RED CARPET RESORTS PVT. LTD.,AHMEDABAD V. THE DCIT, CENTRAL CIRCLE-2(2), AHMEDABAD

ITSSA 116/AHD/2021

AI Insights

The case involves multiple appeals by Red Carpet Resorts Pvt. Ltd. against the orders of the Deputy Commissioner of Income Tax, Central Circle \\u2013 2(2), Ahmedabad, concerning various additions and disallowances made during the assessments for the years 2009-10, 2010-11, 2012-13 to 2014-15. The primary issues revolved around the treatment of undisclosed investments, unexplained cash credits, and various disallowances related to expenses and investments. The Tribunal examined the validity of the additions and disallowances made by the Assessing Officer, considering the evidences and explanations provided by the appellant, and the legal provisions under the Income Tax Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 37184 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 26-03-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B. P. SRIVASTAV
• Assessee Lawyers: SURESH GANDHI
• Keywords: Capital asset; Additional evidence; Unexplained cash credit; Depreciation; Unexplained investment; Capital expenditure; TDS; Source of fund; Bogus Share capital
• Section: 143(3); 142(1); 143(2); 132; 153A; 68; 22; 69; 13; 153C; 274; 40A(3); 43B; 20

Judgement Text

"IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 1 of 22 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER IT(SS)A Nos.113 to 117/Ahd/2021 Assessment Years: 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd., 210, Anal Apartment, Nr. Commerce Six Road, Navrangpura, Ahmedabad – 380 009 [PAN – AAECR 0602 C] Vs. The Deputy Commissioner of Income Tax, Central Circle – 2(2), Ahmedabad. (Appellant) (Respondent) Assessee by Shri Suresh Gandhi, AR Revenue by Shri B. P. Srivastav, Sr. DR Date of Hearing 19.02.2025 Date of Pronouncement 26.03.2025 O R D E R PER BENCH : These five appeals are filed by the Assessee against the separate orders dated 28.07.2020 passed by the CIT(A)-12, Ahmedabad for the Assessment Years 2009- 10, 2010-11 & 2012-13 to 2014-15 respectively. There was a delay of 331 days in all the appeals which was explained by the assessee in the affidavit and the delay appears to be genuine and hence condoned. 2. As the issues involved in these appeals were identical and inter-connected, all the matters were heard together and are being disposed of vide this common order. We will take the appeal in IT(SS)A No.113/Ahd/2021 for Assessment Year 2009-10 as the lead case. IT(SS)A No.113/Ahd/2021 for Assessment Year 2009-10 3. The Assessee has raised the following grounds of appeal in this year: - IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 2 of 22 “1. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the addition of Rs.1,03,43,275/- as originally made by the AO, by treating the same as undisclosed investment. 2. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the addition of Rs.3,00,000/- as originally made by the AO, by treating the share capital and share application money received from Mansi Shah as unexplained income under section 68 of the Act. He further erred in dismissing this ground by not admitting the additional evidences filed before him merely on technical ground. 3. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the disallowance of loss of Rs.1,32,437/- as originally made by the AO. 4. Without prejudice and through this additional legal ground, the Appellant challenges the action of the AO in making certain additions in this non- abated year, though the same did not have any base or co-relation with the finding of the underlying search. Additional Ground of Appeal 5. Without prejudice and through this additional legal ground, the appellant challenges the action of the AO in assuming jurisdiction, thereby issuing notice u/s.153C of the Act and in consequently passing the assessment order u/s.153C r.w.s. 153A r.w.s. 143(3) of the Act. He did clearly against the provisions of law as interpreted by various judicial authorities.” 4. The brief facts of the case are that the assessee company was engaged in the business of Hotel. A search action under Section 132 of the Act was carried out in the case of Shri Vikas A. Shah on 03.01.2013 at his residence. During the course of search, certain incriminating material/documents as per the Annexure-X belonging to M/s. Red Carpet Resorts Pvt. Ltd. were found and seized from the residence of Vikas A. Shah. Consequently, the proceeding was initiated as per the provisions of Section 153C read with Section 153A(1)(a) of the Act after recording proper reason and a notice under Section 153C of the Act was issued on 27.02.2015 and served upon the assessee on 04.03.2015 for the A.Ys. 2009-10 to 2014-15. There was no compliance to the notice and thereafter a notice u/s 142(1) rws 153C was issued on 14.09.2015. The assessee filed its return of income on 18.12.2015 declaring total income of Rs. Nil which was stated to be in response to notice under Section 153C of the Income Tax Act, 1961 dated 27.02.2015. However, in the computation of total income, loss of IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 3 of 22 Rs. (-) 1,32,437/- was shown. Notice under Section 143(2) of the Act was issued on 21.12.2015. Thereafter, notice under Section 142(1) read with Section 153C of the Act along-with detailed questionnaire was issued on 21.12.2015. The assessee filed the details/documents and explanations. 