Murli Techno Private Ltd., Ratnagiri V. Income-tax Officer,

ITA 708/PUN/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1164 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-05-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 10-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Opportunity of being heard
• Section: 143(3); 68

Judgement Text

] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE , !', $ % BEFORE SHRI VIKAS AWASTHY, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.708/PN/2014 ASSESSMENT YEAR : 2010-11 MURLI TECHNO PRIVATE LIMITED, B-2/11, SAKET APARTMENT, ZERO ROAD, CHIPLUN, DIST.- RATNAGIRI. PAN : AAECM0846K . APPELLANT VS. THE INCOME TAX OFFICER, WARD- 4, RATNAGIRI. . RESPONDENT / APPELLANT BY : SHRI M. R. BHAGWAT / RESPONDENT BY : SHRI P. L. KUREEL / DATE OF HEARING : 04.08.2016 / DATE OF PRONOUNCEMENT: 05.08.2016 & / ORDER PER PRADIP KUMAR KEDIA, AM : THE CAPTIONED APPEAL FILED BY THE ASSESSEE IS AGAIN ST THE ORDER OF CIT(A), KOLHAPUR DATED 16.01.2014 RELATING TO ASSES SMENT YEAR 2010-11 PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE RELEVANT FACTS, IN BRIEF, ARE THAT THE ASSES SEE IS A COMPANY ENGAGED IN THE BUSINESS OF DEALING IN FIRE FIGHTING PRODUCT S. THE ASSESSEE FILED THE RETURN OF INCOME COMPUTING A LOSS OF RS.24,00,000/- WHICH WAS REVISED THEREAFTER COMPUTING THE TOTAL INCOME OF RS.99,430/ -. DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE DECLARED INCREASE IN ITS SHARE CAPITAL FROM RS.25,00,000/- TO RS.95,00,000/- ON ACCOUNT OF RECE IPT TOWARDS SHARE APPLICATION MONEY. IN THE RELEVANT YEAR, THE ASSES SEE RECEIVED RS.70,00,000/- 2 ITA NO.708/PN/2014 AS SHARE APPLICATION MONEY FROM ITS FOUR DIRECTORS BY WAY OF JOURNAL ENTRIES FROM THE ACCOUNTS OF THE DIRECTORS WITH THE ASSESSE E COMPANY. THE ASSESSING OFFICER QUESTIONED THE BONA-FIDES OF ADDITION OF RS .70,00,000/- IN RESPECT OF SHARE APPLICATION MONEY RECEIVED BY THE ASSESSEE BY WAY OF JOURNAL ENTRY. HE PRESUMED THAT UNACCOUNTED CASH HAS BEEN INTRODUCED IN THE COMPANY TOWARDS SHARE APPLICATION MONEY. THE ASSESSING OFFICER ALS O MADE AN ADDITION OF RS.2,59,596/- BY WAY OF AD-HOC DISALLOWANCE BEING 15% OF THE EXPENDITURE OF RS.17,30,643/- TOWARDS LABOUR, SALARY, STAFF WELFAR E, ETC. ON THE GROUND THAT SOME OF THE EXPENSES ARE INCURRED IN CASH WHICH ARE NOT VERIFIABLE. 3. THE CIT(A) GRANTED PART RELIEF AGAINST THE ADDIT ION OF RS.70,00,000/- AND CONFIRMED THE DISALLOWANCE TO THE TUNE OF RS.41 ,47,733/-. HE ALSO SUSTAINED AD-HOC DISALLOWANCE OF RS.2,59,596/- MADE BY THE ASSESSIN G OFFICER. 4. AGAINST THE IMPUGNED ORDER OF THE CIT(A), THE AS SESSEE IS IN APPEAL BEFORE TRIBUNAL BY RAISING FOLLOWING GROUNDS OF APP EAL :- 1. SHARE APPLICATION MONEY FROM DIRECTORS: ADDITI ON OF RS.41,47,733/- U/S.68: 1.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE ADDITION OF RS. 41,47,733/- MADE BY THE LEARNED ASSESSING OFFICER U/S. 68 OF THE INCOME-TAX ACT, 1961 AS REGARDS THE SHARE APPLICATION MONEY RECEIVED FROM THE DIRECTORS OF THE APPELLANT COMPAN Y BY JOURNAL ENTRY. 