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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI VIKAS AWASTHY & MS. PADMAVATHY S.
O R D E R PER : MS PADMAVATHY S. (AM)
This appeal by the assessee is filed against the order of the Commissioner of Income-tax-48, Mumbai (in short, ‘the CIT(A)’) dated 15/12/2022 for A.Y. 2012-13 in which the assessee raised the following grounds of appeal:-
“Being aggrieved by the order u/s 153 A of the Income-tax Act, 1961, passed by Deputy Commissioner of Income Tax Central Circle 2(4), Mumbai upheld by the Commissioner of Income Tax (Appeals) - 48, Mumbai, this appeal petition is being submitted on the following grounds, which it is prayed may be considered independently and without prejudice to one another.
2 ITA 3259/Mum/2022 Hubtown Limited 1. On the facts and circumstances of the case as well as in Law, the order passed u/s 153 A of the Income tax act, 1961 is bad in law and infractious ab-initio.
On the facts and circumstances of the case as well as in Law, the Learned Deputy Commissioner of Income Tax, Central Circle - 2(4), Mumbai has grossly erred in directing protective assessment of Rs.486,23,95,0007- u/s 56(2)(x) of the Act with regards loan taken from M/s Ashok Commercial Enterprises. The Learned Commissioner of Income Tax (Appeals) - 48 has erred in confirming the protective assessment directed by the Learned Deputy Commissioner of Income Tax, Central Circle - 2(4), Mumbai.
3. On the facts and circumstances of the case as well as in Law, the Learned Deputy Commissioner of Income Tax, Central Circle - 2(4), Mumbai has grossly erred in directing addition of alleged unexplained expenditure of Rs.9,73,00,000/- under section 69C of the Act. The Learned Commissioner of Income Tax (Appeals) - 48 has erred in confirming the disallowance directed by the Learned Deputy Commissioner of Income Tax, Central Circle - 2(4), Mumbai.
The order under appeal is not only bad in law and invalid, but also against the principals of natural law of equity and justice.
5. The appellant reserves its rights to add, to amend, alter/delete and/or modify the above grounds of appeal
before or during the course of appellate proceedings.”
2. The assessee is a listed public limited company. The assessee filed a return of income for A.Y. 2019-20 on 24/10/2019 declaring a total income of Rs.4,75,11,720/-. There was a search and seizure action under section 132 of the Income-tax Act (in short, ‘the Act’) in the case of the assessee on 30/07/2019. In connection with the documents and materials, relating to the assessee found and impounded during the course of search, a notice under section 153A was duly served on the assessee in response to which the assessee filed the return declaring a total income of Rs.4,75,11,720/-. The Assessing Officer completed the assessment under section 153A wherein he had made a protective addition under section 56(2)(x) of the Act to the tune
3 ITA 3259/Mum/2022 Hubtown Limited of Rs.4,86,23,95,000/- and, also an addition under section 69C towards unexplained expenditure for an amount of Rs.9,73,00,000/- was made. Aggrieved, the assessee preferred appeal before the CIT(A), who confirmed the said additions. Aggrieved, the assessee is in appeal before the Tribunal. During the course of hearing the ld AR submitted that Ground No.1 is not pressed and hence the same is dismissed as not pressed.