4.1 The Assessing Officer observed that the seized material at page nos.272 to 274 of Annexure A/10 was the trial balance of Red Carpet Resorts Pvt. Ltd. for the period 01.04.2004 to 16.09.2008 and the assessee was asked to give the details in respect of unsecured loans taken, creditors and loan and advances given alongwith purpose. The assessee in response to the same filed a reply on 21.12.2015 and submitted that the account in the trial balance were not relevant to the actual transaction of the assessee and the papers kept in the Office of Vikas A. Shah’s residence had no concern with the assessee’s actual books of account. On further query by the AO the assessee vide reply dated 08.01.2016 had given the comparative figures of fixed assets as per seized papers and as per Audited Balance Sheet and it was submitted that the figures in the seized papers were only estimates. It was also submitted that the balances in the trial balance were only projected cash flows. The said explanation of the assessee was not accepted by the Assessing Officer. As per the Balance Sheet filed with the return of income, the value of fixed assets was shown at Rs.42,88,896/- whereas in page nos.272 to 274 of Annexure A/10 the value of fixed assets was appearing at Rs.80,17,496/-. The Assessing Officer observed that the assessee neither filed any audit report year to year nor filed any return of income till initiation of the assessment proceedings. Further, the assessee had denied having given any advance to Ashish Bhavsar whose name was appearing in the trial balance. The Assessing Officer rejected the assessee’s contention on the strength of notarised agreement seized during search, as per which an amount of Rs.25,00,000/- was given on the of date of signing the agreement to sale. The Assessing Officer further observed that the cash amounting to Rs.64,57,300/- was inserted by the assessee in the business of the assessee. This fact was also admitted by the assessee in its reply dated 08.01.2016 wherein it was stated that Rs.64,57,300/- was recorded in the bank books which is correct as in audited Balance Sheet Rs.89,00,000/- was received by way of share application money and unsecured loan. As per the ledger given by the assessee in respect of share application money, there was cash investment of IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 4 of 22 Rs.62,75,000/- made by Vikas A. Shah. Besides, investment of Rs.16,25,000/- was also made through cheque by Vikas A. Shah. Further, Rs.7,00,000/- was given by Vikas A. Shah and Rs.3,00,000/- was given by Shri Ismail S. Heera as unsecured loan. The Assessing Officer held that the difference between the total of the balance sheet re-casted on the basis of the figures found in page 272-274 of Annexure A/10 and total of the balance sheet filed with income tax return was unexplained investment under Section 69 of the Act made by the assessee during the year. Accordingly, undisclosed investment of Rs.1,03,43,275/- was added to the total income of the assessee. 4.2 The Assessing Officer further observed that substantial amount was invested by the assessee in the interior, furniture & fixture and on capital assets and, therefore, the Assessing Officer rejected the contention of the assessee that there is no entry of Rs.25,00,000/- in its books of account as no return of income was ever filed by the assessee. The Assessing Officer observed that the assessee had neither furnished any rent agreement for the Financial Year 2008-09 to prove that the said premises was taken on rent nor furnished any Bank statement for proving the rent for the said period and, therefore, explanation of the assessee that no advance was given in consequence to the agreement signed on 26.06.2008 does not hold any merits and was rejected. The Assessing Officer further observed that no TDS on rent was done as rent was not only paid during the year. Thus, the Assessing Officer held that investment of Rs.50,00,000/- was made by the assessee in consequence to the notarised agreement signed on 26.06.2008 which was not brought by the assessee in its audited balance sheet filed with the income tax return. Rs.25,00,000/- was paid on 26.06.2008 and balance Rs.25,00,000/- was paid thereafter but before 16.09.2008. Payment of advance of Rs.50,00,000/- to Ashish Bhavsar was treated as unexplained investment under Section 69 of the Act but since the amount of Rs.1,03,43,275/- has been treated as undisclosed investment under Section 69 of the Act, no separate addition of Rs.50,00,000/- was made by the AO. 4.3 Further, the Assessing Officer made addition of Rs.3,00,000/- as unexplained cash credit under Section 68 of the Act as the assessee company introduced share capital of Rs.1,00,000/- during the year and further Rs.79,00,000/- was shown as share application money and Rs.10,00,000/- was shown as unsecured loan. The assessee clarified that Rs.86,00,000/- was contributed by Vaikas A. Shah and family IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 5 of 22 members and Rs.3,00,000/- was contributed by Ismal S. Hira. Since, in the Assessment Order dated 27.02.2015, in the case of Vikas A. Shah for A.Y. 2009-10, Rs.84,00,000/- was added as unexplained investment and since Rs.3,00,000/- was already considered in the Assessment Order dated 18.12.2015 in the case of Ismail S Hira for the A.Y. 2009-10, no separate addition was made with regard to contribution of Rs.87,00,000/-. However, no reply was submitted by the assessee in respect of source of share application money of Rs.1,00,000/- and source of funds of Rs.2,00,000/- stated to be taken from Mansi V Shah. The Assessing Officer found that neither during the course of search action, any cash book in the case of Mansi V Shah was found nor during the post search enquiries, any cash book was produced. Further, during course of assessment proceedings in the case of Mansi V. Shah also, no such cash book was produced. In the assessment of Mansi V. Shah, as well no such addition on account of investment in Red Carpet Resort Private Limited was made in the A.Y. 2009-10. The AO, therefore, didn’t accept the share capital of Rs.1,00,000/- and share application money of Rs.2,00,000/- from Mansi V Shah as genuine and made addition of Rs.3,00,000/- under Section 68 of the Act. 4.4 The Assessing Officer also made disallowance of Rs.1,32,437/- towards pre- operative expenses. The loss disclosed by the assessee in the return of income was disallowed as the business had not commenced during the year. Further the loss was also not held ineligible for carry forward as a return was not filed within the due date. 5. Being aggrieved by the Assessment Order, the assessee has filed an appeal before the CIT(A). The CIT(A) had dismissed the appeal of the assessee. 6. As regards ground no.1 relating to addition of Rs.1,03,43,275/-, the same was treated by the Assessing Officer as undisclosed investment. The Ld. AR submitted that the period of trial balance seized as per page nos.272 to 274 of Annexure A/10 was not considered properly by the Assessing Officer as well as by the ld. CIT(A). The date of incorporation of the assessee Company was 26.02.2008, therefore, the trial balance showing the period of 01.04.2004 to 16.09.2008 was logically not correct. So, the same cannot be relied upon to draw adverse inference against the assessee company. The Ld. AR further submitted that the said trial balance was not till the end of the Financial Year 2008-09 i.e. 31.03.2009. Therefore, on the basis of incomplete IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 6 of 22 trial balance, no addition can be made, as done by the Assessing Officer and upheld by the CIT(A). The date of search in case of Vikas A. Shah was 03.01.2013 and by that date, the accounts of the assessee Company were audited under the Companies Act 1956. The date of audited account of Financial Year 2008-09 is 24.08.2009. Therefore, the trial balance found and seized from the residence of Vikas A. Shah was not relevant. On the basis of the said trial balance, the Balance Sheet drawn by the Assessing Officer was misleading. The Ld. AR submitted that the Assessing Officer made the addition of Rs.1,03,43,275/- which was the difference between the total of asset side of Rs.1,93,43,275/- as per the Balance Sheet drawn by the Assessing Officer and the total of asset side of Rs.90,00,000/- as per the audited accounts of the year ended 31.03.2009. As the period of both the Balance Sheet was different, they cannot be compared and, therefore, no addition based on such comparison can be made as done by the Assessing Officer. 6.1 Regarding ground no.-2 the ld.AR submitted that previous year 2008-09 was the first year of the company and there was no question of having any unexplained cash credit in the hands of the assessee company in the absence of any business. The ld. AR submitted that the confirmation of Mansi V Shah explaining the source of the funds for investment in shares of the assessee company was duly brought on record. He further submitted that adverse inference, if any, had to be drawn in the case of the Mansi V Shah and not in the case of the assessee company. 6.2 As regarding ground no.-3 the ld. AR submitted that the returned loss of Rs. 1,32,437/- should have been set off against the addition made by the AO in the assessment order 7. Per contra, the Ld. DR relied upon the Assessment Order and the order of the ld. CIT(A). 8. We have carefully considered the rival submissions. The first ground taken by the assessee is in respect of addition of Rs.1,03,43,275/- on the basis of the Trial Balance found in the course of search. The contention of the assessee is that the Trial Balance was for the period 01.04.2004 to 16.09.2008, which was not relevant and could not have been relied by the Assessing Officer to draw adverse inference. According to the assessee, no addition could have been made on the basis of Trial IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 7 of 22 Balance for the part period of the year. We have considered the submission of the assessee. Even though the period mentioned in the Trial Balance was 01.04.2004 to 16.09.2008, the Trial Balance always represents the balance of the last day of the period. Accordingly, the balances appearing in the Trial Balance were, in fact, the balance of various accounts as on 16.09.2008 which was falling within the Financial Year 2008-09 relevant to the current Assessment Year. The assessee had filed Balance Sheet as on 31.03.2009 along with the return of income. Obviously, all the balances appearing in the Balance Sheet as on 31.03.2009 were flowing from the Trial Balance as on 16.09.2008 and the onus was squarely on the assessee to explain the balances at the end of the year vis-a-vis the balances appearing in the Trial Balance as on 16.09.2008. The fact that the Trial Balance seized as per page no.272 to 274 of Annexure A/10 in the course of search at the premises of Vikas A. Shah on 03.01.2013 belonged to the assessee is not in dispute. On the basis of the Trial Balance, the Assessing Officer had prepared the Balance Sheet as on 16.09.2008 which is as under: - Liabilities Asset Loan liabilities 25,98,372/- Fixed Assets 80,17,496/- Current Liabilities (netted off) 68,69,903/- Loan & Advances 1,12,26,115/- Cash in Hand (cr.) 98,75,000/- Bank Balance 1,162/- Exp. (Preliminary) 98,502/- 1,93,43,275/- 1,93,43,275/- 8.1 Thus, the total of Balance Sheet as on 16.09.2008 was Rs.1,93,43,275/-. On the other hand, the total of balance in the Balance Sheet as on 31.03.2009 filed with the return was Rs.90,00,000/- only. Therefore, the assessee was duty bound to explain as to how the balance of Rs.1,93,43,275/- as on 16.09.2008 was reduced to Rs.90,00,000/- only as on 31.03.2009. 8.2 The Assessing Officer had pointed out specific discrepancy in respect of Fixed Assets. The balance of Fixed Asset in the Trial Balance as on 16.09.2008 was IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 8 of 22 Rs.80,17,496/- which was reduced to Rs.42,88,896/- in the Balance Sheet as on 31.03.2009. This difference was mainly on account of huge reduction in the building construction and Furniture & Fixtures. The contention of the assessee that the figures in the Trial Balance were only estimates is not found correct. In the trial balance the exact amount of investment in respect of various assets viz. air condition, building, computer, electrical installation, fabrics, furniture and kitchen equipment were appearing. These investments were not in round figure so as to treat them as estimates. The assessee had also taken the stand that the Trial Balance was only a projected cash flow statement. As rightly held by the Assessing Officer, the Trial Balance could not have been held as projected cash flow as specific party-wise details of Sundry Creditors, Sundry Debtors and other accounts were appearing in the Trial Balance. Further, in the Trial Balance, an advance of Rs.50,00,000/- was appearing in the name of one Ashishbhai Bhavsar. However, no such balance was appearing in the Balance Sheet as on 31.03.2009 and the assessee had out-rightly denied this transaction. However, a notarised agreement was found in the course of search as per which an amount of Rs.25,00,000/- was given to Ashishbhai Bhavsar on the date of signing of agreement i.e. on 26.06.2008. Thus, the loan transaction of Ashishbhai Bhavsar appearing in the Trial Balance was duly supported by independent evidence found in the course of search. Similarly, negative cash balance of Rs.98,75,000/- was appearing in the Trial Balance and in order to offset the negative cash balance, the assessee had brought in funds in the form of share application money and unsecured loan to the extent of Rs.89,00,000/-. These transactions and evidences found during the search clearly established that the balances as appearing in the Trial Balance were correct; whereas the balances as appearing in the Balance Sheet as on 31.03.2009 was artificial and concocted figures. Since the assessee had failed to reconcile the balance of re-casted Balance Sheet on the basis of Trial Balance as on 16.09.2008 with the final Balance Sheet, the Assessing Officer had rightly considered the difference of Rs.1,03,43,275/- as unexplained investment of the assessee. Accordingly, the addition made by the Assessing Officer is upheld and ground taken by the assessee is dismissed. 9. As regarding ground no.2 regarding addition under Section 68 of the Act in respect of share capital/share application money received from Mansi V. Shah, the ld. IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 9 of 22 AR has submitted that the assessee had filed copy of confirmation of Mansi V. Shah for investment in shares of the assessee Company and its source was also explained being the amount received from Vikas A. Shah, father of Mansi V. Shah. The Ld. AR further submitted that as previous year 2008-09 was the first year of the Company, therefore, question of having any unexplained cash credit in the hands of the assessee Company, in the absence of any business, doesn’t arise. The Ld. AR has further submitted that adverse inference, if any, had to be drawn in the case of Mansi V. Shah and not in case of the assessee Company. In essence, the source of funds of Rs.3,00,000/- received from Mansi V Shah was ultimately from Sri Vikas A Shah. The AO has given a finding that the total fund contributed by Vikas A Shah and family was Rs. 86 lakhs. Further that an addition of Rs.84,00,000/- was made in the case of Sri Vikas A Shah in the A.Y. 2009-10 on account of unexplained investment. If so, the source of Rs. 3 lakh contributed by Mansi V Shah should have been considered in the hands of Vikas A Shah only as the funds were ultimately contributed by him. It is not the case that the identity and genuineness of the transaction was not established. The AO has not made out any case to make the addition in the hands of the assessee company. Since the business of the assessee was not yet started, there cannot be any question of introduction of own and accounted funds of the assessee company in the guise of share application money in the name of Mansi V Shah. Since the source of the funds was required to be considered in the hands of Mansi V Shah/Vikas A Shah the addition made in the hands of the assessee company cannot be sustained. Accordingly, the addition of Rs. 3 lakh on account of share capital / share application money is deleted and the ground taken by the assessee is allowed. 10. As regards ground no.3 relating to disallowance of loss of Rs.1,32,437/- as per return of income, the contention of the assessee is that the returned loss should have been set off against the addition made by the Assessing Officer in the assessment order. The assessee had shown loss of Rs.1,32,437/- in the return of income. The loss was disallowed for the reason that no business was commenced during the year. The fact that the business was not commenced in the year has not been denied. Under the circumstances, there cannot be any question of set off of the loss. This loss was on account of preoperative expenses which was required to be capitalized. By disallowing the loss, the AO has, in essence, capitalized the pre-operative expenses. IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 10 of 22 The action of the AO is found to be in accordance with the provisions of law. Therefore, the disallowance of loss as per return, which was in respect of preoperative expenses, is sustained and the ground taken by the assessee is dismissed. 11. As regards the additional grounds which are legal ground, the Ld. AR submitted that the same is not pressed in all the appeals, hence dismissed. 12. Thus, the appeal of the assessee in IT(SS)A No.113/Ahd/2021 for the Assessment Year 2009-10 is partly allowed. IT(SS)A No.114/Ahd/2021 for Assessment Year 2010-11 13. The grounds taken by the assessee in this appeal are as under: 1. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the addition of Rs.13,00,000/- as originally made by the AO, in respect of increase in share capital of the company, treating the same as unexplained cash credit under section 68 of the Act. 2. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the disallowance of Rs.2,02,700/- as originally made by the AO, on account of expenditure for increase in authorized share capital. 3. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the disallowance of Rs.3,41,241/- as originally made by the AO, in respect of expenditure under section 40A(3), in excess of the amount already disallowed by the Appellant. 4. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the disallowance of Rs.1,32,583/- as originally made by the AO, by making lump-sum disallowance of 50% of the discount offered by the Appellant on its room rent. 5. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the disallowance of Rs.1,55,237/- as originally made by the AO, by making lump-sum disallowance of 10% of the administrative expenses. 6. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the disallowance of Rs.72,595/- as originally made by the AO, by making lump-sum disallowance of 10% of the other expenses. 7. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the disallowance of Rs.18,913/- as originally made by the AO, under section 43B of the Act. 8. Without prejudice and through this additional legal ground, the Appellant, challenges the additions made by the AO without the same having any IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 11 of 22 base or co-relation with the finding of the underlying search and by ignoring the fact of this being a non-abated year Additional Ground of Appeal “9. Without prejudice and through this additional legal ground, the appellant challenges the action of the AO in assuming jurisdiction, thereby issuing notice u/s.153C of the Act and in consequently passing the assessment order u/s. 153C r.w.s. 153A r.w.s. 143(3) of the Act. He did clearly against the provisions of law as interpreted by various judicial authorities.” 14. At the outset, the Ld. AR did not press the Ground Nos. 2, 7, 8 and the additional ground no.9. The contention of the assessee in respect of legal grounds no. 8 & 9 was that the additions made by the Assessing Officer were not on the basis of any seized material. It is found that the original return of income for this year was filed by the assessee only after the date of search. Therefore, the proceeding for this year was a case of abated assessment. Accordingly, the Assessing Officer was empowered to consider not only the seized material but also empowered to make addition on the basis of other materials as well as the information in the return of income. Hence, the ground no. 2, 7, 8 & 9 as taken by the assessee are dismissed. 15. Ground no.1 pertains to addition of Rs.13,00,000/- on account of share capital. The Ld. AR explained that there was share capital of Rs.20,00,000/- was received during the year from Sh. Vikas A. Shah, Director of the assessee company. The assessee had filed a confirmation of Sh. Vikas A. Shah in this regard and the source of share capital was also explained. The Assessing Officer had accepted the explanation in respect of unsecured loan of Rs.7,00,000/- given by Vikas A. Shah in the earlier year which was converted into share capital in the year. However, the source of the remaining share contribution of Rs.13,00,000/- was not accepted by the Assessing Officer and the same was treated as unexplained cash credit and added to the income. The Ld. AR submitted that the identity and genuineness of the share capital transaction was not under doubt. According to the Ld. AR, if the Assessing Officer had any doubt about the source of share capital, then the addition should have been made in the hands of the share applicant and not in the hands of the assessee company. He further submitted that the addition in respect of share capital contribution by Vikas A. Shah was already made in his hands in the earlier year. Therefore, the IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 12 of 22 Assessing Officer was not correct in making the addition in the hands of the assessee company in the current year. 15.1 Per contra, the Ld. DR supported the order of the Assessing Officer and the Ld. CIT(A). 15.2 We have considered the rival submissions. The fact that the share capital of Rs.20,00,000/- was contributed by Sh. Vikas A. Shah, Director of the Company is not under dispute. A confirmation of Sh. Vikas A. Shah in this regard was also filed. The Assessing Officer has given the finding that the assessee did not explain the nexus of withdrawal from the bank account of Shri Vikas A. Shah vis-à-vis deposits in its bank accounts. As per the finding given in the Assessment Order, the funds available with Sh. Vikas A. Shah to be deployed in the books of the assessee as share capital was to the extent of Rs.6,84,056/- only. If so, the onus was squarely on Sh. Vikas A. Shah to explain the source of the balance share capital contribution of Rs.7,15,944/-. Further, when the source of deposit was not explained to the extent of Rs.7,15,944/- only, the Assessing Officer was not correct in making addition of Rs.13,00,000/- on account of unexplained share capital contribution. In fact, share capital contribution was also made by Sh. Vikas A. Shah in the earlier year and as already discussed earlier an addition of Rs.82,00,000/- was made in the hands of Sh. Vikas A. Shah on account of unexplained share capital contribution. When the addition for share capital contribution by Sh. Vikas A. Shah was made in his hands only in the earlier year, the Assessing Officer was not correct in making the addition in the hands of the assessee company in the current year. Therefore, the addition of Rs.13,00,000/- made in the hands of the assessee Company in respect of share capital contribution by Sh. Vikas A. Shah is deleted. The ground taken by the assessee is allowed. 16. Ground no.3 pertains to disallowance of Rs.3,41,241/- under Section 40A(3) of the Act. The Ld. AR submitted that payment of Rs.1,16,241/- was made in cash to Torrent Power Limited on three occasions towards Electricity Bill. He explained that if the payment would not have been made in cash, the electricity connection would have been disconnected. Since this payment was made under compulsion and was covered under the exception of Rule 6DD of the Income Tax Rules, he submitted that the IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 13 of 22 addition to this extent should be deleted. Per contra, the Ld. Sr. DR supported the order of the lower authorities. 