M/s. ELITE SPORTNET LTD., MUMBAI V. ITO Wd. - 6(2) (3), MUMBAI

ITA 6537/MUM/2005

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1446 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 08-06-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 09-11-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L K AGRAWAL
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Unexplained cash credit; Set aside
• Section: 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J BEFORE SHRI N.V. VASUDEVAN (JM) & SHRI B. RAMAKOTAI AH (AM) I.T.A.NO. 6537/MUM/05 (ASSESSMENT YEAR : 2001-02) M/S. E-LITE SPORTSNET LIMITED ANAND SMRUTI 266, DEODAR ROAD MATAUNGA (CR) MUMBAI-400 019. VS. ITO WARD 6(2)(3) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. APPELLANT RESPONDENT PAN/GIR NO. : AAACF7580L ASSESSEE BY : SHRI SANJAY R. PARIKH DEPARTMENT BY : SHRI L.K. AGRAWAL ORDER PER N.V. VASUDEVAN, JM :- THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 13.9.2005 OF LEARNED CIT(A)-VI, MUMBAI RELATING TO A.Y. 2001-02. 2. GROUND NO. 1 RAISED BY THE ASSESSEE READS AS FOL LOWS :- LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PF OF RS. 55,159/- AS INCOME OF THE APPELLANT U/S. 2(24) OF THE I.T. ACT. YOUR APPELLANT SUBMITS THAT PF ACT IS NOT APPLICABLE AND AS SUCH THERE IS NO OBLIGATION TO DE DUCT THE PF FROM EMPLOYEES AND DEPOSIT THE SAME WITH PF AUTHORI TIES. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF SOFTWARE DEVELOPMENT AND SOLUTIONS. THE ASSESSING OFFICER NO TICED FROM THE NOTES TO THE ACCOUNT THAT THE ASSESSEE HAD APPLIED FOR EX EMPTION FROM APPLICATION OF PROVISIONS OF PF ACT AND WAS CONFIDE NT OF GETTING SUCH EXEMPTION. THE ASSESSEE HAD DEDUCTED FROM THE SALAR Y PAYABLE TO THE EMPLOYEES, AS THEIR SHARE OF CONTRIBUTION TOWARDS P F, A SUM OF RS. 2,04,649/-. THE ASSESSEE DID NOT ACTUALLY MAKE PAYM ENT OF THE SUM SO DEDUCTED TO THE PF AUTHORITIES. THE ASSESSING OFFIC ER WAS OF THE VIEW THAT M/S. E-LITE SPORTSNET LIMITED 2 IN VIEW OF THE PROVISIONS OF SECTION 2(24)(X) OF TH E ACT, THE AMOUNT DEDUCTED BY THE ASSESSEE AS EMPLOYEES SHARE OF CON TRIBUTION TO PF IS TO BE TREATED AS INCOME OF THE ASSESSEE. SINCE, THE AS SESSEE HAD NOT MADE PAYMENT OF THE SAME, THE SAME CANNOT BE ALLOWED AS A DEDUCTION IN VIEW OF THE PROVISIONS OF SEC. 36(1)(VA) OF THE ACT. THE ASSESSING OFFICER THEREFORE ADDED SUM OF RS. 2,04,649/- TO THE TOTAL INCOME OF THE ASSESSEE. 4. ON APPEAL BY THE ASSESSEE, LEARNED CIT(A) FOUND THAT THE ASSESSEE HAD APPLIED TO THE PF AUTHORITIES FOR EXEMPTION FRO M THE PROVISIONS OF PF ACT ON THE GROUND THAT THEY WERE NOT COVERED FROM T HE PROVISIONS OF PF ACT. THE LEARNED CIT(A) HELD THAT THERE WAS THEREFO RE NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT ANY AMOUNT AS EMPLOY EES SHARE AS CONTRIBUTION TO PF. THE LEARNED CIT(A) FURTHER FOUN D THAT THE ASSESSEE HAD REFUNDED A SUM OF RS. 1,49,490/- WHICH WAS COLL ECTED AS EMPLOYEES SHARE OF PF TO THE CONCERNED EMPLOYEES. THE NECESSA RY EVIDENCE IN THIS REGARD WAS FILED BEFORE LEARNED CIT(A) BY THE ASSES SEE. TAKING INTO CONSIDERATION THE ABOVE, THE LEARNED CIT(A) WAS OF THE VIEW THAT SINCE A SUM OF RS. 1,49,490/- WAS REFUNDED TO THE EMPLOYEES , THEY CANNOT BE TREATED AS INCOME U/S. 2(24)(X) OF THE ACT. ADDITIO N TO THE ABOVE EXTENT WAS DELETED BY LEARNED CIT(A). WITH REGARD TO THE R EMAINING SUM OF RS. 55,159/-, THE LEARNED CIT(A) FOUND THAT THE ASSESSE E CLAIMED AS A DEDUCTION GROSS SALARY (INCLUDING EMPLOYEES SHARE OF PF) AS DEDUCTION. HE HELD THAT TO THE EXTENT OF EMPLOYEES SHARE OF P F DEDUCTED FROM THE SALARY PAYABLE TO THE EMPLOYEES, THE SAME CANNOT BE ALLOWED AS DEDUCTION AS EXPENDITURE INCURRED IN CONNECTION WIT H BUSINESS BECAUSE THEY HAD TO BE REFUNDED TO THE EMPLOYEES. THE RELE VANT OBSERVATIONS OF THE LEARNED CIT(A) IN THIS REGARD ARE AS FOLLOWS :- HOWEVER, IN RESPECT OF BALANCE PAYMENT AS THE COMP ANY HAS DEDUCTED FROM THE SALARY PAYABLE TO THE EMPLOYEES T HE NET SALARY WHICH HAS BEEN PAID WOULD BE AN ADMISSIBLE AND BALA NCE AMOUNT DEDUCTED IS NOT REQUIRED TO BE ALLOWED AND ACCORDIN GLY, THE DISALLOWANCE UNDER THIS HEAD IS RESTRICTED TO RS. 5 5,159/-. M/S. E-LITE SPORTSNET LIMITED 3 5. AGGRIEVED BY THE AFORESAID ORDER OF LEARNED CIT( A), THE ASSESSEE HAS RAISED GROUND NO. 1. 6. IT WAS SUBMITTED BY LEARNED COUNSEL FOR THE ASSE SSEE THAT THE AFORESAID SUM WAS NEVER CLAIMED AS A DEDUCTION IN T HE PROFIT AND LOSS ACCOUNT AND IF THE ADDITION IS SUSTAINED, IT WILL A MOUNT TO TAXING A SUM TWICE. 7. WE HAVE CONSIDERED HIS SUBMISSIONS AND WE FIND T HAT PROFIT AND LOSS ACCOUNT AS WELL AS COMPUTATION OF TOTAL INCOME HAS NOT BEEN FILED BEFORE US BY THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ENTIRE BUSINESS OF THE ASSESSEE HAS BEEN CLOSED DUE SEVERE FINANCIAL PROBLEM AND THERE ARE NEITHER ANY RECORDS NOR OF THE EMPLOYEES AVAILABLE AT PRESENT TO GIVE THE NECESSAR Y DETAILS. IN THE ABOVE CIRCUMSTANCES, WE FEEL THAT IT WOULD BE FIT AND PRO PER TO SET ASIDE THE ORDER OF LEARNED CIT(A) ON THIS ASPECT AND DIRECT T HE ASSESSING OFFICER TO VERIFY AS TO WHETHER THIS SUM OF RS. 55,159/- HAS B EEN CLAIMED AS A DEDUCTION IN THE PROFIT AND LOSS ACCOUNT. IF IT HAD BEEN CLAIMED AS A DEDUCTION IN THE PROFIT AND LOSS ACCOUNT, ADDITION WILL BE SUSTAINED. IF IT IS NOT SO CLAIMED, THEN ADDITION DESERVES TO BE DEL ETED. THE ASSESSING OFFICER WILL AFFORD OPPORTUNITY OF BEING HEAD TO TH E ASSESSEE BEFORE DECIDING THE ISSUE. 