Protective addition made under section56(2)(x) – Ground No.2
During the course of search, on perusal of the balance-sheet the Assessing Officer noticed that the assessee had during the year under consideration, reclassified an amount of Rs.4,86,23,95,000/- obtained as loan from M/s Ashok Commercial Enterprises from "unsecured loans” to "Advance against property ". It was further noticed that these loans were provided to the assessee without any collateral at the annual rate of interest of 36%. The assessing officer also found during the course of search that M/s Ashok Commercial Enterprises had written off the amount of loan given to the assessee and has treated it as an extraordinary loss claiming it as business expenditure. The Assessing Officer recorded statements with regard to the loan transaction from the Chief Financial Officer (CFO) of the assessee and also from Shri Ramesh Ramchandani, partner of M/s Ashok Commercial Enterprises. From the statements recorded, the Assessing Officer came to the conclusion that the loans advanced to the assessee have become assessee's own money without any need for repayment or interest obligation. The Assessing Officer held that though the assessee has reclassified the loan as "Advance against property" there was no such property against which the advance was recognized in the books of account. The Assessing Officer further held that M/s Ashok Commercial Enterprises continued to issue new and 4 ITA 3259/Mum/2022 Hubtown Limited fresh loans to the assessee and therefore the two parties were colluding in the old transaction and had friendly relationship. The Assessing Officer also held that the assessee during the assessment proceedings could not produce any evidence to justify the business expediency for the loan transaction and that there is no agreement between M/s Ashok Commercial Enterprises to substantiate the same. The Assessing Officer did not accept the submission made by the assessee as to why the amount cannot be assessed as an income under section 41(1) or under section 68 or under section 56(2)(x) in the hands of the assessee. The Assessing Officer, accordingly made an addition of Rs.4,86,23,95,000/- under section 56(2)(x) for the year under consideration.
4. The first contention of the Ld.AR is that the addition cannot be made in the hands of the assessee even protectively for the reason that the amount of loan given has been written off by M/s Ashok Commercial Enterprises in its books of account during financial year 2016-17 an during F.Y. 2017-18 which the Assessing Officer in the report filed before the CIT(A) has admitted that the impugned amount is assessed as substantive addition in the hands of M/s Ashok Commercial Enterprises. The Ld.AR further submitted that the assessment year in which M/s Ashok Commercial Enterprises claimed the amount as bad debt was A.Ys 2017-18 & 2018-19 whereas in assessee's case, the addition against the same is made in A.Y. 2019-20 without establishing that there was a cause and effective relationship between the amount written off by M/s Ashok Commercial Enterprises and the assessee.
The Ld.AR brought to our attention that the main reason quoted by the Assessing Officer for making the addition is that the re-casting of the loan amount as ‘advances against property where the immovable property has not yet been identified and also for the reason that there is no agreement between the assessee and M/s.Ashok Commercial
5 ITA 3259/Mum/2022 Hubtown Limited Enterprises. In this regard, the Ld.AR drew our attention to the financial statements of the assessee (page 37 of the paper book) where the loan amount has been classified under “ advances against property". The Ld.AR also drew our attention to the inventory and the financial assets as reflected in the statements of account of the assessee to submit that there are substantial assets lying in the form of inventory and financial asset as per the books of the assessee and that the assessee has only not identified the specified asset which could be used to settle the loan. It is therefore, submitted by the Ld.AR that mere classification of loan amount as advances against property cannot be the reason for treating the same as the income of the assessee. The Ld.AR also submitted that the Assessing Officer has made the addition under section 56(2)(x) of the Act which is not correct since for the purpose of section 56(2)(x), the amount should have been received by the assessee during the year under consideration and that it is not the case here. The Ld.AR submitted that the amount of loan was taken during earlier years and the only event that happened during the year is reclassification of loan account to “advance against property”. The Ld.AR also drew our attention to the ledger accounts of M/s.Ashok Commercial Enterprises as per the books of account in which there has been continuous transactions happening between assessee and M/s.Ashok Commercial Enterprises during the financial year 2016-17 & 2018-19 and, therefore, it was submitted that there was no cessation of liability, which could warrant treatment of the outstanding liability as income of the assessee. The Ld AR submitted in summary that the addition made by the assessing officer is not sustainable.
The Ld.DR, on the other hand, relied on the order of the CIT(A). The Ld.DR drew our attention to para 11.3 to 11.5 (page 29 of CIT(A)'s order) wherein, the CIT(A) has upheld the addition for the same reason that the re-classification of loan is done without identifying the property against which the advance was to be adjusted and that 6 ITA 3259/Mum/2022 Hubtown Limited there is no agreement between assessee and M/s.Ashok Commercial Enterprises. The ld DR also submitted that the AO has made only a protective assessment in the hands of the assessee and therefore the claim that there is double taxation is not correct.
We heard the parties and perused the material on record. The reasons as quoted by the revenue for making the addition is that the assessee has reclassified the loan as advance against property without actually identifying any property and also that the entire transaction is a collusion between the parties since there is no agreement between the assessee and M/s.Ashok Commercial Enterprises. On perusal of the records, the following facts are noticed (i) The assessee has been receiving loans from M/s.Ashok Commercial Enterprises until the end of the financial year relevant to assessment year 2018-19 (page 237 to 285 of paper book) i.e. the year prior to the year under consideration (ii) M/s.Ashok Commercial Enterprises though continued giving loan has raised complaints against the assessee before the Hon'ble Metropolitan Magistrate on 01/09/2018 and also a suit before the Hon'ble Bombay High Court on 26/11/2018 (iii) M/s.Ashok Commercial Enterprises has suo moto written off many loans as not recoverable from A.Y. 2012-13 TO 2020-11 (page 327 of paper book) and the same have not been allowed by the revenue (iv) The assessee has been repaying the loans during the financial year relevant to assessment year under consideration (page 286 to 298 of paper book) (v) Though specific property was not identified, the assessee is having substantial assets in stock in trade and financial assets (vi) No taxable event occurred during the year and the asset has passed a mere book entry reclassifying the loan to advance against property during the year under consideration
The Assessing Officer made the addition under section 56(2)(x) and therefore before proceeding further we will look at the relevant provisions of the said section –
7 ITA 3259/Mum/2022 Hubtown Limited Income from other sources. 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :— (i) to (ix) ***** (x) where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017,— (a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum; (b) **** (c) ****
From the plain reading of the above section it is clear that if a person receives any money without consideration in any previous year then the same shall be chargeable to tax under the head Income from Other Sources. From the facts as listed above it is also clear that the assessee did not receive any money from M/s.Ashok Enterprises during the year under consideration and therefore we see merit in the contention of the ld AR that the assessee has not received any money during the previous for the applicability of section 56(2)(x). The assessee has passed only a book entry to re-class the loan amount to advance against property. It is also relevant here to note that the assessee has been charged with an interest at the rate 36% on the amount of loan which is substantiated by the ledger accounts of M/s.Ashok Enterprises in the books of the assessee. The Assessing Officer further relied on the statement of Shri Ramesh Ramchandani, Partner M/s.Ashok Commercial Enterprises where he was confronted as to why M/s.Ashok Commercial Enterprises continued to lend money to the assessee and why the loan is written off as bad debts. The relevant extract is as given below -
“Q.21 Please state why no collateral was taken before advancing huge amount of unsecured loans to M/s. Hubtown Ltd
8 ITA 3259/Mum/2022 Hubtown Limited
Ans. We did not take any collateral for advancing loans to M/s. Hubtown Ltd or to any other party otherwise the firm had to take license of moneylenders. We had taken Bill of exchange along with post dated cheques for repayment of capital/interest to the firm for our security from M/s. Hubtown Ltd. Q.22. During the survey proceedings, it is seen that the firm has written off the unsecured loan amount ofRs.357.22 crores andRs.145.50 crores during FY 2016-17 and FY 2017-18 respectively of M/s. Hubtown Ltd. Please furnish the reasons and explanation for the same. Ans. Sir, there are multiple reasons for claiming bad debts for the unsecured loan given to M/s. Hubtown Ltd. these are:- a. M/s. Hubtown Ltd had stopped making enough payment of interest to us b. Post dated cheques given by M/s. Hubtown Ltd were also bounced c. The MD of M/s. Hubtown Ltd was also arrested by police in a fraud case d. Even after several reminders for payment of interest, there was no reply from M/s. Hubtown Ltd Q,23 From the details furnished by you, it is seen that fresh loan amounting to Rs. 111.00 crores and Rs. 161.32 crores were given during F.Y, 1016-17 and F.Y. 2017-18 respectively by M/s. Ashok Commercial Enterprises to M/s. Hubtown Limited then how loans were written-off during these same financial years. Please explain how the fresh loans are given to the same party when loans of earlier year have been written off for the reason of non-recoverable. Ans. We accommodated Hubtown Limited and granted them fresh loans during F.Y. 2016-17 and F.Y. 2017-18 in order to recover our interest payments to keep the account up-lo-date and such interest income was offered by us. M/s. Ashok Commercial Enterprises had not given any fresh loan amount after filing Income Tax Return for A,Y. 2017-18 wherein we written off total unsecured loan amount given to M/s. Hubtown Limited. Q.24 Pls. explain what you mean by "accommodated Hubtown Ltd.” Ans. Sir. Hubtown Ltd. was denying me payment of interest This way the interest due from Hubtown kept on increasing, But, 1 cannot get interest on interest in the court of law so, 1 wanted that Hubtown should pay interest. l:or this. I gave fresh loan to Hubtown Ltd. and took back the same amount as interest. This way, the account of Hubtown Ltd, was debited in my books and I received interest income. I offered this interesi income in every F.Y. This way when I filed my suit in the court of law, 1 could ask for higher payback of amount.”
9 ITA 3259/Mum/2022 Hubtown Limited 10. From the perusal of the above statements, in our view no adverse inference can be drawn to make an addition under section 56(2)(x). The statement that there have not been any repayments by the assessee is factually incorrect since from the ledger accounts it is evident that the assessee has been repaying the loan during the year under consideration. Even otherwise to bring to tax the loan amount under section 41(1), there should be cessation of liability. However it is evident from the ledger accounts that the assessee has been repaying the loan amount during the year under consideration and therefore there is no cessation of liability for the assessee warranting treatment of liability as an income in the hands of the assessee.
We notice that the Assessing Officer has relied on statements recorded from Shri Sunil Mago CFO of the assessee who has confirmed that there is no agreement entered into between the assessee and M/s.Ashok Commercial Enterprises. In our considered view, absence of loan agreement cannot warrant an addition, since there are other evidences to substantiate that there has been an active loan transaction such as the ledger account etc., and the complaint filed by the lender in court for the recovery of the loan (which fact is mentioned by the Assessing Officer himself in the assessment order) Therefore in our considered view, these grounds basis which the additions are made under section 56(2)(x) of the Act are not sustainable.
We notice that in the assessment order of M/s.Ashok Commercial Enterprises the bad debts written off from A.Y. 2012-13 TO 2020-11 (page 327 of paper book) have not been accepted by the revenue for the reason that the write off is not properly justified. The Assessing Officer of M/s.Ashok Commercial Enterprises did not allow the claim in spite of the fact that a complaint is filed against the assessee for recovery and that the loan is written off in the books of accounts by M/s.Ashok Commercial
10 ITA 3259/Mum/2022 Hubtown Limited Enterprises. On the one hand revenue is contending that the loan has not become bad to allow the claim by M/s.Ashok Commercial Enterprise, and on the other hand the same amount is added as income in the hands of the assessee for the reason that the liability is not substantiated. Therefore we tend to agree with the submission of the ld AR that the revenue is taking conflicting views with respect to the same amount of loan. Further, all the events which according to the Assessing Officer justifies the addition in the hands of the assessee are all pertaining to actions taken M/s.Ashok Commercial Enterprises i.e. write off of bad debts, continued lending of loans to recover interest, filing complaint in the court for recovery of loan, purchase of shares of assessee company etc. The Assessing Officer has not recorded any adverse finding from assessee's records warranting the said addition. Accordingly we see merit in the contention that the Assessing Officer failed in establishing that there was a cause and effective relationship between the actions on the part of M/s.Ashok Commercial Enterprises and the addition in the hands of the assessee. The only action taken by the assessee is the reclassification loan payable to M/s.Ashok Commercial Enterprises from unsecured loans to advances against property. This in our considered view, is not a taxable event warranting any addition even protectively in the hands of the assessee. In view of the above discussion, we are of the view that the treatment of the amount re-classified by the assessee from loan account to advance against property as an income of the assessee protectively by the Assessing Officer is not correct and accordingly, we delete the protective addition made by the Assessing Officer. This ground is allowed in favour of the assessee.
11 ITA 3259/Mum/2022 Hubtown Limited Unexplained purchases – Ground No.3
During the course of search operation, the Assessing Officer noticed that the assessee was involved in making cash payment to various officials for getting various clearances in relation to the on-going projects of the assessee. The Assessing Officer from the whatsapp chats between Shri Vimal Shah, MD of the assessee and Mrs.Maya Vaiday / Viral Joshi noticed that money was paid in order to get clearances. The assessee submitted that Mrs Maya Vaidya is an employee of Citygold Management Services Ltd, a group concern providing technical and legal services to the assessee. The assessee further submitted that the addition was made based on whatsapp chats which do not pertain to any unaccounted money and the words used in the chat statements does not substantiate that cash was paid. The assessee also furnished explanations to the statement made by Mrs.Maya Vaidya with regard to the loose sheets found during search and also submitted that the said statement has been retracted by Mrs.Maya Vaidya. The Assessing Officer did not accept the submissions of the assessee and made an addition of Rs.9,73,00,000/- under section 69C of the Act for the reason that the assessee could not furnish proper reply to deny non existence of such transaction and that could not make contextual reference to the misdeeds and establish the nature of transaction which should point to be recorded in the books. The CIT(A) confirmed the said addition by relying on the same whatsapp chats between the assessee and Mrs. Maya Vaidya.
It is noticed from records that Ld.AR had placed a request to the department to provide the break up of the additions made submitted since there is no clarity from the orders of the lower authorities as to how the amount of Rs.9,73,00,000 was arrived at. During the course hearing the ld AR submitted that the break up has now been provided
12 ITA 3259/Mum/2022 Hubtown Limited by the revenue and that the assessee has reasons and evidences to substantiate each line items given in the break up. The ld AR accordingly prayed that the issue may be remitted back to the Assessing Officer for verification.
The Ld.DR, on the other hand, submitted that reasonable opportunity was given to the assessee before the CIT(A) and that the assessee had not raised any plea before the CIT(A) with regard to the break up of expenses and substantiating the same. Therefore, the Ld.DR submitted that the addition should be sustained.
We heard the parties and perused the materials on record. The lower authorities have relied on the whatsapp chats with Mrs. Mya Vaidya and had made the addition under section 69C to the tune of Rs.9,73,00,000. From a perusal of the order of the Assessing Officer and the CIT(A), it is noticed that there was no break up or details available for the amount of addition made and nothing is recorded specifically on how the amount of addition was arrived. The statements and the whatsapp chats relied on also does not contain any amounts to substantiate the break up of the addition of Rs.9,73,00,000. The ld DR during the proceedings submitted the break up of the addition and therefore it is an undisputed fact that the break on the basis of which the addition is made is first time made available to the assessee. Therefore we are of the considered view that the break up should be examined factually and that the assessee should be given an opportunity to substantiate the amount with proper supporting in the interest of substantial justice. We accordingly remit the issue back to the Assessing Officer with a direction to examine each line of the break up of the addition based on the supporting documents and evidences that the assessee is directed to submit before the Assessing Officer. This ground is allowed for statistical purpose.
13 ITA 3259/Mum/2022 Hubtown Limited 17. Ground No.4 is consequential in nature and Ground No. 5 is general. Therefore these grounds do not warrant separate adjudication.
In the result, appeal is partly allowed.
Order pronounced in the open court on 18/07/2023.