TECHZONE INFORMATION SYSTEMS P. LTD, MUMBAI V. ITO 8(3)(4), MUMBAI

ITA 9138/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93129 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 16-10-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 29-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N V NADKARNI
• Keywords: Share purchase agreement; Additional evidence; Reasonable cause
• Section: 144

Judgement Text

TECHZONE INFORMATION SYSTEMS PVT LTD ITA NO. 9138 /MUM/201 0 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI . . , , BEFORE SHRI G S PANNU , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBERITA ITA NO. : 91 3 8 /MUM/20 1 0 ( ASSESSMENT YEAR: 200 6 - 0 7 ) TECHZONE INFORMATION SYSTEMS PVT LTD , C/O. LAXMIKANT G KHANOLKAR, 1201, BLDG. NO. 15, INDRA DARSHAN PHASE II, LOKHANDWALA, ANDHERI (WEST), MUMBAI - 400 053 .: PAN: AA CC T 2 898 Q VS I NCOME T AX OFFICER - 8(3)(4), AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KIRAN MEHTA RESPONDENT BY : S MT N V NADKARNI /DATE OF HEARING : 23 - 0 4 - 201 5 / DATE OF PRONOUNCEMENT : 30 - 0 6 - 201 5 ORDER , . . : PER AMIT SHUKLA, AM : THE A FORESAID APPEAL HA S BEEN FILED BY THE ASSESSEE A GAINST THE IMPUGNED ORDER DATED 2 1. 1 0.201 0 , PASSED BY C IT (A) - 1 8 , MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 1 44 FOR THE ASSESSMENT YEAR 2006 - 07 ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS. 45,07,100/ - MADE U/S 68 IN RESPECT OF ALLEGED UNEXPLAINED LOANS. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING THE SAID ADDITION DESPITE VOLUMINOUS EVIDENCE FILED IN SUPPORT OF THE CONTENTION OF THE APPELLANT. SHE ERRED IN REJECTING THE VOLUMINOUS EVIDENCE AND EXPLANATION FILED BY THE APPELLANT ON HYPER TECHNICAL GROUNDS WHICH WE RE NOT TENABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE LEARNED CIT(A) ERRED IN SUSTAINING AN ADDITION OF RS. 2,00,000/ - MADE ON ACCOUNT OF THE ALLEGED UNEXPLAINED ADDITION TO SHARE CAPITAL. TECHZONE INFORMATION SYSTEMS PVT LTD ITA NO. 9138 /MUM/201 0 2 4. THE LEARNED CIT(A) ERRED IN SUSTAINING AN ADDITION O F RS. 17,81,725/ - MADE ON ACCOUNT OF DISALLOWANCE OF 10% OF TOTAL EXPENSES CLAIMED ON AD - HOC BASIS. 5. THE LEARNED LOWER AUTHORITIES ERRED IN MAKING HUGE ADDITIONS IN REFERENCE BY RELYING SOLELY ON THE ASSESSMENT MADE U/S 144 AND BY REPLYING ON HYPER TECH NICAL GROUNDS AND COMPLETELY IGNORING THE FACT THE ACCOUNTS WERE AUDITED. 2. THE FACTS IN BRIEF, AS CULLED OUT FROM THE ORDER OF THE CIT(A) ARE THAT, THE ASSESSMENT PROCEEDINGS WERE FINALIZED U/S 144 MA I NLY ON THE GROUND THAT VAR I OUS NOTICES SENT TO THE ASSESSEE - COMPANY WERE NOT RESPONDED , BECAUSE THE PROMOTER/DIRECTOR MR. JILANI K SHAIKH, WAS NOT TRACEABLE. THE OTHER DIRECTOR MR. LAXMIKANT G KHANOLKAR HA D ALSO RESIGNED AND CEASED TO BE DIRECTOR W.E.F. 13.01.2007. HOWEVER MR. KHANOLKARS DULY APPEARED BE FORE THE AO A ND CONVEYED THAT HE HAD