16.1 We have considered the rival submissions. From the details of cash payments as reported in Assessment Order, it is found that total cash payment debited to profit and loss account was Rs.21,41,241/- which was liable for disallowance under section 40A(3). Since the assessee had suo-moto disallowed rental payment of Rs.18,00,000 made in cash in the computation of income, the AO had disallowed the balance amount of Rs.3,41,241/- under section 40A(3). The assessee has not disputed that this cash payment was liable for disallowance under section 40A(3) of the Act. The only explanation of the assessee is that three payments amounting to Rs.1,16,241/- were made to Torrent Power under extreme exigencies to avoid disconnection of electricity. We do not find any such exigency payment to be covered in the exceptions of Rule 6DD of the Income Tax Rules. Therefore, the request of the assessee to allow relief in this regard cannot be acceded. Accordingly, the disallowance of Rs.3,41,241/- as made by the AO under section 40A(3) of the Act is upheld. The ground taken by the assessee is dismissed. 17. The next ground no.-4 pertains to lump-sum disallowance of Rs.1,32,583/- at the rate of 50% of discount offered by the assessee on room rent. The Assessing Officer had found that the assessee had deducted the discount expense of Rs.2,65,167/- from the room rent income in respect of which no evidence was brought on record. The contention of the assessee that discount upto 30% was normally allowed was not accepted by the Assessing Officer. Accordingly, the Assessing Officer had disallowed 50% of discount expense and made addition of Rs.1,32,583/-. The Ld. AR submitted that allowing discount on the room rent was an established practice and that the room rent income as well as the discount expenses were duly verified by the Auditor while finalising the accounts. In the alternate, the ld. AR submitted that the AO had not given any basis for disallowing 50% of the gross discount amount and that the disallowance, if any, may be restricted to 10% only. On the other hand, the Ld. DR supported the order of the Lower Authorities. 17.1 We have considered the rival submissions. The fact that the discount is allowed on the room rent is established practice and this fact was not denied by the Assessing IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 14 of 22 Officer. He had made lumpsum disallowance of 50% of the discount without giving any basis. Since the assessee has been unable to establish the discount allowed with cogent evidences, disallowance in respect of discount is restricted to 20%. Accordingly, the addition made by the Assessing Officer is confirmed to the extent of Rs.53,033/- and the assessee gets relief of Rs.79,550/-. The ground taken by the assessee is partly allowed. 18. The ground no.-5 pertains to disallowance of 10% of administrative expenses of Rs.1,55,237/-. The disallowance was made by the AO for the reason that the bills and vouchers in support of this expense was not furnished. The Ld. AR submitted that the disallowance made by the Assessing Officer was excessive and the same may be restricted to 5%. It is found that the administrative expenses were on account of salary, transportation expenses and electricity expenses. Considering the nature of expenses, the disallowance made by the Assessing Officer is restricted to 5%. Accordingly, the addition made by the Assessing Officer is confirmed to the extent of Rs.77,618/- and the assessee gets the balance relief. The ground taken by the assessee is allowed in part. 19. The ground no.-6 pertains to lump-sum disallowance of 10% of other expense amounting to Rs.72,595/-. The disallowance also was made by the AO for the reason that the bills and vouchers in support thereof were not furnished. The Ld. AR submitted that the disallowance made by the Assessing Officer was excessive and the same may be restricted to 5%. Considering the totality of facts and the nature of expenses, the disallowance made by the Assessing Officer is restricted to 5%. Accordingly, the Assessing Officer is directed to allow necessary relief in respect of this addition. The ground taken by the assessee is allowed in part. 20. In the result, appeal of the assessee is allowed in part. IT(SS)A No.115/Ahd/2021 for Assessment Year 2012-13 21. The assessee has taken following grounds in this appeal: “1. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the disallowance of 1/5th of ROC expenses, amounting to IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 15 of 22 Rs.40,540/, as originally made by the AO, which was legitimately claimed by the Appellant while filing the return of income. 2. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the addition of Rs.3,73,627/-as originally made by the AO, in respect of lump-sum disallowance of 50% of the discount offered by the Appellant on its room rent. 3. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the addition of Rs.1,78,388/-as originally made by the AO, in respect of lump-sum disallowance of 10% of Employees' Benefit Expenses. 4. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the addition of Rs. 1,07,803/-as originally made by the AO, in respect of lump-sum disallowance of 10% of the remaining other expenses. 5. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming disallowance of depreciation to the extent of Rs. 1,32,417/- as originally made by the AO in respect of acquisition of certain fixed assets in the financial year relevant to A.Y. 2010-11, which were paid for in cash as part of business exigencies. 6. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming disallowance of Rs.3,74,430/as originally made by the AO, under section 43B of the Act, in respect of certain Service Tax and Luxury Tax liabilities. He did this without appreciating the fact that part of these liabilities was already discharged within the permissible time limit or was already subjected to disallowance in earlier year(s), thus not warranting any further disallowance while passing the order for the year under consideration. Additional Grounds of Appeal 7. Without prejudice and through this additional legal ground, the appellant challenges the action of the AO in assuming jurisdiction, thereby issuing notice u/s, 153C of the Act and in consequently passing the assessment order u/s. 1530 r.w.s. 1534 r.w.s. 143(3) of the Act. He did clearly against the provisions of law as interpreted by various judicial authorities. 8. Without prejudice and through this additional legal ground, the appellant challenges the action of the AD in making certain additions in this non- abated year, though the same did not have any base or co-relation with the finding of the underlying search.” 22. At the outset, the Ld. AR did not press Ground Nos. 1 & 6 and additional Ground Nos. 7 & 8. Therefore, all these four grounds are dismissed. IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 16 of 22 23. Ground No.2 pertains to disallowance of Rs.3,73,627/- on account of discount offered on room rent. This issue has already been adjudicated in IT(SS)A No. 114/Ahd/2021 for A.Y. 2010-11. Following that decision, the disallowance made by the AO is restricted to 20%. The Ground of the assessee is partly allowed. 24. Ground No.3 pertains to lump sum disallowance of 10% of Employees’ Benefit Expenses. This issue was also involved in IT(SS)A No. 114/Ahd/2021 for A.Y. 2010- 11 and accordingly, the disallowance made by the AO is restricted to 5%. The Ground of the assessee is allowed in part. 25. Ground No.4 pertains to lump sum disallowance of 10% of other expenses. Following the decision in IT(SS)A No. 114/Ahd/2021 for A.Y. 2010-11, the addition is restricted to 5% and the ground is allowed in part. 26. Ground No.5 pertains to disallowance of depreciation of Rs.1,32,417/-. The AO has made the disallowance for the reason that certain payment in respect of furniture & fixture and building was made in cash, which was liable for disallowance u/s.40A(3) of the Act. Accordingly, the depreciation claimed by the assessee in respect of the cash payment for acquisition of fixed assets was disallowed by the AO. The Ld. AR submitted that there was no provision under the Act to disallow depreciation by resorting to Section 40A(3) of the Act. He further submitted that the cost of the fixed assets on which depreciation was claimed was not debited to P&L account and, therefore, application of Section 40A(3) of the Act on such payment did not arise. 26.1 Per contra, Ld. Sr. DR supported the order of the lower authorities. 26.2 We have considered the rival submissions. The AO has given a finding that capital expenditure on account of furniture and fixture of Rs.13,19,000/- and in respect of building for amount of Rs.1,52,300/- was made by cash payment, which was disallowed u/s.40A(3) of the Act. This finding is not found correct as the expenditure incurred for acquisition of fixed assets are not at all debited to P&L account. The provision of Section 40A(3) of the Act is applicable only in respect of expenses debited to account and which are claimed as expenditure in the P&L account. The provision IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 17 of 22 of Section 40A(3) of the Act cannot be extended to the expenses which are not at all debited to P&L account. The assessee had only claimed depreciation in respect of furniture & fixture and building. There is no provision under the Act that depreciation will not be allowed if the fixed assets are acquired fully or partly by cash payment. Under these circumstances, the disallowance of depreciation of Rs.1,32,417/- depreciation in respect of cash purchase of fixed assets is not found to be in accordance with the provision of the Act. Accordingly, the addition made by the AO in respect of disallowance of depreciation is deleted and the ground of the assessee is allowed. 27. In the result, appeal of the assessee is allowed in part. IT(SS)A No. 116/Ahd/2021 – A.Y. 2013-14 28. The assessee has taken following grounds in this appeal: “1. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the addition of Rs.3,20,000/-, originally made by the AO, on account of unsecured loan, treating the same as unexplained income under section 68 of the Act. 2. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the disallowance of 1/5th of ROC expenses, amounting to Rs.40,540/, originally made by the AO, which was legitimately claimed by the Appellant while filing the return of income. 3. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the addition of Rs.7,38,959/-, originally made by the AO, by making lump-sum disallowance of 50% of the discount expenditure offered by the Appellant on its room rent. 4. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the addition of Rs.1,73,894/-, originally made by the AO, in respect of lump-sum disallowance of 10% of Employees' Benefit Expenses. 5. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the addition of Rs.2,36,856/-, originally made by the AO, in respect of lump-sum disallowance of 10% of the remaining other expenses. IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 18 of 22 6. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming disallowance of depreciation to the extent of Rs.1,19,175/-, originally made by the AO, in respect of acquisition of certain fixed assets in the financial year relevant to A.Y. 2010-11, which were paid for in cash as part of business exigencies. 7. Without prejudice, the Appellant, through this additional ground, challenges the invocation of the provisions of section 153C and consequential passing of the assessment order under section 153C r.w.s. 153A r.w.s. 143(3) of the Act by the AO, which are against the express provisions of law, thus bad in law as well as on facts.” 29. At the outset, the Ld. AR did not press Ground Nos. 2 & 7, hence, these two grounds are dismissed. 30. Ground No.1 pertains to addition of Rs.3,20,000/- u/s.68 of the Act on account of unexplained cash credit. The Ld. AR submitted that the assessee has taken fresh unsecured loan of Rs.3,20,000/- from M/s. Hira Leisure Pvt. Ltd. He explained that the said company was registered with ROC and, as such the identity was established. However, the assessee was unable to submit confirmation of the loan creditor for the reason that the company was struck off from the record of Company Master Data. He, however, submitted that the loan was received through proper banking channel. 30.1 Per contra, Ld. Sr. DR submitted that the assessee did not submit even basic details, such as, PAN, copy of ITR, bank statement, balance sheet and any other evidence in support of the unsecured loan. Therefore, the disallowance was rightly made by the AO. 30.2 We have considered the rival submissions. There is no dispute to the fact that unsecured loan of Rs.3,20,000/- was taken by the company during the year. The onus was squarely on the assessee to establish the identity, creditworthiness and genuineness of the loan transaction. The assessee has been unable to bring on record any evidence to discharge its onus. Merely because loan was taken through banking channel, it doesn’t establish the creditworthiness of the loan creditor. We, therefore, do not find any reason to interfere with the order of the AO, which was rightly upheld by the Ld. CIT(A). The Ground taken by the assessee is dismissed. IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 19 of 22 31. Ground No.3 pertains to disallowance of Rs.7,38,959/- in respect of discount offered on room rent. We have already adjudicated this issue in IT(SS)A No.114/Ahd/2021 in A.Y. 2010-11. Following the decision taken in that case, the disallowance is restricted to 20%. The ground of the assessee is partly allowed. 32. Ground No.4 pertains to lump sum disallowance @10% of Employees’ Benefit expense. The assessee had claimed employees’ benefit expense of Rs.17,38,936/- in support of which no document was brought on record in the course of assessment. Therefore, the AO had made ad hoc disallowance of 10%, which was upheld by the Ld. CIT(A). The Ld. AR submitted that the salary sheet was duly brought on record before the Ld. CIT(A), which was not taken into account. Further that the disallowance as made by the AO was excessive and that it may be restricted to 5%. On the other hand, Ld. Sr. DR supported the orders of lower authorities. 32.1 We have considered the rival submissions. Considering the fact that the expenditure in respect of employees’ benefit expenses were mostly on account of salary, the matter will meet the end of justice if the disallowance is restricted to 5% of the claim. Accordingly, the AO is directed to made the disallowance @5% only. The Ground No.4 taken by the assessee is partly allowed. 33. The next ground pertains to lump sum disallowance of 10% out of other expenses. The assessee had claimed other expenditure of Rs.57,02,309/-, out of which, Rs.33,33,750/- was already disallowed by the assessee itself in the computation of income. The AO had disallowed 10% of balance other expense of Rs.23,68,559/- in the absence of bills and vouchers in respect of the expense. The Ld. AR submitted that the disallowance was excessive and requested to restrict it to 5%. On the other hand, Ld. SR. DR supported the orders of the lower authorities. 33.1 We have considered the rival submissions. Since the assessee had suo moto disallowed expense of Rs.33,33,750/-, the matter would meet the end of justice if the disallowance is restricted to 5% of the remaining other expense of Rs.23,68,559/-. Accordingly, the ground taken by the assessee is allowed in part. IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 20 of 22 34. Ground No.6 pertains to disallowance of depreciation of Rs.1,19,175/-. The issue is identical to the ground on this issue decided in IT(SS)A No. 115/Ahd/2021. Following that decision, the addition on account of disallowance of depreciation is deleted and the ground of the assessee is allowed. 35. In the result, appeal of the assessee is allowed in part. IT(SS)A No. 117/Ahd/2021 – A.Y. 2014-15 36. The assessee has taken following grounds in this appeal: “1. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the disallowance of 1/5th of ROC expenses, amounting to Rs.40,540/ as originally made by the AO, which was legitimately claimed by the Appellant while filing the return of income. 2. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the addition of Rs.6,18,189/- as originally made by the AO, in respect of lump-sum disallowance of 50% of the discount offered by the Appellant on its room rent income. 3. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the addition of Rs.3,26,687/- as originally made by the AO, in respect of lump-sum disallowance of 10% of Employee Benefit Expenses claimed. 4. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the addition of Rs.2,01,288/- as originally made by the AO, in respect of lump-sum disallowance of 10% of the remaining other expenses. 5. The learned CIT(A)-12, Ahmedabad has erred in law and on facts in confirming the disallowance of depreciation to the extent of Rs. 1,07,257/- as originally made by the AO, in respect of acquisition of certain fixed assets in the financial year relevant to A.Y. 2010-11 which were paid for in cash as part of business exigencies. 6. Without prejudice, the Appellant, through this additional ground, challenges the invocation of the provisions of section 153C and consequential passing of the assessment order under section 153C r.w.s. 153A r.w.s. 143(3) of the Act by the AO, which are against the express provisions of law, thus bad in law as well as on facts.” IT(SS)A Nos.113 to 117/Ahd/2021 A.Ys. 2009-10, 2010-11 & 2012-13 to 2014-15 Red Carpet Resorts Pvt. Ltd. Vs. DCIT Page 21 of 22 37. Ground Nos. 1 & 6 were not pressed by the Ld. AR in course of hearing, hence, these two grounds are dismissed. 38. All other grounds taken by the assessee are identical to the grounds in ITA No.116/Ahd/2019. Hence, the decision as taken in IT(SS)A No. 116/Ahd/2019 is applicable mutatis mutandis to the grounds taken by the assessee in IT(SS)A No.117/Ahd/2021. Accordingly, the appeal of the assessee in A.Y. 2014-15 is allowed in part. 39. In the combined result, all the appeals filed by the assessee are partly allowed. Order pronounced in the open Court on this 26th March, 2025. Sd/- Sd/- (SUCHITRA KAMBLE) (NARENDRA PRASAD SINHA) Judicial Member Accountant Member True Copy Ahmedabad, the 26th March, 2025 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad "