Shree Veer Buildbest Private Limited, Ahmedabad V. The Income Tax Officer, Ward-8(3) Now Ward-4(1)(1), Ahmedabad

ITA 892/AHD/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0847 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 14-07-2024
• Assessment Year: 2011-2012
• Appeal Filed On: 06-11-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus Share capital; Depreciation; Business expenditure; Onus to prove; Capital expenditure
• Section: 32; 68; 143(3); 142(1); 133(6); 143(1); 143(2); 44AB; 48

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ “सी“ , अहमदाबाद अहमदाबादअहमदाबाद अहमदाबाद । ।। । IN THE INCOME TAX APPELLATE TRIBUNAL “ C ” BENCH, AHMEDABAD स ी स , स एवं ी म रं वसंत मह व र, स सम ] ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं /ITA No.892/Ahd/2023 र /Assessment Year : 2011-12 Shree Veer Buildbest Pvt.Ltd. 302, Swapneel – 5 Commerce Six Road Navrangpura Ahmedabad – 380 009 न म/ v/s. The ITO Ward-4(1)(1) Ahmedabad- 380 015 ल े ख सं./PAN: AAKCS 8358 Q $%ी &'/ (Appellant) ..... () &'/ (Respondent) Assessee by : Shri Aseem L. Thakkar, AR Revenue by : Shri Ashok Kumar Suthar, Sr.DR स क र /Date of Hearing : 15/07/2024 क र /Date of Pronouncement: 23/07/2024 आ श/O R D E R PER SHRI MAKARAND V. MAHADEOKAR, AM: This appeal is filed by the Assessee as against the order dated 21/09/2023 passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “ the Ld.CIT(A)” in short], arising out of the assessment order dated 28/03/2014 passed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") relevant to the Assessment Year (AY) 2011-12. ITA No.892/Ahd/2023 Shree Veer Buildbest Pvt.Ltd. vs. ITO Asst. Year : 2011-12 2 Facts of the case: 2. The assessee-company filed its return of income on 27-9-2011 for the A.Y. 2010-11 declaring the total income of Rs.26,87,870/- The return was processed u/s 143(1) of the Act. The case was selected for scrutiny and notices u/s 143(2) and 142(1) of the Act were issued to the assessee. In response thereto, the assessee filed the tax Audit Report and Audited Financial Statements. 2.1. The AO observed that the assessee has claimed ROC Expenses of Rs.4,10,500/- relating to increase in share capital. The AO disallowed Rs.4,00,000/- relying on some judicial pronouncements. The AO also observed that the assessee claimed depreciation of Rs. 43,480/- on the assets held in the name of directors. He disallowed the depreciation on such assets held in the name of directors. 2.2. During the course of assessment proceedings, the AO disallowed 20% of expenses amounting to Rs.7,38,933/- and added back Rs.1,47,786/- in the total income of assessee for want of evidence. The AO also disallowed membership fees of Rs. 12,000/- for want of details. 2.3. During the course of the assessment proceedings, the AO observed that the assessee has raised share capital for Rs.75,00,000/- from Tripada Infrastructure Pvt. Ltd. A notice u/s 133(6) of the Act was issued to the said company and inspector was also deputed to conduct the inquiry at the address of the said company given by the assessee and found that the said company is not running its business from the said address. The AO asked ITA No.892/Ahd/2023 Shree Veer Buildbest Pvt.Ltd. vs. ITO Asst. Year : 2011-12 3 the assessee to prove the identity, credit worthiness and genuineness of the person. In response thereto, the Assessee submitted details of the assessee such as copy of ITR, bank account statement along with confirmation. The AO, concluding that the assessee has failed to produce the director for cross verification, issued show a cause notice to the assessee that why this amount should not be treated as unexplained as per provisions of section 68 of the Act. In response to the said notice, the assessee filed detailed reply. However, the AO concluded that the identity remained in doubt and added Rs.75,00,000/- to the total income of the assessee u/s 68 of the Act. 3. Aggrieved by the order of the AO, the assessee filed an appeal before ld.CIT(A), who dismissed the appeal confirming the additions made by the AO. Therefore, the assessee in appeal before us with the following grounds of appeal: 1. “The learned Commissioner of Income Tax (Appeals), NAC, Delhi has erred in confirming action of the Assessing Officer in making disallowance of ROC Charges of Rs.4,00,000/- treating the same as capital expenditure. 