1.2 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE DIRECTORS (SHARE APPLICANTS) ARE ASSESSED TO TAX AND THEY HAVE CONFIRMED THE TRANSACTIONS BY JOURNAL ENTRY. 1.3 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE ADDITION IS PATENTLY ILLEGAL AND UNJUST. 2. ADDITION OF RS. 2,59,596/- BY WAY OF ADHOC DISAL LOWANCE: 2.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE ADHOC DISALLOWANCE OF RS. 2,59,596/- AT THE RAT E OF 15% . 2.2 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) FAILED TO APPRECIATE THAT THE ADHOC DISALLOWANCE IS EXCESSIVE AND UNREAS ONABLE. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER AND/OR DELETE ANY OF THE GROUNDS OF APPEAL. 5. THE LD. AUTHORIZED REPRESENTATIVE (AR) FOR THE A SSESSEE SHRI M. P. BHAGWAT SUBMITTED THAT IT IS A MATTER OF RECORD THA T THE ASSESSEE HAS ACTUALLY ALLOTTED 7,00,000 SHARES OF RS.10/- EACH TO THE APP LICANTS IN THE SUBSEQUENT 3 ITA NO.708/PN/2014 YEAR. HE SUBMITTED THAT THE ASSESSING OFFICER HAS GROSSLY MISDIRECTED HIMSELF IN WRONGLY UNDERSTANDING THE STATUTORY FORMAT OF TH E RETURN FILED BY THE ASSESSEE WITH THE REGISTRAR OF COMPANY IN THIS REGA RD. AS PER THE COLUMNS PROVIDED IN THE PRESCRIBED FORM NO.2 FILED BY THE R OC, THE ALLOTMENTS OF SHARES WERE STATED TO BE IN CASH, WHICH WAS MISUNDE RSTOOD BY THE ASSESSING OFFICER TO BE PAID IN CASH IN LITERAL SENSE. NO CA SH WAS RECEIVED BY THE ASSESSEE AT ANY STAGE FOR THIS PURPOSE. THE AMOUNT WAS LYING TO THE CREDITS OF THE DIRECTORS OF THE ASSESSEE COMPANY AND THEY HAVE TRANSFERRED THE CREDITS FOR THE ALLOTMENT OF SHARES IN A SEPARATE ACTION. THE LD. AR PLACED RELIANCE UPON THE BALANCE SHEET FILED BY THE RESPECTIVE DIRECTORS . THE DIRECTORS HAVE ALSO CONFIRMED THESE TRANSACTIONS OF CREDITS AND PAYMENT . THE LD. AR THEREFORE SUBMITTED THAT THERE IS NO REASON TO DRAW ADVERSE I NFERENCE AGAINST THE ASSESSEE. THE LD. AR ADVERTED OUR ATTENTION TO THE ACCOUNT CONFIRMATION STATEMENTS RECEIVED FROM THE DIRECTORS AND SUBMITTE D THAT CERTAIN AMOUNTS WERE LYING TO THE CREDITS OF THESE DIRECTORS NAMELY SHRI DINESH CHAVAN, SMT. ATMASMRUTI CHAVAN, SHRI DEEPAK K MITRA AND SHRI MIL IND JADHAV. THESE AMOUNTS HAVE BEEN TRANSFERRED TO THE SHARE APPLICAT ION MONEY ACCOUNT DURING THE RELEVANT ASSESSMENT YEAR AND SHARES WERE ALLOTT ED TO THESE PERSONS IN THE SUBSEQUENT YEAR. THE LD. AR SUBMITTED THAT CIT(A) HAS FAILED TO UNDERSTAND THE ENTIRE GAMUT OF TRANSACTIONS AND DENIED A CREDI T OF RS.27,69,833/- APPEARING IN THE ACCOUNT OF SHRI DINESH CHAVAN. LI KEWISE, CERTAIN CREDITS LYING IN THE ACCOUNT OF OTHER DIRECTORS WERE ALSO D ENIED AS SOURCE OF THE SHARE APPLICATION MONEY. ACCORDINGLY, ADDITION TO THE EX TENT OF RS.41,47,733/- WAS CONFIRMED BY THE CIT(A). THE LD. AR SUBMITTED THAT THE SOURCE OF THESE CREDITS ARE APPEARING IN OTHER LEDGER ACCOUNTS MAIN TAINED FOR THESE PERSONS ON ACCOUNT OF PURCHASES, DIRECTORS REMUNERATIONS AND O THER TRANSACTIONS OF SIMILAR NATURE WHICH WERE TRANSFERRED TO THE IMPUGNED ACCOU NT AND THEREAFTER TRANSFERRED TO THE SHARE APPLICATION MONEY ACCOUNT. SUCH TRANSFERS BY WAY OF JOURNAL ENTRY ARE ONLY ACCOUNTING ENTRIES AND DOES NOT IN ANY WAY EFFECT THE CREDIBILITY OF THE SOURCE OF RECEIPT. HE ACCORDING LY SOUGHT APPROPRIATE RELIEF. 4 ITA NO.708/PN/2014 6. AS REGARDS SECOND ISSUE OF AD-HOC DISALLOWANCE, THE LD. AR SUBMITTED THAT THE DISALLOWANCE MADE IS HIGHLY EXCESSIVE AND PRAYED FOR SUITABLE RELIEF IN THIS REGARD. 7. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT(A). 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND THE MATERIAL PLACED ON RECORD. WE FIND THAT THE ASSESSEE COMPAN Y HAS MAINTAINED SEVERAL ACCOUNTS FOR THESE DIRECTORS WHO HAVE APPLIED FOR A LLOTMENT OF SHARES. THE SUM LYING TO THE CREDIT OF THESE DIRECTORS IS ONE ACCOU NT HAS BEEN TRANSFERRED TO ANOTHER AND FINALLY REACHED THE SHARE APPLICATION M ONEY ACCOUNT FOR ALLOTMENT OF SHARES. THESE MULTIPLE ACCOUNTS APPEARS TO HAVE CAUSED SOME CONFUSION REGARDING VERIFICATION OF SOURCE OF THESE RECEIPTS. IN VIEW OF THE CIRCUMSTANCES NARRATED BY THE LD. AR AND DOCUMENTS RELIED UPON BY WAY OF CERTAIN MULTIPLE LEDGER EXTRACTS FOR THE SHARE APPLICANTS, WE CONSID ER IT APPROPRIATE THAT THE MATTER IS EXAMINED DE NOVO BY THE ASSESSING OFFICER IN ACCORDANCE WITH LAW AFTER GIVING PROPER OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. IT WILL OPEN TO THE ASSESSEE TO ESTABLISH THE BONA-FIDES OF THE CRE DITS RECEIVED UNDER SHARE APPLICATION MONEY BY ADDUCING SUITABLE EVIDENCES IN THIS REGARD. ACCORDINGLY, GROUND NO.1 IS SET-ASIDE AND RESTORED TO THE FILE O F THE ASSESSING OFFICER FOR DE NOVO ADJUDICATION. 9. AS REGARDS AD-HOC DISALLOWANCE OF RS.2,59,596/-, WE NOTICE THAT THE ASSESSEE HAS CLAIMED LABOUR AND OTHER CHARGES, SALA RY, STAFF WELFARE, PETROL AND DIESEL, REPAIR AND MAINTENANCE, BUSINESS PROMOTION, ADVERTISEMENT EXPENSES, TRAVELLING EXPENSES, CONVEYANCE, ETC., THE AGGREGAT E OF WHICH WAS WORKED OUT OF RS.17,30,643/- BY THE ASSESSING OFFICER. A PART OF THESE EXPENSES HAVE BEEN STATED TO BE INCURRED IN CASH AND SUPPORTED BY THE SELF MADE VOUCHERS WHICH ARE NOT FULLY VERIFIABLE. THE ASSESSING OFFI CER RESORTED AD-HOC DISALLOWANCE TO 15% OF SUCH EXPENSES AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE CIT(A) CONFIRMED THE ESTIMATE D DISALLOWANCE. IT WAS 5 ITA NO.708/PN/2014 CONTENDED BY THE LD. AR THAT THE PAYMENT HAS BEEN M ADE IN CASH IN VIEW THE VERY NATURE OF SUCH EXPENSES AND THE ASSESSEE HAS M AINTAINED PROPER AND PLAUSIBLE EVIDENCES AS THE CIRCUMSTANCES WARRANT. WE FEEL THAT HAVING REGARD TO THE NATURE OF EXPENSES, SOME ESTIMATED DISALLOWA NCE MAY BE JUSTIFIED. HOWEVER, THE QUANTUM OF DISALLOWANCE TO THE EXTENT OF 15% OF EXPENDITURE APPEARS EXCESSIVE. WE FEEL THAT ESTIMATED DISALLOW ANCE OF 5% WILL BE JUST AND PROPER AND WILL MEET THE ENDS OF JUSTICE. ACCORDIN GLY, THE ASSESSEE GETS PART RELIEF ON THE ISSUE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON THIS 05 TH DAY OF AUGUST, 2016. SD/- SD/- ( VIKAS AWASTHY ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER PUNE ; DATED : 05 TH AUGUST, 2016. & ' () *+( / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A), KOLHAPUR; 4) THE CIT-II, KOLHAPUR; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. &, / BY ORDER , ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* , / ITAT, PUNE