO ADVANCE THE SUM OF MONEY TO THE ASSESSEE. THE COMPANY MAY HAVE RECEIVED THE AMOUNT BY ISSUE OF SHARE CAPITAL, DEBENTURES, PREFERENCE SHARES W HICH ARE ALL CAPITAL RECEIPTS NOT LIABLE TO TAX AND, THEREFOR E, WILL NOT FIND ITS PLACE EITHER IN THE PROFIT AND LOSS ACCOU NT OR IN THE RETURN OF INCOME. THE ASSESSEE HAS FILED COPIES O F BALANCE SHEET AND AFTER VERIFYING THE SAME, IT IS NOT TH E CASE OF ANY OF THE LOWER AUTHORITIES EITHER THE ASSESS ING M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 25 OFFICER OR THE LEARNED CIT(A) THAT THE LOAN ADVANCED T O THE ASSESSEE IS NOT APPEARING IN THE BALANCE SHEET OF THESE COMPANIES. FURTHER IT IS ALSO NOT THE CASE OF THE REVE NUE THAT THE AMOUNT ADVANCES TO THE ASSESSEE WAS NOT THROUGH BANKING CHANNEL OR THAT BEFORE ISSUE OF CHEQUE TO THE ASSESSEE COMPANY, THE COMPANY HAS DEPOSITED THE AMOUNT IN CASH FOR THE SUM ADVANCED TO THE ASSESSEE. THE ASSES SEE HAS FILED COPIES OF BANK STATEMENT AS NOTED IN THE ORDE R OF THE CIT(A) OF THREE COMPANIES FROM WHOM THE ASSESSEE HAS RECEIVED THE LOANS. THE ASSESSEE HAS FILED BANK STATEMEN TS EVIDENCING THE FACT OF REPAYMENT OF LOAN IN THE SUBSE QUENT YEARS. AFTER CONSIDERING THE ENTIRE FACTS AND CIRCUMST ANCES, WE ARE OF THE VIEW THAT THE ADDITION AS MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT(A) BY INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT IS UNSUSTAINABLE. HERE WE WOULD LIKE TO CITE THE DECISI ON OF M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 26 THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. GANGESHWARI METAL P. LTD. (2014) WHEREIN IT WAS HELD WHERE AMOUNTS ARE SHOWN AS SHARE APPLICATION MONEY IT IS A SIMPLE QUESTION OF WHETHER THE ASSESSEE HAS DI SCHARGED THE BURDEN PLACED UPON IT UNDER SECTION 68 OF THE I NCOME-TAX ACT, 1961, TO PROVE AND ESTABLISH THE IDENTITY AND CREDITWORTHINESS OF THE SHARE APPLICANT AND THE GEN UINENESS OF THE TRANSACTION. IN SUCH A CASE, THE ASSESSING OFFI CER CANNOT SIT BACK WITH FOLDED HANDS TILL THE ASSESSEE EXHAUS TS ALL THE EVIDENCE OR MATERIAL IN ITS POSSESSION AND THEN MER ELY REJECT IT, WITHOUT CARRYING OUT ANY VERIFICATION OR ENQUIRY IN TO THE MATERIAL PLACED BEFORE HIM. FOR THE ASSESSMENT YEAR 2004-05 , THE ASSESS ING OFFICER SOUGHT TO INCLUDE A SUM OF RS. 55.5 LAKHS IN THE TO TAL INCOME OF THE ASSESSEE. IN RESPONSE TO THE QUERY WITH REGARD TO THE SUM OF RS. 55.5 LAKHS, THE ASSESSEE HAD FURNISHED VARIO US DOCUMENTS IN SUPPORT OF THE SHARE APPLICATION MONEY RECEIVED BY IT. THOSE DOCUMENTS INCLUDED : (I) COMPLETE NAME S AND ADDRESSES OF THE SHARE APPLICANTS AND PAN/GIR DETAI LS ; (II) CONFIRMATORY LETTERS OF THE SHARE APPLICANTS ; (III ) COPIES OF BANK STATEMENTS OF THE SHARE APPLICANTS ; (IV) COPIES OF BANK ACCOUNT OF THE APPELLANT ; (V) CERTIFICATE OF INCORPORATION OF THE SHARE APPLICANTS ; (VI) MEMORANDUM OF ASSOCIATION OF THE SHARE APPLICANTS ; (VII)COPIES OF THE SHARE APPLICATION F ORMS. THE ASSESSING OFFICER REJECTED THE EXPLANATION AND ADDE D THE SUM OF RS. 55.5 LAKHS TO THE TOTAL INCOME OF THE ASSESS EE. THE ADDITION WAS DELETED BY THE COMMISSIONER (APPEALS) AND THIS WAS CONFIRMED BY THE TRIBUNAL. ON APPEAL TO THE HIG H COURT : HELD, DISMISSING THE APPEAL, THAT THERE WAS A C LEAR LACK OF INQUIRY ON THE PART OF THE ASSESSING OFFICER ONCE T HE ASSESSEE HAD FURNISHED ALL THE MATERIAL. IN SUCH AN EVENTUAL ITY NO ADDITION COULD BE MADE UNDER SECTION 68 OF THE ACT. M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 27 THEREFORE, FOR THE FORTHGOING REASONS, WE SET ASIDE T HE ORDERS OF THE LOWER AUTHORITIES AND DELETE THE ADDITIO N OF RS.2,30,00,000/- MADE U/S 68 OF THE ACT. 23. THE ASSESSING OFFICER HAS DISALLOWED INTEREST PAID ON THE ABOVE LOANS AS HE HELD THAT THE UNSECURED LOANS WERE NOT GENUINE. WE HAVE DELETED THE DISALLOWANCE OF LOANS, THEREFORE, AS A COROLLARY, THE INTEREST EXPENDIT URE OF RS.2,79,808/- CLAIMED ON SUCH LOAN IS ALSO ALLOWED. 24. GROUND NO. 7 RELATES TO CONFIRMATION OF PENALTY U/ S 271(1)(C) OF THE ACT. THIS GROUND IS PREMATURE, HENC E, DISMISSED. 25. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN OPEN COURT ON 14 TH JULY, 2016 SD/- SD/- (D.T. GARASIA) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER 14 TH JULY, 2016 M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 28 DN/- M/S TIRUPATI CONSTRUCTION ITA NO. 522/IND/2014 29