2. The learned Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in confirming action of the Assessing Officer in making disallowance of depreciation of Rs.43,480/- on the assets not held in the name of the Company. 3. The learned Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in confirming action of the Assessing Officer in making disallowance of Rs.1,47,786/- being 20% of the total expenses of Rs.7,38,933/- comprises of other expenses of Rs.95,977/-, Misc. expenses of Rs.3,15,673/- and Vehicle running and maintenance expenses of Rs.3,27,283/-. ITA No.892/Ahd/2023 Shree Veer Buildbest Pvt.Ltd. vs. ITO Asst. Year : 2011-12 4 4. The learned Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in confirming action of the Assessing Officer in making disallowance of Rs.12,000/- being an amount of membership expenses. 5. The learned Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in confirming the Assessing Officer in making protective addition of Rs.75,00,000/-as alleged unexplained unsecured loan u/s.68 of the I.T.Act, 1961 being an amount of share application money received by the Appellant from Tripada Infrastructure Pvt. Ltd. 6. The learned Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in confirming the addition of Rs.75,00,000/- made on protective basis of share application money where the identity, genuineness and credit worthiness of the saher applicant has been established by placing various evidences on record. 7. The learned Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in confirming the addition of share application money of Rs.75,00,000/- on protective basis without bringing on record the fate of the addition in the hands of Tripada Infrastructure Pvt. Ltd. where substantive additions have been made. 8. The appellant craves leave to add, alter, amend or modify any of the grounds of appeal on or before the date of hearing of appeal.” On Ground Nos. 1 and 4 4. These two grounds are relating to ROC expenses of Rs.4,00,000/- and membership fees of Rs.12,000/-. During the course of hearing, the Ld.Counsel for the assessee submitted that since the issue of ROC expenses is covered by the judicial pronouncements and the issue of membership fees ITA No.892/Ahd/2023 Shree Veer Buildbest Pvt.Ltd. vs. ITO Asst. Year : 2011-12 5 is of very small amount of Rs.12,000/- he will not press for. In light of the submission of the Ld.Counsel for the assessee, these grounds are dismissed. On Ground No. 2 5. This ground related to disallowance of depreciation of Rs.43,480/- relating to assets held in the name of directors. The Ld.Counsel for the assessee stated that the payments for the assets were made from the company’s account which is not disputed or challenged by the AO. The AO has also allowed the telephone expenses which supports the contention that the asset has been used for the purpose of business. As regards the computers, he stated that the books of accounts itself are maintained thereon and the details have been extracted therefrom and furnished during the course of assessment proceedings. The AO has not disputed this fact. The utilization of computers in the performance of the business operations has not been challenged by the AO. The Ld.Counsel for the assessee placed reliance on judgement of Hon’ble Supreme Court in case of Mysore Mineral Ltd. Vs. CIT (1999) 239 ITR 755 (SC). 5.1. The Ld.Counsel for the assessee contended that the AO has not considered the principle of beneficial ownership of assets while disallowing depreciation and disallowed the same. 6. The Ld.Departmental Representative relied on the orders of lower authorities. ITA No.892/Ahd/2023 Shree Veer Buildbest Pvt.Ltd. vs. ITO Asst. Year : 2011-12 6 7. We have heard the contentions. The primary issue is whether the assessee can claim depreciation on the assets when it did not hold a formal title of ownership but was in possession and used for business purposes. Section 32 of the Act provides for depreciation on buildings, machinery, plant, or furniture owned, wholly or partly, by the assessee and used for the purposes of business or profession. The Hon’ble Supreme Court in case of Mysore Mineral Ltd. Vs. CIT (supra), noted the legislative intent behind Section 32, emphasizing the words “owned by the assessee.” The ownership is a relative term that can include not just full legal ownership but also various shades of possession and control over the property. The Court recognized the concept of "beneficial ownership" where the person in control and possession of the property could be considered as the owner for tax purposes. The Hon’ble Supreme Court decided in favour of assessee holding that for the purpose of claiming depreciation under Section 32, the term “owner” should be interpreted in a wider sense to include not only legal ownership but also cases where the assessee has acquired dominion over the asset and is in possession and control of the same. 7.1. In the present case the assessee is using these assets for the purposes of business of the assessee. The AO has not denied the same. The AO has allowed all expenses relating to operating of these assets therefore, respecting the decision of Hon’ble Apex court in case of Mysore Mineral Ltd. (supra), we allow the claim of depreciation of the assessee. Thus, this ground of the assessee is allowed. ITA No.892/Ahd/2023 Shree Veer Buildbest Pvt.Ltd. vs. ITO Asst. Year : 2011-12 7 On Ground No. 3 8. This ground is pertaining to disallowance of expenditure of Rs.1,47,786/- being 20% of total expenses of Rs.7,38,933/-. The AO observed that during the assessment proceedings, the assessee had claimed various office and other expenses, which showed a significant increase compared to the previous year. The expenses in question included: Other expenses : Rs. 95,977/- Office expenses (including misc. of Rs.3,15,673/-) : Rs. 5,03,234/- Vehicle running and maintenance expenses : Rs. 3,27,283/- ----------------- Total : Rs.7,38,933/- ----------------- 8.1. During the course of assessment proceedings, the AO requested documentary evidence for these expenses but noted that the assessee failed to provide complete bills, invoices, or vehicle logbooks. Consequently, the AO disallowed 20% of the total expenditure, justifying the disallowance on the grounds of insufficient evidence, a substantial increase in expenses compared to the previous year, and the fact that many of the expenses were made in cash. 9. Before us, the Ld.Counsel for the assessee argued that the increase in expenses corresponded with a significant increase in turnover from Rs.2.30 crores to Rs.3.87 crores (an increase of 68.08%). He pointed out that the net profit margin had remained consistent (7.06% compared to 7.25% in the previous year), which demonstrates the legitimacy of the expenses. The Ld.Counsel for the assessee also highlighted that the vehicle expenses had actually decreased from Rs.3.29 lakhs to Rs.3.27 lakhs. He further ITA No.892/Ahd/2023 Shree Veer Buildbest Pvt.Ltd. vs. ITO Asst. Year : 2011-12 8 contended that business expenses naturally vary due to the volatile nature of the business environment. He also argued that the AO's disallowance was based on doubts and suspicions rather than concrete evidence. Additionally, he emphasized that the books of accounts of assessee were duly audited under the Companies Act, 1956, and under section 44AB of the Income Tax Act, 1961, with no qualifications in the audit report to justify the additions made by the AO. 9.1. Before the Ld.CIT(A), the assessee refuted the AO’s reliance on the case of Assam Pesticides v. CIT (227 ITR 846), pointing out significant differences in the facts of both cases. In the case relied upon by the AO, the expenses were proved to be sham. The assessee further cited judicial pronouncements in case of Rajat Tradecom Pvt. Ltd. v. DCIT (2009) 120 ITD 48 (Ind.) and DCIT v. Surface Finishing Equipment (2003) 81 TTJ 448 (Jodhpur) to support their contention that ad hoc disallowances without specific evidence were unjustifiable. 10. The Ld.DR relied on the orders of lower authorities. 11. We have heard the contentions of both the parties and note that the assessee's turnover increased significantly by 68.08% from Rs.2.30 crores to Rs.3.87 crores, while maintaining a consistent net profit margin (7.06% compared to 7.25% in the previous year). This indicates that the increase in expenses is proportional to the increase in business volume. 11.1. The AO’s disallowance was primarily based on the assessee’s failure to furnish complete documentary evidence for the claimed expenses. ITA No.892/Ahd/2023 Shree Veer Buildbest Pvt.Ltd. vs. ITO Asst. Year : 2011-12 9 However, no specific discrepancies or unsupported expenses were identified by the AO. Business expenses naturally fluctuate due to various factors. The assessee demonstrated that vehicle expenses had decreased from Rs. 3.29 lakhs to Rs. 3.27 lakhs, which contradicts the AO’s assertion of an unjustifiable increase in expenses. The assessee’s books of accounts were audited under both the Companies Act, 1956, and section 44AB of the Income Tax Act, 1961, with no adverse remarks in the audit report. This supports the credibility of the assessee’s financial records. 11.2. The facts of Assam Pesticides v. CIT (227 ITR 846) are not comparable to the present case. The payments in Assam Pesticides were made to sister concerns without any commercial consideration, whereas the assessee made payments to third parties. The disallowance in Assam Pesticides was based on the absence of services rendered, which is not the case here. The assessee cited relevant judicial pronouncements, such as Rajat Tradecom Pvt. Ltd. v. DCIT and DCIT v. Surface Finishing Equipment, which support the contention that ad hoc disallowances without specific evidence are not sustainable. 11.3. Given the above findings, the Tribunal concludes that the disallowance made by the AO was based on assumptions and not on concrete evidence. The assessee’s increased expenses are justified by the corresponding increase in turnover, and the consistency in net profit margin further supports the genuineness of the expenses. Therefore, we direct the deletion of the disallowance of 20% of the total expenditure made by the AO. Therefore, this ground of assessee’s appeal is allowed. ITA No.892/Ahd/2023 Shree Veer Buildbest Pvt.Ltd. vs. ITO Asst. Year : 2011-12 10 On Ground Nos. 5, 6, & 7 12. Under this ground, the assessee challenges the protective addition of Rs.75,00,000/- as an alleged unsecured loan under section 68 of the Income Tax Act, received from M/s. Tripada Infrastructure Pvt. Ltd. (TIPL). During the course of assessment proceedings, the AO directed the assessee to furnish evidence of the persons from whom the share application money was received. The assessee provided confirmation and details for verification. Inquiries were conducted to verify the creditworthiness and genuineness of the transactions. The AO found that TIPL was not operating at the given address, raising doubts about its identity, existence, and the genuineness of the transaction. Despite the assessee furnishing the bank account and ITR copies, the AO requested the assessee to produce the directors of TIPL for cross-verification. The AO referred to information from ITO, Ward-8(1), Ahmedabad, indicating that TIPL had not produced books of accounts during proceedings for AY 2011-12, and bank transactions could not be verified. Based on these findings, the AO issued a show-cause notice and later added the amount as unexplained under section 68, making a protective addition. 13. Before us the Ld.Counsel for the assessee stated that the assessee provided detailed explanations and furnished all relevant documents, including bank statements, ITR, returns, and audited accounts of TIPL, well before the show-cause notice. The AO's late request to produce TIPL's directors was impractical, especially given TIPL's non-compliance with its own proceedings. He further argued that the burden of proof shifted to the ITA No.892/Ahd/2023 Shree Veer Buildbest Pvt.Ltd. vs. ITO Asst. Year : 2011-12 11 AO after providing initial evidence, and the AO failed to provide conclusive evidence against the genuineness of the transactions. 14. Before the Ld.CIT(A), the reliance was placed on judicial precedents in case of CIT v. Dwarkadish Investment (P) Ltd. (2011) 330 ITR 298 (Del.) and CIT v. Kamadhenu Steel & Alloys Ltd. (2014) 361 ITR 220 (Del) which held that once an assessee furnishes evidence to prove the identity and genuineness of the transactions, the onus shifts to the Revenue to disprove it. 14.1. About the protective addition of Rs.75,00,000/- made in the hands of assessee, the counsel for the assessee argued that assessment can be considered protective only when there is substantive assessment. Therefore, in absence of assessment of TIPL as stated by the AO in his order, no addition can be made on protective basis in the hands of assessee. He placed reliance on decisions of co-ordinate bench in case of Pravinkumar Valjibhai Pujara HUF Vs. ITO, Ward-2, Patan (ITA No. 142/AHD/2016). 15. We noted that the assessee had furnished substantial evidence, including bank statements, ITR copies, and confirmations from TIPL. These documents prima facie established the identity, creditworthiness, and genuineness of the share application money received. We also noted that that the AO's primary concern was TIPL not being found at the given address. However, it was emphasized that the AO did not conduct further investigations, such as verifying the bank accounts or pursuing information from the Registrar of Companies. ITA No.892/Ahd/2023 Shree Veer Buildbest Pvt.Ltd. vs. ITO Asst. Year : 2011-12 12 15.1. Citing Dwarkadish Investment (P) Ltd. (supra) and Kamadhenu Steel & Alloys Ltd.(supra), we reiterate that the initial burden lies on the assessee to prove the genuineness of the transactions. Once this is done, the onus shifts to the Revenue to disprove it. We found that the AO failed to carry the suspicion to a logical conclusion by not conducting a thorough investigation. 15.2. We also noted that there was no substantive addition in the hands of TIPL. Protective assessments are primarily made to safeguard the revenue in situations of uncertainty. The protective assessment is inherently linked to the substantive assessment, and without a substantive addition, the protective assessment should also be nullified. We have also noted the decision of Pravinkumar Valjibhai Pujara HUF Vs. ITO, Ward-2, Patan (ITA No. 142/AHD/2016), wherein it was decided that substantive assessment has to precede protective assessment. AO’s action to make protective assessment in the hands of assessee because TIPL has failed in producing it books of accounts at the time of their own assessment is not justifiable. 15.3. Therefore, we conclude that the assessee has discharged the initial burden of proof by furnishing adequate evidence. The AO's failure to provide further substantial evidence or conduct thorough investigations meant that the protective addition of Rs.75,00,000/- under section 68 was not justified. We also rely on the decision of Co-ordinate Bench referred by the assessee and conclude that in absence of assessment of TIPL, protective addition in the hands of the assessee will not sustain. Hence, this ground of assessee’s appeal is allowed. ITA No.892/Ahd/2023 Shree Veer Buildbest Pvt.Ltd. vs. ITO Asst. Year : 2011-12 13 15.4. We, therefore, allow the appeal in favour of the assessee, deleting the protective addition of Rs. 75,00,000/-. Thus, Ground No.8 is generic and, hence, need no adjudication. 16. In the result, the appeal filed by the Assessee is partly allowed. Order pronounced in the Open Court on 23 July, 2024 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER अहमद ब द/Ahmedabad, !द ंक/Dated 23/07/2024 " .सी. यर, . .स./T.C. NAIR, Sr. PS आद%& क ' (ल)प अ*%) /Copy of the Order forwarded to : 1. अपील +, / The Appellant 2. '-य+, / The Respondent. 3. संबं. आयकर आय / / Concerned CIT 4. आयकर आय / )अपील (/ The CIT(A)-(NFAC), Delhi 5. ) 2 3ीय ' . ,आयकर अपील य अ. कर ,र ज क"/DR,ITAT, Ahmedabad, 6. 3 5 6 ल /Guard file. आद%& स र/ BY ORDER, स-य )प ' //True Copy// सह यक पंजीक र (Asstt. Registrar) आयकर अपील य अ. कर , ITAT, Ahmedabad 1. Date of dictation (word processed by Hon’ble AM in his laptop) : 16.7.2024 2. Date on which the typed draft is placed before the Dictating Member. : 16.7.2024 3. Date on which the approved draft comes to the Sr.P.S./P.S : 4. Date on which the fair order is placed before the Dictating Member for pronouncement. : 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the Sr.P.S./P.S. : 23.7.24 7. Date on which the file goes to the Bench Clerk. : 23.7.24 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant Registrar for signature on the order. : 10. Date of Despatch of the Order :