THE PR. COMMISSIONER OF INCOME TAX-3, LUDHIANA vs. M/S INCITE HOMECARE P. LTD.

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ITA/465/2018HC Punjab & HaryanaPHHC01119337201816 January 2020Author: MR. JUSTICE AJAY TEWARI,MR. JUSTICE AVNEESH JHINGAN2 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal upheld the findings of the CIT (Appeals). Regarding the first issue, the Tribunal found that the funds used for the purchase of land and construction of the godown were interest-free funds and not those obtained as loans from the bank. This finding of fact was upheld. The Tribunal relied on the judgments in S.A. Builders Limited Versus CIT (Appeals) and Bright Enterprises (P) Ltd. Versus Commissioner of Income Tax. Consequently, the first question was answered in the negative. For the second issue, the Tribunal noted that on the AO's asking, not only the financers but also the directors of the company were produced. Furthermore, the returns of those investors had been accepted by the Revenue. In these circumstances, the Tribunal held that the share money investment could not be deemed to be a paper transaction or an accommodation entry. Therefore, the second question was also answered in the negative. The appeal was dismissed.

What were the facts?

The appeal was filed by the Principal Commissioner of Income Tax-3, Ludhiana (Revenue) against the order of the CIT (Appeals) and the Income Tax Appellate Tribunal (Tribunal). The Assessing Officer (AO) had made two additions. The first issue concerned disallowance under Section 36(1)(iii) of the Income Tax Act, 1961, relating to advances made for land purchase and godown construction from mixed funds in a single bank account. The CIT (A) deleted these additions, finding that the funds used were interest-free and not from bank loans, a finding upheld by the Tribunal. The second issue involved Rs. 3,87,50,000 received as share capital from two companies, which the AO alleged were accommodation entries. The Appellate Authorities noted that the financers and directors were produced, and the investors' returns were accepted by the Revenue, leading them to conclude it was not a paper transaction.

What were the issues?

1. Whether the Tribunal erred in deleting the disallowance made by the AO under Section 36(1)(iii) of the Income Tax Act, 1961, concerning advances for land purchase and godown construction, when the assessee had mixed funds in its bank account? Assessee's Contention: Not explicitly recorded, but implied by the appellate authorities' findings that the funds were interest-free and not from loans. Revenue's Contention: The AO held that the assessee was not able to satisfy that the advances made for the purchase of land and investment in construction of the godown were entitled to the benefit of Section 36(1)(iii) of the Act. 2. Whether the Tribunal erred in holding that the share capital of Rs. 3,87,50,000 received from two companies was not an accommodation entry, despite the AO's contention that the investors had sufficient funds but showed meager profits? Assessee's Contention: Not explicitly recorded, but implied by the appellate authorities' findings that financers and directors were produced, and investors' returns were accepted by the Revenue. Revenue's Contention: The AO's ground was that the investors had sufficient funds yet they have been showing meagre profit from their business, and the share capital received was an accommodation entry.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

ITA-465-2018 1 102 IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-465-2018 Date of Decision: 16.01.2020 THE PR. COMMISSIONER OF INCOME TAX-3, LUDHIANA ....APPELLANT VERSUS M/S INCITE HOMECARE P. LTD. ....RESPONDENT CORAM: HON'BLE MR. JUSTICE AJAY TEWARI HON'BLE MR. JUSTICE AVNEESH JHINGAN Present: Mr. Amrinder Singh, Advocate for the appellant. **** AJAY TEWARI, J (Oral)

1.

The appeal has been filed against the order of the CIT (A) and Income Tax Appellate Tribunal ( for short 'the Tribunal') whereby two additions made by the Assessing Officer (AO) were deleted. The issue relates to disallowance under Section 36 (1) (iii) of the Income Tax Act, 1961. Admittedly, the assessee has one bank account which consists of mixed funds. The AO held that the assessee was not able to satisfy that the advances which were made for the purchase of land and investment in construction of the godown were entitled to the benefit of Section 36 (1) (iii) of the Act. The findings were reversed by the Appellate Authorities (except that the CIT (A)) added sum of Rs. 4,80,000/- and deleted the balance additions). The CIT(A) gave a categoric finding that the funds used for purchase of land and construction were interest free funds and were not those which were obtained as loan from the bank. This finding on fact has been upheld by the Tribunal. SHABHA 2020.01.31 12:11 I attest to the accuracy and integrity of this document

ITA-465-2018 2 Learned counsel for the petitioner is not in a position to deny that the matter is squarely covered by the judgments of S.A. Builders Limited Versus CIT (Appeals) and another; 2007 (15) SCC 147 and Bright Enterprises (P) Ltd. Versus Commissioner of Income Tax; 2016 (381) ITR 107. 1. In view of the above, the first question is answered in negative.

2.

As regard question No. 2, the argument is Rs.3,87,50,000/- which was received as share capital from two companies were accommodation entries. The ground taken by the AO was that those investors had sufficient funds yet they have been showing meagre profit from their business. The Appellate Authorities noticed that on the asking of the AO, not only all the financers but even the directors of the company were produced. Moreover, the returns of those assessees had been accepted by the revenue and held that in these circumstances the share money investment could not be deemed to have been a paper transaction or an accommodation entry. Therefore, we find no reason to give a different view and both the questions are answered in negative. Consequently, the appeal is dismissed.

[AJAY TEWARI] JUDGE [AVNEESH JHINGAN] 16th January, 2020

JUDGE shabha

Whether speaking/ reasoned : Yes / No Whether reportable : Yes / No SHABHA 2020.01.31 12:11 I attest to the accuracy and integrity of this document

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