8. GROUND NO. 2 RAISED BY THE ASSESSEE READS AS FOL LOWS :- 2(A) LEARNED CIT(A) ERRED IN CONFIRMING SHARE CAPIT AL OF RS. 4,00,000/- BEING AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE I.T. ACT. (B) LEARNED CIT(A) ERRED IN CONFIRMING THE SHARE AP PLICATION MONEY OF RS. 7,23,000/- AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE I.T. ACT. 9. ISSUE RAISED IN GROUND NO. 2 RELATES TO UNEXPLAI NED CASH CREDIT. 10. BEFORE LEARNED CIT(A), THE ADDITION MADE BY THE ASSESSING OFFICER TOWARDS UNEXPLAINED CASH CREDIT TO THE EXTENT OF RS . 17,12,090/- WAS CHALLENGED BY THE ASSESSEE. BREAK UP OF THE AFORESA ID SUM IS AS FOLLOWS :- M/S. E-LITE SPORTSNET LIMITED 4 S.NO. PARTICULARS SHARE CAPITAL SHARE APPLICATION MONEY TOTAL 1 JAL B. KHODAJI 99.600 99600 2 MEHER M. PANDAY 200.000 200000 3 FEROZA J. PANDAY 200.000 200000 4 KURUSH J. KHODAJI 100 100 5 HUZAAN J. KHODAJI 200 200 6 SHANAZ J. KHODAJI 100 100 7 F.J. PANDAY & ASSOCIATES 625000 625000 8 K. KARANJIA 98000 98000 9 ROHINGTON DESAI 489090 489090 500000 1212090 1712090 11. PERUSAL OF THE ORDER OF LEARNED CIT(A), SHOWS T HAT THE ASSESSEE CONFINED ITSELF TO ONLY 2 CASH CREDITS RS. 99,600/- IN RESPECT OF JAL B. KHODAJI AND A SUM OF RS. 489090/- IN RESPECT OF ROH INGTON DESAI. BOTH THE AFORESAID ADDITIONS WERE DELETED BY LEARNED CIT (A). IN GROUND NO. 2, THE ASSESSEE HAS NOW CHALLENGED ADDITION SUSTAINED IN RESPECT OF SHARE CAPITAL CONTRIBUTION OF RS. 2 LAKHS EACH BY MEHER M . PANDAY & FEROZA J. PANDAY RESPECTIVELY. IN RESPECT OF THE AFORESAID SH ARE CAPITAL APPEARING IN THE BALANCE SHEET, THE ASSESSEE COULD NOT FILE C ONFIRMATION BEFORE THE ASSESSING OFFICER. IN FACT, THE ASSESSEE EXPRESSED ITS INABILITY TO GET CONFIRMATION FROM THE AFORESAID TWO PERSONS IN ITS LETTER DATED 28.2.2004 TO THE ASSESSING OFFICER. THE ASSESSEE HAS ALSO SUB MITTED THAT CREDITORS WERE UPSET BECAUSE THE MONEY INVESTED BY THEM WAS L OST BECAUSE OF FAILURE ON THE ASSESSEES BUSINESS. THE ASSESSEE HO WEVER GAVE COVERING LETTER AND COPIES OF CHEQUES ISSUED BY AFORESAID TW O PERSONS AND REQUESTED FOR LENIENT ACTION TO BE TAKEN. THE ASSES SING OFFICER ISSUED NOTICE U/S. 133(6) OF THE ACT. IN RESPECT OF MEHER PANDAY, A REPLY WAS RECEIVED MENTIONING THAT HE WAS DIED AS EARLY AS 22 .9.2002. IN RESPECT OF FEROZ J. PANDAY, A REPLY WAS RECEIVED THAT HE LOST HIS SON AND WAS UNABLE TO PROVIDE DETAILS AT THAT POINT OF TIME. IT IS IN THOSE CIRCUMSTANCES, THAT THE ASSESSING OFFICER CONSIDERE D INTRODUCTION OF SHARE CAPITAL AS UNEXPLAINED CREDIT. M/S. E-LITE SPORTSNET LIMITED 5 12. BEFORE LEARNED CIT(A), ASSESSEE HAD FILED CONFI RMATION OF MEHER M. PANDAY AND FEROZ J. PANDAY AND THESE CONFIRMATIONS HAVE BEEN SIGNED BY THE RELATIVES OF THE AFORESAID PERSONS. HOWEVER, DETAILS OF THE INCOME TAX ASSESSMENT AS WELL AS DETAILS OF CHEQUES THROUG H WHICH PAYMENT WAS MADE TO THE ASSESSEE HAVE BEEN GIVEN. IN THE PAPER BOOK, ASSESSEE HAS CERTIFIED THAT THESE WERE FILED BEFORE LEARNED CIT( A). WE DO NOT FIND ANY DISCUSSION ON THIS ISSUE BY LEARNED CIT(A). SINCE, ASSESSMENT DETAILS OF THE AFORESAID TWO PERSONS ARE AVAILABLE, WE ARE OF THE VIEW THAT IT WOULD BE APPROPRIATE TO SET ASIDE THE ORDER OF LEARNED CI T(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO VERIFY FROM THOSE R ECORD ABOUT THE CLAIM OF THE ASSESSEE THAT THESE WERE GENUINE CASH CREDIT. 13. AS FAR AS SUM OF RS. 6,25,000/- RECEIVED AS SH ARE APPLICATION MONEY FROM F.J. PANDAY & ASSOCIATES AND RS. 98,000/- FROM K. KARANJIA IS CONCERNED, WE DO NOT FIND ANY EVIDENCE HAVING BEEN FILED BY THE ASSESSEE EITHER BEFORE THE ASSESSING OFFICER OR BEFORE LEARN ED CIT(A). NO SUCH EVIDENCE WHAT SO EVER HAS ALSO BEING FILED BEFORE U S. THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISION OF HON' BLE SUPREME COURT IN THE CASE OF CIT VS. LOVELY EXPORTS P LTD., 216 CTR 195(SUPREME COURT); WHEREIN IT HAS BEEN HELD THAT IF THE SHARE APPLICAT ION MONEY IS RECEIVED BY THE ASSESSEE COMPANY FROM ALLEGED BOGUS SHARE HO LDER WHOSE NAMES ARE GIVEN TO THE ASSESSING OFFICER, THEN THE DEPART MENT IS FREE TO PROCEED AGAINST INDIVIDUAL SHARE HOLDER BUT NO ADDITION CAN BE MADE AS UNDISCLOSED INCOME OF THE ASSESSEE COMPANY. WE HOWE VER FIND THAT IN THE PRESENT CASE, IDENTITY OF THE AFORESAID TWO PER SONS HAVE NOT BEEN GIVEN BY THE ASSESSEE. WE HOWEVER FIND THAT THE ASS ESSING OFFICER HAD ISSUED A NOTICE U/S. 133(6) OF THE ACT TO F.J. PAND AY & ASSOCIATES AT NESBIT HALL ROAD, MAZGAON, MUMBAI-400 010. THIS IS THE SAME ADDRESS WHERE FIROZ PANDAY ALSO RESIDES. WE FEEL THAT IT WO ULD BE APPROPRIATE TO DIRECT THE ASSESSING OFFICER TO VERIFY THE IDENTITY OF F.J. PANDAY & ASSOCIATES AND IF THEY CAN BE IDENTIFIED TO MAKE AN ASSESSMENT OF THE SHARE APPLICATION MONEY IN THEIR HANDS. IF SUCH IDE NTITY IS NOT ESTABLISHED OR CANNOT BE FOUND, ADDITION MADE BY TH E ASSESSING OFFICER M/S. E-LITE SPORTSNET LIMITED 6 WILL BE SUSTAINED. AS FAR AS CASH CREDIT IN THE NAM E OF K. KARANJIA IS CONCERNED, NO EVIDENCE WHAT SO EVER HAS BEEN FILED TO ESTABLISH IDENTITY AND THEREFORE, ADDITION MADE WILL BE SUSTAINED. 13. IN THE RESULT, APPEAL BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 18 TH DAY OF JUNE, 2010. SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER DATED : 18 TH JUNE, 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS