M/s Bindas Estates Pvt Ltd, New Delhi V. ITO, New Delhi

ITA 704/DEL/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9885 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-08-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 26-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIK
• Assessee Lawyers: P M MONGAMANU MONGA
• Keywords: Business expenditure; Additional evidence
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `A : NEW DELHI) BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NO.704/DEL./2009 (ASSESSMENT YEAR : 2005-06) M/S BINDAS ESTATES PVT. LTD., VS. ITO, WARD 3(1), F-1/9, OKHLA INDUS. AREA, PHASE I, NEW DELHI. NEW DELHI. (PAN/GIR NO.AACCB6622L) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.M. MONGA/MANU MONGA, ADV. REVENUE BY : MS. PRATIMA KAUSHIK, SR. DR ORDER PER K.D. RANJAN: AM THIS APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 200 5-06 ARISES OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-VI, NEW DELHI. 2. THE FIRST ISSUE FOR CONSIDERATION RELATES TO SUS TAINING THE ADDITION OF RS.20 LAKH ON ACCOUNT OF LOAN RAISED BY THE ASSESSEE FROM M/S PEG ASUS INFRASTRUCTURE P. LTD. THE FACTS OF THE CASE RELATING TO THIS GROUND OF APPEAL ARE T HAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASS ESSEE HAD SHOWN UNSECURED LOANS FROM M/S PEGASUS INFRASTRUCTURE P. LTD. AT RS.90 LA KH. HOWEVER, AS PER INTIMATION RECEIVED FROM I.T.O., WARD 14(2), NEW DELHI, M/S PE GASUS INFRASTRUCTURE P. LTD. HAD GIVEN UNSECURED LOANS OF RS.1,10,00,000. THUS, THE RE WAS A DIFFERENCE OF RS.20 LAKH WHICH WAS NOT EXPLAINED AND VERIFIABLE. THE ASSESS ING OFFICER ACCORDINGLY MADE ADDITION OF RS.20 LAKH. 3. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), IT WAS EXPLAINED BY THE ASSESSEE THAT THERE WAS NO DIFFERENCE IN THE AMOUNT AS SHOWN BY THE ASSESSEE IN HIS BALANCE SHEET. THE ASSESSEE HAD TAKEN LOAN OF RS.1 ,10,00,000 FROM M/S PEGASUS INFRASTRUCTURE P. LTD. OUT OF THIS, RS.20 LAKH WAS RETURNED BY THE ASSESSEE TO M/S PEGASUS INFRASTRUCTURE P. LTD. AND THE BALANCE AMOUNT HAS B EEN SHOWN AT RS.90 LAKH. THIS I.T.A. NO.704/DEL./2009 (A.Y.: 2005-06) 2 CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THE GROUND THAT THE ASSESSEE COULD NOT SHOW AS TO HOW THE AMOUNT WAS ACCOUNTED FOR IN THE BOOKS OF ACCOUNT IN RESPECT OF PAYMENT OF RS.20 LAKH MADE TO M/S PEGASUS INFRASTRUCTURE P. LTD. NO ENTRY WAS RECORD ED IN THE BOOKS OF ACCOUNT AND, THEREFORE, THE EXPLANATION OFFERED BY THE ASSESSEE WAS AN AFTER THOUGHT. THE COMMISSIONER OF INCOME-TAX (APPEALS) ACCORDINGLY UP HELD THE ADDITION MADE BY THE ASSESSING OFFICER. 4. BEFORE US, LD.AR OF THE ASSESSEE SUBMITTED THAT THE PAYMENT OF RS.20 LAKH WAS APPEARING IN THE BANK STATEMENT OF THE ASSESSEE AND M/S PEGASUS INFRASTRUCTURE P. LTD. AS PER BANK STATEMENT OF THE ASSESSEE, RS.20 LAKH WAS TRANSFERRED ON 26.2.005 TO THE ACCOUNT OF M/S PEGASUS INFRASTRUCTURE P. LTD. THER EFORE, THERE WAS NO DIFFERENCE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE WITH REFERENCE TO AN AMOUNT OF RS.20 LAKH. ON THE OTHER HAND, LD.SR.DR SUPPORTED THE ORDER OF THE COMMISSIO NER OF INCOME-TAX (APPEALS). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ENTRIES AS APPEARING IN THE BOOKS OF ASSESSEE A RE REPRODUCED AS UNDER: DATE PARTICULARS DEBIT AMOUNT DATE PARTICULARS CREDIT AMOUNT 28.DEC.2004 BANK 40,00,000.00 13-JAN-2005 BANK 50,00,000.00 27-FEB-2005 BANK 20,00,000.00 28-FEB-2005 BANK 2 0,00,000.00 6. FROM THE ABOVE, IT IS CLEAR THAT RS.20 LAKH WAS PAID BY THE ASSESSEE ON 27.2.2005 AND AGAIN THE AMOUNT OF RS.20 LAKH WAS RECEIVED ON 28.2.2005. THE AMOUNT OF RS.20 LAKH AS RECEIVED AND PAID ARE APPEARING IN THE BANK ACCOUNTS OF BOTH THE PARTIES. THEREFORE, OUT OF THE AMOUNT OF RS.90 LAKH WHICH WA S RECEIVED BY THE ASSESSEE UP TO 13.1.2005, RS.20 LAKH WAS PAID AS PER THE CONFIRMAT ION OF ACCOUNT ON 27.2.2005 LEAVING THE BALANCE OF RS.70 LAKH AS ON 27.2.2005. FURTHER , THE ASSESSEE RECEIVED RS.20 LAKH ON 28.2.2005 MAKING THE TOTAL OF RS.90 LAKH PAYABLE BY THE ASSESSEE TO M/S PEGASUS INFRASTRUCTURE P. LTD. THE NET RESULT IS THAT THE BALANCE DUE AS ON 31.1.2005 WAS RS.90 LAKH AND NOT RS.1,10,00,000. THE DIFFERENCE OF RS. 20 LAKH HAS ARISEN BECAUSE OF THE PAYMENTS MADE BY THE ASSESSEE DURING THE YEAR UNDE R CONSIDERATION. THESE ENTRIES ARE VERIFIABLE FROM THE BANK ACCOUNT OF BOTH THE PARTIE S. THEREFORE, WE DO NOT FIND ANY DISCREPANCY IN THE CONFIRMATION FILED BY THE ASSESS EE. SINCE, THE AMOUNT HAS BEEN PAID I.T.A. NO.704/DEL./2009 (A.Y.: 2005-06) 3 AND RECEIVED THROUGH BANKING CHANNELS, NO ADDITION OF RS.20 LAKH CAN BE MADE. IN OUR CONSIDERED OPINION, THE COMMISSIONER OF INCOME-TAX (APPEALS) AS WELL AS ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION OF RS.20 LAKH ON ACCOUNT OF DIFFERENCE IN CONFIRMATION AND INFORMATION RECEIVED FROM ASSESSIN G OFFICER, WARD 14(2), NEW DELHI.. 7. THE NEXT ISSUE FOR CONSIDERATION RELATES TO CONF IRMING THE ADDITION OF RS.1 LAKH ON ACCOUNT OF SHARE APPLICATION MONEY RECEIVED FROM SH RI AJAY KHETRA PAL AND SMT. GITA KHETRA PAL IN EQUAL AMOUNT OF RS.50,000 EACH. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER MADE ADDITION OF RS.1 LAKH ON ACC OUNT OF UNSECURED LOANS INTRODUCED DURING THE YEAR UNDER CONSIDERATION. BEFORE COMMIS SIONER OF INCOME-TAX (APPEALS), IT WAS SUBMITTED THAT CONFIRMATIONS FROM SHAREHOLDERS ALONG WITH COPY OF THEIR INCOME-TAX RETURN WERE SUBMITTED BEFORE THE COMMISSIONER OF IN COME-TAX (APPEALS) AS AN ADDITIONAL EVIDENCE WHICH WAS SENT TO ASSESSING OFFICER FOR HI S REPORT. IN THE REMAND REPORT, IT WAS SUBMITTED BY THE ASSESSING OFFICER THAT PERSONS HAV E CONFIRMED THE INVESTMENT IN THE ASSESSEES COMPANY. HOWEVER, SOURCES OF INVESTMENT S HAVE NOT BEEN EXPLAINED. THE COMMISSIONER OF INCOME-TAX (APPEALS) AFTER CONSIDER ING THE SUBMISSIONS MADE BY THE ASSESSEE AND ON THE FACTS OF THE CASE ON RECORD HEL D THAT THE SOURCE OF CASH DEPOSITED BY THE PERSONS HAD NOT BEEN EXPLAINED. THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED IN TREATING THE SAME AS INCOME FROM UNDISCLOSED SOURCE S. 8. BEFORE US, LD.AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD FILED CONFIRMATIONS FROM BOTH THE PERSONS. THEY HAVE ADM ITTED IN THE CONFIRMATIONS THAT AMOUNT OF RS.50,000 EACH WAS DEPOSITED BY THEM. BO TH THE PARTIES ARE ASSESSED TO TAX. THE IDENTITY OF THE PERSONS HAVE BEEN ESTABLISHED A ND, THEREFORE, IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. LOVELY EXPORTS P. LTD., (2008) 216 CTR 195. NO ADDITION COULD BE MADE IN THE CASE OF THE ASSESSEE. ON THE OTHER HAND, LD.DR OF THE REVENUE SUPPORTED THE ORDER OF THE COM MISSIONER OF INCOME-TAX (APPEALS). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT SHRI AJAY KHETRA PAL AND M RS. GITA KHETRA PAL HAD FILED CONFIRMATIONS TO THE EFFECT THAT THEY HAD GIVEN RS. 50,000 EACH TOWARDS SHARE CAPITAL. BOTH THE PARTIES ARE ASSESSED TO INCOME TAX. BEFOR E HONBLE SUPREME COURT IN THE CASE I.T.A. NO.704/DEL./2009 (A.Y.: 2005-06) 4 OF LOVELY EXPORTS(SUPRA) THE QUESTION TO BE DECIDED BY THEIR LORDSHIPS WAS: CAN THE AMOUNT OF SHARE MONEY BE REGARDED AS UNDIS CLOSED INCOME UNDER SECTION 68 OF THE INCOME TAX ACT, 1961? WHILE ANSWERING TO THE ABOVE QUESTION, THEIR LORDSH IPS HAVE CONCLUDED THAT IF THE SHARE APPLICATION MONEY IS RECEIVED BY THE ASSESSEE COMPA NY FROM ALLEGED BOGUS SHAREHOLDERS, WHOSE NAMES ARE GIVEN TO THE ASSESSING OFFICER, THE N THE DEPARTMENT IS FREE TO PROCEED TO REOPEN THEIR INDIVIDUAL ASSESSMENTS IN ACCORDANC E WITH LAW, BUT IT CANNOT BE REGARDED AS UNDISCLOSED INCOME OF THE ASSESSEE. THUS, IN A C ASE WHERE IDENTITY OF PERSONS IS ESTABLISHED, IN OUR CONSIDERED OPINION, NO ADDITION IS JUSTIFIED IN THE HANDS OF THE ASSESSEE. IF THE ASSESSING OFFICER WAS NOT SATISFI ED WITH REGARD TO CREDITWORTHINESS OF THE DEPOSITORS THE ACTION COULD HAVE BEEN TAKEN IN THEI R HANDS. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT, WE HOLD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING THE ADDITION IN THE CASE OF ASS ESSEE COMPANY. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE COMMI SSIONER OF INCOME-TAX (APPEALS) IN DELETING THE ADDITION. 10. THUS, AS PER THE RATIO OF DECISION OF HONBLE S UPREME COURT WHERE THE IDENTITY OF THE PERSONS CONTRIBUTING SHARE APPLICTION MONEY HA VE BEEN ESTABLISHED, NO ADDITION CAN BE MADE IN THE HANDS OF THE COMPANY. IN VIEW OF TH E DECISION OF THE HONBLE SUPREME COURT, IN OUR CONSIDERED OPINION, THE ADDITION MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED. IF THE ASSESSING OFFICER WAS NOT SATISF IED ABOUT THE SOURCE OF INVESTMENT HE SHOULD HAVE TAKEN ACTION IN THE HANDS OF THE DEPOSI TORS AND NOT IN THE HANDS OF THE ASSESSEE . WE ACCORDINGLY DELETE THE ADDITION SUST AINED BY THE COMMISSIONER OF INCOME- TAX (APPEALS) AND DIRECT THE ASSESSING OFFICER TO A LLOW THE RELIEF TO THE ASSESSEE. 11. THE LAST ISSUE FOR CONSIDERATION RELATES TO DIS ALLOWANCE OF RS.45,280 ON ACCOUNT OF BUSINESS EXPENDITURE. THE ASSESSING OFFICER DISALL OWED THE AMOUNT ON THE GROUND THAT THERE WAS NO BUSINESS ACTIVITY DURING THE YEAR UNDE R CONSIDERATION. ON APPEAL, THE COMMISSIONER OF INCOME-TAX (APPEALS) UPHELD THE DIS ALLOWANCE ON THE GROUND THAT THE COMPANY HAD BEEN INCORPORATED ON 12.10.04 AND NO BU SINESS ACTIVITY WAS CONDUCTED BY THE ASSESSEE. IN ORDER TO SUSTAIN A CLAIM OF DEDUC TION BY WAY OF BUSINESS EXPENDITURE, THE I.T.A. NO.704/DEL./2009 (A.Y.: 2005-06) 5 EXPENDITURE MUST BE INCURRED FOR THE PURPOSE OF THE BUSINESS, WHICH WAS INEXISTENCE IN THE YEAR OF ACCOUNTS. SINCE DURING THE RELEVANT PER IOD, NO BUSINESS WAS CARRIED OUT, THE CLAIM FOR EXPENSES WAS NOT JUSTIFIED. SHE ACCORDIN GLY, UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 12. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DOUBT THAT BUSINESS ACTIVITY WAS NOT CA RRIED OUT BY THE ASSESSEE. NOTHING HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO SUGGEST T HAT THE BUSINESS WAS SET UP IN THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE EXPENDITURE INCURRED ON ACCOUNT OF LEGAL EXPENSES, AUDIT FEE, PROFESSIONAL CHARGES AND BANK INTEREST A RE IN NATURE OF PRE-OPERATIVE EXPENSES AND CANNOT BE ALLOWED AS DEDUCTION. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APP EALS) IN UPHOLDING HE DISALLOWANCE. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 14. ORDER PRONOUNCE DIN OPEN COURT ON 21.08.2009. (C.L. SETHI) (K.D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: AUG. 21, 2009. *SKB* COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A)-IX, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. AR/ITAT