NO CONTACT WITH MR. SHAIKH AND HE HAS NO EXCESS TO THE BOOKS AND RECORDS OF THE COMPANY. THE LD. CIT(A) HAS ALSO NOTED THAT THE ASSESSMENT YEAR 2006 - 07 WAS THE FIRST YEAR OF ASSESSMENT AS COMPANY ITSELF WAS INCORPORATED ON 18.08.2005 AND BOTH THE DIRECTORS WERE HOLDING 50% OF SHARES EACH. SINCE THE ASSESSEE COULD NOT PRODUCE THE BOOKS OF ACCOUNTS, THE FOLLOWING ADDITIONS WERE MADE BY THE AO ON THE BASIS OF BEST JUDGMENT ASSESSMENT U/S 144: - (I) UNSECURED LOA N S AS APPEARI NG IN THE BALANCE - SHEET WHICH WAS PARTLY CONFIRMED AT RS. 45,07,100/ - OUT OF TOTAL LOAN AMOUNT OF RS. 80,75,100/ - ; (II) SHARE SUBSCRIPTION MONEY AMOUNTING TO RS. 2 LAKHS; AND (III) AD - HOC DISALLOWANCE OF EXPENSES @ 10% OF THE TOTAL AMOUNT DEBITED TO T HE P&L ACCOUNT OF RS. 1,78,17,256/ - . 3. BEFORE THE CIT(A), REGARDING UNSECURED LOANS OF RS. 80,75,100/ - IT WAS SUBMITTED THAT THE DETAILS IN RESPECT OF RS. 35,68,000/ - WERE FURNISHED, WHICH WERE GIVEN BY MR. KHANOLKAR AND SAME HAS BEEN ACCEPTED BY THE A O. REGARDING THE BALANCE AMOUNT OF RS. 45,07,100/ - , IT WAS EXP L AINED DURING THE COURSE OF A PPELLATE PROCEEDINGS THAT MAJOR LOAN WAS GIVEN BY ARE, D R. TECHZONE INFORMATION SYSTEMS PVT LTD ITA NO. 9138 /MUM/201 0 3 KAUSHAL PANDEY AMOUNTING TO RS. 50 LAKHS TO THE ASSESSEE - COMPANY. DR PANDEYS ACCOUNT WITH THE INDIAN OVER SEAS BANK WAS ALSO FILED REFLECTING FOLLOWING DEBIT AMOUNTS WHICH WERE TRANSFERRED TO THE ACCOUNT OF THE ASSESSEE COMPANY: 07.12.2005 RS. 10,00,000 09.03.2006 RS. 15,00,000 09.03.2006 RS. 25,00,000 THE COPY OF ACCOUNT OF THE ASSESSEE WITH DR. KAUSHAL PANDEY WAS ALSO FURNISHED. 4. SINCE ALL THESE WERE IN THE FORM OF ADDITIONAL EVIDENCES, THE MATTER WAS REMANDED TO THE AO TO SUBMIT THE REMAND REPORT. DURING THE REMAND PROCEEDING S BEFORE THE AO, THE ASSESSEE SUBMITTED AS UNDER: ( A ) THAT, MR. KHANOLKAR HAD G IVEN LOAN OF RS. 35,68,000/ - TO APPELLANT COMPANY. ( B ) THAT, MR. KHANOLKAR HAD TO PAY RS. 23,00,000/ - TO M/S SILICON VALLEY SYSTEMS WHICH IS A SISTER CONCERN OF M/S TECHNOZONE. ( C ) THAT, THE AMOUN T OF RS. 23,00,000/ - DU E TO M/S SILICON VALLEY SYSTEMS WAS ADJUSTE D, HENCE THE BALANCE RECEIVABLE FROM THE COMPANY ON 31.03.2006 WAS RS. 12,68,000/ - . ( D ) THAT, AN AMOUNT OF RS. 50,00,000/ - WAS RECEIVED FROM DR. KAUSHAL PANDEY, BANK ACCOUNT COPY IS ENCLOSED REFLECTING WITHDRAWAL OF SUCH AMOUNT. ( E ) THUS, TOTAL AMOUNT OF RS. 62, 68,000/ - , I.E. RS. 12,68,000/ - FROM MR. KHANOLKAR AND RS. 50,00,000/ - FROM DR. KAUSHAL PANDEY STAND S EXPLAINED , LEAVING BALANCE OF RS. 18,07,100/ - FOR WHICH THERE ARE NO REQUISITE DETAILS, HENCE THE MAXIMUM AMOUNT THAT CAN BE ADDED IS ONLY RS. 18,07,100/ - U/S 68. 5. THE LD. CIT(A), HOWEVER, CONFIRMED THE ADDITION ON THE GROUND THAT, FIRSTLY THAT THERE IS NOTHING ON RECORD TO SUGGEST THAT, THAT THE AMOUNT OF RS. 23 LAKHS WAS ADJUSTED WITH M/S SILICON VALLEY SYSTEMS AND SECONDLY, THE BANK ACCOUNT OF DR. KAUS HAL PANDEY DOES NOT SUGGEST THAT AMOUNT OF RS. 10 LAKHS ON TECHZONE INFORMATION SYSTEMS PVT LTD ITA NO. 9138 /MUM/201 0 4 07.12.2005 AND AMOUNT OF RS. 25 LAKHS ON 09.03.2006 WERE FACTUALLY TRANSFERRED TO M/S TECHZONE ACCOUNT. LASTLY, IN ABSENCE OF BOOKS OF ACCOUNTS, THE CL A IM MADE BY THE ASSESSEE CANNOT BE VERIFIED. 6 . REGARDING SHARE APPLICATION MONEY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT BOTH THE DIRECTORS HAVE CONTRIBUTED RS. 1 LAKH EACH TOWARDS SHARE CAPITAL AND IN SUPPORT, A COPY OF THE BANK ACCOUNT WITH CITY BANK AND THE AMOUNT PAID THROUGH CHEQUE TO THE ASSESSEE COMPANY WAS FILED. THE BALANCE - SHEET OF THE D DIRECTOR REFLECTING INVESTMENT OF RS. 1 LAKH IN SHARES OF M/S TECHZONE WAS ALSO FILED. THESE EVIDENCES WERE FORWARD ED TO THE AO FOR REMAND REPORT, WHEREIN, THE AO REPORTED THAT COPY OF SHARE APPLIC ATION FO RM AND COPY OF SHARE CERTIFICATE WERE NOT SUBMITTED. THE LD. CIT(A) TOO CONFIRMED THE SAID ADDITION ON THE GROUND THAT SHARE APPLICATION FORM AND SHARE CERTIFICATE HAS NOT BEEN FILED . HOWEVER, HE HAS HELD IN PARA 4.1 HE HELD THAT ADDITION OF RS. 1 LAKH U/S 68 IS BEING CONFIRMED. 7 . REGARDING ADHOC DISALLOWANCE OF EXPENSES @ 10% IT WAS SUBMITTED BY THE ASSESSEE THAT IN THE BUSINESS OF MOBILE PHONES AND OTHER ELECTRONIC ITEMS THE MARGIN IS BEING LOW AND BEING THE FIRST YEAR OF THE BUSINESS AND LOOKI NG TO THE HIGHLY COMPETITIVE NATURE OF THIS BUSINESS, THE NET PROFIT MARGIN OF THE ASSESSEE WAS VERY LOW. IF SUCH A HUGE DISALLOWANCE IS MADE , THEN NET PROFIT MARGIN WILL INCREASE TO 12 % TO 13% WHICH IS NOT POSSIBLE IN THE BUSINESS LINE OF THE ASSESSEE. HO WEVER, THE LD. CIT(A) CONFIRMED THE SAID DISALLOWANCE ON THE GROUND THAT NO INFORMATION OR EVIDENCES WERE FILED IN SUPPORT OF THE EXPENSES. 8 . BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS REASONABLE CAUSE FOR NOT PRODUCING THE BOOK S OF ACCOUNTS , AS THE MANAGING DIRECTOR, PROMOTER WAS NOT TRACEABLE WHO HAD KEPT THE ENTIRE BOOKS OF ACCOUNTS AND THE RECORDS OF THE COMPANY. WHATEVER EVIDENCES COULD BE MADE AVAILABLE DURING THE TECHZONE INFORMATION SYSTEMS PVT LTD ITA NO. 9138 /MUM/201 0 5 COURSE OF THE APPELLATE PROCEEDINGS, THE SAME WERE FURNISHED . THE DETAILS AND EVIDENCES WHICH WERE FILED BEFORE THE CIT(A) GOES TO DISCHARGE THE PRIMA FACIE ONUS OF THE ASSESSEE THAT LOANS APPEARING IN THE BALANCE - SHEET WERE NOT ONLY GENUINE BUT ALSO HAD COME FROM CONFIRMED SOURCES FOR WHICH PARTICULARS OF BANK ACC OUNTS AND CONFIRMED COPY OF LEDGER ACCOUNTS WERE ALSO FILED. ONCE THE LOANS HAVE BEEN RECEIVED THROUGH ACCOUNT PAYEE CHEQUES DULY REFLECTED IN THE BANK ACCOUNTS OF THE CREDITOR AND ALSO THE COPY OF LEDGER ACCOUNT OF THE ASSESSEE MAINTAINED BY THE M, CREDIT W ORTH IN E SS STANDS PROVED AND WITHOUT THERE BEING ANY ADVERSE MATERIAL ON RECORD, NO ADDITION CAN BE SUSTAINED U/S 68. SIMILARLY, REGARDING SHARE APPLICATION MONEY, HE SUBMITTED THAT DIRECTOR HIMSELF HAS GIVEN COPY OF HIS BANK ACCOUNT VIDE WHICH, THE SHARE A PPLICATION MONEY HAD BEEN GIVEN, THEREFORE, SUCH AN ADDITION COULD NOT HAVE BEEN MADE IN THE HANDS OF THE ASSESSEE - COMPANY. REGARDING EXPENSE S ALSO HE SUBMITTED THAT THE SA M E IS VERY HIGH AND EXCESSIVE LOOKING TO THE FACT THAT IN ASSESSEES BUSINESS THE NE T PROFIT MARGIN IS VERY LOW. 10. ON THE OTHER HAND, T HE LD. DR STRONGLY RELYING UPON THE ORDER OF THE CIT(A), SUBMITTED THAT THE ADD I TIONS HAVE BEEN CONFIRMED ONLY WHEN THE ASSESSEE COULD NOT DISCHARGE ITS ONUS WHICH LAID UPON IT. ACCORDINGLY, THE ORDER O F THE CIT(A) SHOULD BE AFFIRMED. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AND MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 18.08.2005, AND ASSESSMENT YE AR 2006 - 07 WA S THE FIRST YEAR OF ASSESSMENT. THE TWO SHAREHOLDERS (HAVING SHARES 50% EACH), WERE ALSO THE DIRECTORS OF THE COMPANY WHO HAD BROKE - UP AND THE MAIN PROMOTER CUM MANAGING DIRECTOR , MR. JILANI K SHAIKH WAS UNTRACEABLE . THE OTHER DIRECTOR WHO HAS PARTICIPATED IN THE ASSESSMENT PROCEEDINGS ALSO HAS CEASED TO BE THE DIRECTOR W.E.F. 13.01.2007. IN WAKE OF THESE EVENTS, THE REGULAR BOOKS OF ACCOUNTS TECHZONE INFORMATION SYSTEMS PVT LTD ITA NO. 9138 /MUM/201 0 6 AND MOST OF THE RECORDS WHICH WERE IN THE POSSESSION OF THE PROMOTER DIRECTOR COULD NOT BE PRODUCED BEF ORE THE AUTHORITIES BELOW , A CCORDINGLY THE ASSESSMENT WAS FR A M ED UNDER B EST J UDGMENT A SSESSMENT U/S 144. DURING THE COURSE OF THE APPELLATE PROCEEDINGS, THE ASSESSEE HAD PRODUCED VARIOUS THIRD PARTY EVIDENCES IN SUPPORT OF ITS CONTENTION QUA THE ADDITIONS MADE BY THE AO. NOW S O FAR AS THE ADDITION ON ACCOUNT OF UNSECURED LOANS FOR SUMS AGGREGATING TO RS. 45,07,100/ - IS CONCERNED , IT IS SEEN FROM THE IMPUGNED ORDER AS WELL AS MATERIAL PLACED ON RECORD THAT THE MAJOR LOAN AMOUNT OF RS. 50 LAKHS WAS RECEIVED B Y THE ASSES S EE FROM DR. KAUSHAL PANDEY. IN SUPPORT OF SUCH A LOAN, HIS BANK ACCOUNTS WERE FILED REFLECTING THE TRANSFER OF MONEY TO THE ASSESSEE COMPANY. FROM THE PERUSAL OF THE BANK STATEMENT, IT IS EVIDENT THAT THE CLEARING IS SHOWN IN THE NAME OF M/S TE CHZONE INFO I.E. THE ASSESSEE - COMPANY WHICH HAS BEEN CREDITED TO THE ASSESSEES BANK ACCOUNT. SUCH A BANK STATEMENT IS FURTHER CORROBORATED BY CONFIRMED COPY OF LEDGER ACCOUNT OF THE ASSESSEE COMPANY IN THE BOOKS OF DR. KAUSHAL PANDEY, WHICH HAS BEEN DULY SIGNED AND CONFIRMED BY HIM ALONG WITH THE DETAILS OF THE PAN. THAT APART, A LOAN AMOUNT OF RS. 35,68,000/ - HAS ALSO BEEN SHOWN TO HAVE BEEN GIVEN BY THE DIRECTOR , MR. KHANOLKAR WHO HAS REPRESENTED THE A PPELLATE PROCEEDINGS AND THE A SSESSMENT PROCEEDINGS. THE ASSESSEE HAD GIVEN THE RECONCILIATION DURING THE COURSE OF THE REMAND PROCEEDINGS, THE EXTRACT OF WHICH HAVE BEEN ALREADY INCORPORATED ABOVE IN THE FOREGOING PARAGRAPHS OF THIS YEAR. TO THE EXTENT OF RS. 62,68,000/ - OUT OF TOTAL LOAN AMOUNT OF RS. 80,7 5,100/ - STANDS EXPLAINED IN WAKE OF THESE EVIDENCES . FURTHER, THE ASSESSEE HAS ALSO PLACED THE COPY OF ACKNOWLEDGMENT OF RETURN OF INCOME AND BALANCE - SHEET OF DR. KAUSHAL PANDEY, DIRECTOR MR. LAXMIKANT KHANOLKAR ALONG WITH THE RELEVANT SCHEDULE OF LO A N AND BANK ACCOUNTS IN THE PAPER BOOK BEFORE US . ALL THESE EVIDENCES PRIMA FACIE GOES TO PROVE THE NATURE AND THE SOURCE OF CREDIT AS APPEARING IN THE BALANCE - SHEET OF THE ASSESSEE AS WELL AS THE PRIMARY INGREDIENTS OF THE GENUINENESS OF THE LOAN TECHZONE INFORMATION SYSTEMS PVT LTD ITA NO. 9138 /MUM/201 0 7 TRANSACTION. H OWEVER, A S ADMITTED BY THE ASSESSEE , BEFORE THE CIT(A), THE AMOUNT TO THE EXTENT OF RS. 18,07,100/ - OUT OF TOTAL LOAN AMOUNT REMAINED UNEXPLAINED , HENCE SUCH AN AMOUNT IS TO BE ADDED U/S 68. ACCORDINGLY, ADDITION OF RS. 18,07,100/ - STANDS CONFIRMED. THUS , GROUND NO. 1 & 2 AS RAISED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED. 12. AS REGARDS THE ADDITION ON ACCOUNT UNEXPLAINED AMOUNT OF SHARE CAPITAL, WE FIND THAT THE SAME HAS BEEN GIVEN TOWARDS SHARE SUBSCRIPTION BY THE DIRECTORS THEMSELVES WHICH HAS BE EN EXPLAINED FROM THEIR BALANCE SHEET AND BY SHOWING RELEVANT DEBIT ENTRIES IN THEIR BANK ACCOUNTS. THUS, THE SOURCE OF SHARE APPLICATION MONEY IN THE BOOKS OF THE ASSES S EE FIRM CANNOT BE HELD TO BE UNEXPLAINED SIMPLY BECAUSE S HARE A PPLICATION M ONEY F ORM C OULD NOT BE FILED. ACCORDINGLY, THE ADDITION ON THIS SCORE ALSO STANDS DELETED. 13. LASTLY, REGARDING AD - HOC ADDITION ON ACCOUNT OF DISALLOWANCES OF EXPENSES OF RS. 17,81,725/ - , WE FIND THAT THE SAME HAS BEEN MADE ON THE GROUND THAT ASSESSEE COULD NOT FIL E SUPPORTING DOCUMENTS. THE ASSESSEES CASE BEFORE US IS THAT, THIS BEING THE FIRST YEAR OF BUSINESS OPERATION AND THE NET PROFIT MARGIN IN TRADING OF MOBILE PHONE AND ELECTRONIC ITEM IS VERY LOW, THEREFORE, SUCH A HUGE ADDITION CANNOT BE SUSTAINED AS IT W ILL GO TO ENHANCE THE NET PROFIT R ATE. LOOKING TO THE OVERALL CIRCUMSTANCES OF THE CASE THAT BOOKS OF ACCOUNTS AND SUPPORTING DOCUMENTS WERE NOT TRACEABLE AND ALSO LOOKING TO THE FACT THAT SUCH A N AD - HOC DISALLOWANCE WILL GO TO ENHANCE THE NET PROFIT RATE, WE IN THE INTEREST OF JUSTICE, REDUCE THE AD - HOC DISALLOWANCE TO THE TUNE OF 5%. ACCORDINGLY, THE ADDITION ON ACCOUNT OF AD - HOC DISALLOWANCE OF THE EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT IS PARTLY CONFIRMED TO 5% I.E. THE ASSESSEE WILL GET RELI E F OF RS. 8,90,863/ - . TECHZONE INFORMATION SYSTEMS PVT LTD ITA NO. 9138 /MUM/201 0 8 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE , 2015. SD/ - SD/ - ( . . ) ( ) ( G S PANNU ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 3 0 TH JUNE , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 18 , MUMBAI. 4 ) THE CIT 8 , MUMBAI. 5 ) , , / THE D.R. E BENCH, MUMBAI. 6 ) COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS