ITO 12(3)(4), MUMBAI V. M. S. INFRAPROJECT PVT. LTD., MUMBAI

ITA 6097/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6852 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2013-2014
• Appeal Filed On: 13-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Keywords: Unexplained cash credit; Depreciation; Business expenditure; Opportunity of being heard
• Section: 142(1); 32; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.6097/M/2016 ASSESSMENT YEAR: 2013-14 INCOME TAX OFFICER- 12(3)(4), ROOM NO.147A, 1 ST FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S. M.S. INFRAPROJECT PVT. LTD., G WING, FLAT NO.3, GROUND FLOOR, SUMER NAGAR BUILDING, S.V. ROAD, BEHIND AJANTA PARTY HALL, BORIVALI (WEST), MUMBAI 400 092 PAN: AABC17701C (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI ANIL THAKRAR, A.R. REVENUE BY : SHRI V. VIDHYADHAR, D.R. DATE OF HEARING : 12.04.2018 DATE OF PRONOUNCEMENT : 29.05.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 29.07.2016 OF THE COMMISSIONE R OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2013-14. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.29,87,000/- MADE U/S. U /S.68 OF J.T. ACT WITHOUT APPRECIATING THAT THE ASSESSEE HAD MISERABLY FAILED TO DISCHARGE ONUS CASE ON IT U/S.68 OF THE INCOME TAX ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSE HAD PRODUCED CONFIRMATI ON OF THE LENDERS BEFORE THE ITA NO.6097/M/2016 M/S. M.S. INFRAPROJECT PVT. LTD. 2 ASSESSING OFFICER DESPITE THE FACT THAT NO SUCH CON FIRMATION WAS PRODUCED BY THE ASSESSE DURING THE COURSE OF ASSESSMENT PROCEED INGS MAKING THE ORDER OF LD.CIT(A) FACTUALLY ERRONEOUS. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) HAS ERRED IN HOLDING THAT ASSESSE HAD DISCHARGED THE ONUS U/S .68 OF THE I.T. ACT AS THE ASSESSE NEITHER PRODUCED DETAILS RELATING TO BANK STATEMENT OF ASSESSE AND THE LENDERS NOR PRODUCED COPY OF RETURNS OF INCOME, CONFIRMATION OF THE LENDERS, WHICH WERE SPECIFICALLY CALLED FOR BY THE ASSESSING OFFICER VI DE NOTICE U/S. 142(1) DATED 02.12.2015. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, LD.CIT(A) HAS ERRED IN DELETING THE ENTIRE DISALLOWANCE OF BUSINESS EXPENS ES OF RS.20,69,525/- IGNORING THAT: (I) THE ASSESSE COMPANY BY NOT HAVING ANY BUSINESS INCO ME DURING THE RELEVANT PERIOD AND EVEN SUBSEQUENT YEARS EVIDE NCING THAT THE ASSESSE HAD CLOSED DOWN THE BUSINESS ACTIVITIES . (II) IN LIGHT OF FACTS, EFFECTS OF THE CASE EXTENT OF BU SINESS EXPENSES CLAIMED BY THE ASSESSE DURING THE RELEVANT PREVIOUS YEAR WERE WAY ABOUT THE EXPENDITURE ESSENTIAL RUNNING A COMPANY. 5. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A ) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALT ER ALL OR ANY OF THE GROUNDS OF APPEAL. 3. THE COMMON ISSUE RAISED IN GROUND NO.1, 2 & 3 IS AS REGARDS THE DELETION OF ADDITION OF RS.29,87,000/- BY THE LD. CIT(A) AS MADE BY THE AO UNDER SECTION 68 OF THE AC T WITHOUT APPRECIATING THE FACT THAT ASSESSEE HAS FAILED TO D ISCHARGE THE ONUS ON IT UNDER SECTION 68 OF THE ACT. 4. THE FACTS IN BRIEF ARE THAT IN THE ASSESSMENT PR OCEEDINGS THE AO OBSERVED FROM THE BALANCE SHEET THAT ASSESSE E HAS SHOWN UNSECURED LOANS AMOUNTING TO RS.42,22,200/- AS ON 31.3.201 AND THEREFORE, HE CALLED UPON THE ASSESSEE TO FILE THE DETAILS ALONG WITH CONFIRMATIONS IN RESPECT OF THE SAID LOAN CREDITORS. THE ASSESSEE VIDE WRITTEN SUBMISSIONS DA TED 05.02.2016 SUBMITTED THE DETAILS WHICH HAVE BEEN REP RODUCED ITA NO.6097/M/2016 M/S. M.S. INFRAPROJECT PVT. LTD. 3 IN PARA 6.2 OF THE ASSESSMENT ORDER. THE AO OBSERVE D THAT ASSESSEE HAS BORROWED RS.29,87,000/- OUT OF THE TOTA L RS.42,22,200/- IN THE CURRENT FINANCIAL YEAR FOR WH ICH NO CONFIRMATION WAS FILED. THE AO AGAIN VIDE ORDER SHE ET NOTE DATED 09.02.2016 CALLED UPON THE ASSESSEE TO FURNISH THE CONFIRMATIONS ALONG WITH REQUISITE DETAILS WHICH TH E ASSESSEE FAILED TO FILE AND ULTIMATELY THE AO ADDED THE SAME TO THE INCOME OF THE ASSESSEE UNDER SECTION 68 OF THE ACT ON THE GROUND THAT ASSESSEE WAS NOT ABLE TO PROVE LOANS WI TH EVIDENCES SUCH AS CONFIRMATIONS FROM CREDITORS, SOUR CE OF ADVANCES TO THE ASSESSEE AND BANK STATEMENT ETC. 5. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) ALL OWED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 4.6 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND S UBMISSIONS MADE BY THE APPELLANT IN THIS REGARD. IN THIS REGARD IT IS NOTED THAT ASSESSEE HAS FILED CONFIRMATION OF FRESH LOANS TAKEN DURING THE YEAR. THE ASSESSEE IS IN REAL ESTATE BUSINESS FOR WHICH LOANS ARE REQUIRED TO BE TAKEN AND REPAID IN NORMAL COURSE OF BUSINESS. THE ASSESSEE HAS RECEIVE D LOANS IN THE BOOKS OF ACCOUNTS FOR WHICH CONFIRMATIONS WERE FILED BEFORE A.O GIVING NAME, PAN ADDRESS ETC. OF THE LOAN CREDITOR. THE MONEY HAS CO ME FROM BANKING CHANNEL AND NO CASH LOANS WERE INVOLVED. THE A.O. H AS NOT DOUBTED THE IDENTITY AND CREDITWORTHINESS OF THE LOAN CREDITORS BUT MADE THE ADDITION BY HOLDING THAT GENUINENESS OF TRANSACTION IS NOT E STABLISHED. IT IS NOTED THAT THE BOOKS OF ACCOUNTS OF ASSESSEE WERE DULY AU DITED WITHOUT ANY ADVERSE REMARKS ABOUT THE LOANS TAKEN BY ASSESSEE. IT IS SEEN THAT THE A.O. HAD MADE ADDITION WITHOUT MAKING FURTHER ENQUIRY. I T IS ALSO SEEN THAT THE LOANS WERE SUBSEQUENTLY REPAID BY THE ASSESSEE IN F .Y. 2014-15 AND 2015- 16. ALL THESE FACTS ESTABLISH THAT THE LOANS TAKEN WERE GENUINE LOANS FROM PERSONS WHOSE IDENTITY AND CREDITWORTHINESS WERE NO T DOUBTED BY THE A.0. HAVING REGARD TO FULL FACTS OF THE CASE THE ADDITIO N MADE BY THE A.O. ON ACCOUNT OF UNEXPLAINED CASH CREDIT U/S.68 OF 29,87, 000/- IS FOUND TO BE WITHOUT MUCH BASIS WHICH CANNOT BE SUSTAINED IN APP EAL AND IS DIRECTED TO BE DELETED. ACCORDINGLY THIS GROUND OF APPEAL IS A LLOWED. 6. THE LD. D.R. SUBMITTED BEFORE THE BENCH THAT ASSES SEE HAS FAILED TO FILE ANY DETAILS QUA THESE LOANS OF R S.29,87,000/- AND THEREFORE THE SAME WERE RIGHTLY ADDED BY THE AO . ITA NO.6097/M/2016 M/S. M.S. INFRAPROJECT PVT. LTD. 4 HOWEVER, THE LD. CIT(A) HAS ERRED IN GRANTING THE R ELIEF TO THE ASSESSEE BY NOT APPRECIATING THE FACT THAT THE LOAN TRANSACTIONS WERE TOTALLY UNEXPLAINED AS ASSESSEE H AS NOT FILED ANY CONFIRMATIONS, BANK STATEMENTS, COPIES OF ACCOU NTS FROM THE PARTIES ETC. THE LD. CIT(A) HAS SIMPLY NOTED TH AT THE IDENTITY AND CREDITWORTHINESS OF THE PARTY WERE NOT IN DOUBT AND ORDERED THE DELETION OF ADDITION OF RS.29,87,000/ -. THE LD. D.R. FINALLY PRAYED THAT THE ORDER OF LD. CIT(A) MAY KINDLY BE REVERSED AND THAT OF THE AO BE RESTORED. 7. PER CONTRA, THE LD. A.R. SUBMITTED THAT ALL THE CONFIRMATIONS, PAN NUMBERS AND OTHER EVIDENCES SUCH AS BANK STATEMENTS WERE FILED TO PROVE THE TRANSACTIONS AND AMOUNTS RECEIVED FROM VARIOUS PARTIES. THE LD. A.R. CONTENDE D THAT THE AO DID NOT DOUBT THE IDENTITY AND CREDITWORTHIN ESS OF THE PARTIES BUT MERELY MADE THE ADDITION ON THE GROUND THAT THE ASSESSEE HAS FAILED TO FILE NECESSARY EVIDENCES. T HE LD. A.R. SUBMITTED THAT SINCE THE LD. CIT(A) HAS GIVEN THE FI NDING OF FACTS AND VERIFIED THE NECESSARY EVIDENCES AS FILED BY THE ASSESSEE DURING THE APPELLATE PROCEEDINGS AND NOTED THAT THE AO HAS NOT DOUBTED THE IDENTITY AND CREDITWORTHINES S OF THE PARTIES THEN HOW THE ADDITION UNDER SECTION 68 OF T HE ACT COULD BE MADE IN SUCH CIRCUMSTANCES. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIALS PLACED BEFORE US CAREFULLY. WE FIND FROM T HE RECORDS BEFORE US THAT THE ASSESSEE FILED ALL THE EVIDENCES BEFORE THE CIT(A) SUCH AS CONFIRMATIONS, PANS AND BANK STATEME NTS ETC. THE LD CIT(A) HAS RECORDED A FINDING IN THE APPELLA TE ORDER ITA NO.6097/M/2016 M/S. M.S. INFRAPROJECT PVT. LTD. 5 THAT THESE LOANS WERE SUBSEQUENTLY REPAID DURING T HE FINANCIAL YEARS 2014-15 AND 2015-16. THUS WE ARE IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE CIT(A) ON THIS ISSUE AS THE LD CIT(A) GIVEN DETAILED FINDINGS AND REASONING IN THE APPELLATE ORDER. WE ARE, THEREFORE, INCLINED TO UPHOLD THE ORD ER OF THE LD. CIT(A) AND DISMISS THE GROUNDS RAISED BY THE REV ENUE. 9. THE ISSUE RAISED IN GROUND NO.4 BY THE REVENUE I S AGAINST THE DELETION OF DISALLOWANCE ON ACCOUNT OF BUSINESS EXPENSES OF RS.20,69,525/- BY LD. CIT(A) AS MADE BY THE AO ON THE GROUND THAT ASSESSEE WAS NOT HAVING ANY INCO ME DURING THE YEAR AND EVEN THE BUSINESS OF ASSESSEE W AS CLOSED IN THE SUBSEQUENT YEARS. 10. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT ASSESSEE HAS RECEIVED INCOME FROM OTHE R SOURCES OF RS.22,76,433/- AGAINST WHICH THE ASSESSEE HAS CLAI MED EXPENDITURE OF RS.19,35,859/-. THE AO FOUND THE RECEIP TS TO BE ON ACCOUNT OF INTEREST INCOME AND ACCORDINGLY IS SUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THE EXPENSES SHOULD NOT BE DISALLOWED AS THERE WAS NO BUSINESS ACTIVITY IN THE COMPANY DURING THE PREVIOUS YEAR. HOWEVER, THE ASSES SEE DID NOT COMPLY WITH THE SHOW CAUSE NOTICE AND ULTIMATEL Y THE AO DISALLOWED RS.20,69,525/- UNDER SECTION 37(1), 32 & 36(1)(III) OF THE ACT AS THERE WAS NO BUSINESS ACTIVITY DURING THE YEAR. 11. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) AL LOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 5.4. I HAVE PERUSED THE ASSESSMENT ORDER AND SUBMI SSIONS MADE BY THE ASSESSEE IN THIS REGARD. IT IS NOTED THAT ASSESSEE BEING ARTIFICIAL JURIDICAL PERSON, IT ITA NO.6097/M/2016 M/S. M.S. INFRAPROJECT PVT. LTD. 6 NEEDS TO INCUR CERTAIN EXPENDITURE TO KEEP ITSELF A FLOAT AND HAVE ITS CONTINUED EXISTENCE. THE ASSESSEE COMPANY CAN ONLY OPERATE TH ROUGH IT'S DIRECTORS AND EMPLOYEES AND HAS TO MAINTAIN AN ESTABLISHMENT. IT IS NOT A CASE OF A.O. THAT THE EXPENSES CLAIMED WERE EXCESSIVE OR UNREASONABLE. T HE BOOKS OF ACCOUNTS WERE FULLY AUDITED DURING THE YEAR. THE MERE FACT THAT NO BUSINESS COULD BE PROCURED DOES NOT LEAD TO THE CONCLUSION THAT BUSINESS OPERA TIONS OF ASSESSEE WERE CLOSED. THE HONBLE MUMBAI ITAT IN THE CASE OF TANSAY INVES TMENTS PVT. LTD ITA NO.3722/MUM/09 HAS VIDE ORDER DT 24-11-2010 HEL D THAT UNLESS THE BUSINESS IS ABANDONED OR CLOSED AND EVEN IF THE BUS INESS IS AT A DORMANT STAGE WAITING FOR PROPER MARKET CONDITIONS TO DEVELOP, TH E EXPENDITURE INCURRED IN THE COURSE OF SUCH BUSINESS IS TO BE ALLOWED A DEDU CTION. IT IS NOTED THAT THE FACTS OF PRESENT CASE ARE SIMILAR TO FACTS IN THE CASE OF TANSAY INVESTMENTS PVT. LTD AS DISCUSSED ABOVE AND RATIO OF THE DECISION OF THE HON'BLE ITAT MUMBAI (SUPRA) IS APPLICABLE. RESPECTFULLY FOLLOWING THE ABOVE JUD GMENT OF ITAT MUMBAI THE ADDITION MADE BY THE AO. BY DISALLOWING THE CLAIMED BUSINESS EXPENSES OF RS.2069525/- IS FOUND TO BE WITHOUT MUCH BASIS WHIC H CANNOT BE SUSTAINED IN APPEAL AND IS DIRECTED TO BE DELETED. ACCORDINGLY T HIS GROUND OF APPEAL IS ALLOWED . 12. HAVING HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD, WE FIND THAT ASS ESSEE WAS NOT CARRYING ANY BUSINESS ACTIVITY DURING THE YEAR AND EVENTUALLY CLOSED THE COMPANY AFTER TWO YEARS WITH OUT DOING ANY BUSINESS. FROM THE PERUSAL OF ORDER OF AO AND LD. CIT(A) WE FIND THAT THE ASSESSEE HAS NOT SUBMITTED ANY DET AILS OF EXPENSES CLAIMED. IT IS ALSO TRUE THAT ASSESSEE WAS NOT CARRYING ANY BUSINESS ACTIVITY DURING THE YEAR AND ULTIMATELY IT WAS CLOSED AFTER TWO YEARS. IN OUR OPINION, THE AS SESSEE IS ENTITLED TO CLAIM THE EXPENSES EVEN IF NO BUSINESS IS DONE DURING THE YEAR AND HENCE, ONLY THOSE EXPENSES WHICH ARE NECESSARY TO RUN THE OFFICE OF THE COMPANY HAVE TO BE ALLOWED. IN THE PRESENT CASE, THE ASSESSEE HAS FILE D DETAILS OF EXPENSES AS UNDER: I. COST OF RAW MATERIAL CONSUMED RS.2,11,800 II. EMPLOYMENT BENEFIT EXPENSES RS.14,55,300/- III. FINANCIAL COST RS.9,032.97 IV. DEPRECIATION & AMORTIZED COST RS.1,77,167/- V. OTHER ADMINISTRATIVE EXPENSES RS.82,560/- ITA NO.6097/M/2016 M/S. M.S. INFRAPROJECT PVT. LTD. 7 A PERUSAL OF THE P & L ACCOUNT REVEALS THAT THE AS SESSEE HAS RECEIVED ONLY INTEREST INCOME ON REFUND TO THE TUNE OF RS.22,76,433/- WHEREAS INCURRED SEVERAL EXPENSES SU CH AS COST OF MATERIAL, HUGE EMPLOYMENT COST AND ALSO DEPR ECIATION WHICH APPEARED TO BE NOT NECESSARILY INCURRED IN OR DER TO KEEP THE ASSESSEE COMPANY ALIVE. IN OUR OPINION WHEN TH ERE IS NO ACTIVITY HOW THE STOCK CAN BE CONSUMED TO THE TUNE OF RS.22,76,433/-. SIMILARLY, DEPRECIATION AMOUNT OF RS.1,77,167/- WERE CLAIMED. THE ASSESSEE HAS NOT FI LED ANY DETAILS BEFORE THE AO BUT EVEN THEN THE LD. CIT(A) A LLOWED THE APPEAL BY PASSING A CRYPTIC ORDER. IN OUR OPINION, THE ISSUE NEEDS TO BE EXAMINED AND VERIFIED AT LENGTH ESPECIA LLY IN VIEW OF THE FACT THAT THE COMPANY WAS CLOSED AFTER TWO Y EARS WITHOUT CARRYING ON ANY BUSINESS. WE, THEREFORE, R ESTORE THE MATTER TO THE FILE OF AO TO EXAMINE THE ISSUE AFRES H AND DECIDE THE MATTER AS PER LAW AND FACTS ON RECORD DENOVO AF TER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. THE ASSESSEE IS DIRECTED TO CO-OPERATE I N THE PROCEEDINGS BEFORE THE AO. THE GROUND IS ALLOWED FO R STATISTICAL PURPOSES. 13. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY A LLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 29.05.2018. SD/- SD/- (SAKTIJIT DEY) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 29.05.2018. * KISHORE, SR. P.S. ITA NO.6097/M/2016 M/S. M.S. INFRAPROJECT PVT. LTD. 8 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.