ACIT 7(1)(1), MUMBAI, MUMBAI vs. LONGSEAL MACHINERY PVT LTD., MUMBAI

O R D E R

PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:

2. Grounds taken by the Revenue are reproduced as under: "1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 8,07,55,300/- made by the AO treating the same as unexplained investment without appreciating the facts that the assessee has failed to submit documentary evidence to prove the genuineness of the said transaction.

Longseal Machinery Pvt. Ltd. AY 2018-19 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 22,84,92,464/- made by the AO treating the same as unexplained money without appreciating the facts that the assessee has failed to submit confirmation from the parties in respect of the said loss.

3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 22,84,92,464/- made by the AO treating the same as unexplained money without appreciating the facts that the assessee has failed to submit any document/agreement entered with M/s Emporis Projects Ltd. with regard to attribution of loss incurred from sale of investment made by the assessee compaпy.

4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the appeal of the assessee without appreciating the facts that the assessee has itself admitted that M/s Emporis Project Ltd. is unwilling to admit said loss and thus, the Appellant is unable to furnish confirmation of Commission account in this regard."

4. Before the ld. CIT appeal, assessee again made a tabular presentation of the investments held by it, aggregating to Rs.30,90,77,400/- which were sold during the year. Details of sales and capital gain/loss accruing on these transactions during the year is tabulated below which is extracted from the order of ld. CIT(A):

4.1. On the addition of Rs.8,07,55,300/-, assessee submitted that it had not advanced any amount to Akarshika Traders LLP rather, the amount was debited to its account which represents sale proceeds of investments recoverable from the said party. Assessee had sold its investments to Akashika Traders LLP for an amount of Rs.8,07,55,300/- for which it submitted a debit note along with DMAT statement of the buyer, substantiating the transfer of investment from assessee to the said buyer.

4.2. Claim of the assessee is that ld. Assessing Officer has applied the provisions of section 69 which are not at all applicable in the present case, since the transaction entered into with Akashika Traders LLP was recorded in the books of accounts. It is not a case where investments are not recorded in the books of accounts of the assessee. Further, the said transaction has been duly explained with corroborative documents placed on record. Assessee thus, submitted that this amount is not an 4.3. In respect of addition of Rs.22,84,92,464/- made by the ld. Assessing Officer treating the same as unexplained money by applying the provisions of section 69A, assessee claims that investments in three quoted shares as tabulated above were made with an understanding with one company Emporis Projects Limited that in case of profits on subsequent sale of these investments, the same shall be shared equally between the assessee and Emporis and in a case of loss, the same shall be borne by Emporis alone. From the chart extracted above, it is noted that assessee had sold investment held by it for a consideration of Rs. 8,23,36,774/- which includes Rs.8,07,55,302/- from Akashika Traders LLP and balance Rs. 15,81,473.612 from Achintya Securities Private Limited.

4.4. On the aforesaid sale transaction, assessee incurred a loss of Rs. 22,67,40,626/- out of which loss of Rs. 22,60,23,780/- was debited to the account of Emporis recoverable from it. This was based on the understanding which was arranged between assessee and Emporis as stated above. Assessee did not claim this loss by way of a debit to the profit and loss account nor claimed it in its ITR for carry forward and set off. According to the assessee, though the understanding was entered into by the directors of the assessee and that of the Emporis. However, on account of incurring of substantial losses, Emporis has not admitted the said loss because of which assessee is unable to provide confirmation of account in this regard from Emporis.

4.5. Further, assessee submitted that provisions of section 69A are invoked only in respect of money of an assessee which is not recorded Longseal Machinery Pvt. Ltd. AY 2018-19 in the books of account. The amount debited to the account of Emporis does not represent any money as per the provisions of section 69A. Further, transaction pertaining to Achintya Securities Private Limited amounting to Rs. 15, 81,474/- relates to transfer of investments to the said entity against settlement of its dues with the assessee. Also, in respect of transaction of Rs.8,79,710/- pertaining to Gill Entertainment Private Limited, it was submitted that liability of this company was taken over by Haritima Infrastructure Private Limited and there was no banking transaction in respect of this. For the small amount of Rs.7,500/- towards audit fees payable, assessee submitted that it was due to be paid to the auditor.

4.6. On furnishing of explanation by the assessee on these three amounts, i.e., transaction with Achintya Securities Private Limited for Rs.15,81,474/-, Rs.8,79,710/- with Gill Entertainment Private Limited and Rs.7,500/-towards audit fees payable, ld. CIT(A) deleted the same. For the remaining two transactions, one with Akarshikha Traders LLP for an amount of Rs. 8,07,55,300/- and with Emporis for an amount of Rs. 22,60,23,780/-, ld. CIT(A) took note of the factual position about the details furnished by the assessee along with corroborative documentary evidences which the ld. Assessing Officer did not take cognizance of. Ld. CIT(A) has reproduced the scanned copy of e- proceedings response acknowledgement to substantiate that assessee had produced details and submissions which have not been properly considered by the ld. Assessing Officer. Ld. CIT(A) noted that submissions made by the assessee remained to be rebutted by the ld. Assessing Officer. He further took note of the fact that these transactions are duly recorded in the books of accounts of the assessee and there is no ambiguity whatsoever in respect of the same. He thus, agreed with the submissions made by the assessee and deleted the Longseal Machinery Pvt. Ltd. AY 2018-19 addition made by the ld. Assessing Officer. In respect of loss of Rs. 22,60,23,780/- debited to the account of Emporis as recoverable from it based on the understanding between the assessee and Emporis, ld. CIT(A) took note of the factual position. He noted that assessee had sold investment in shares which are quoted and listed for companies as tabulated in the chart. He further took note of the provisions of section 69A according to which the amount of loss debited to the account of Emporis does not represent any money as contemplated under the said section. Further, most important fact is that assessee has neither claimed this amount of loss as a debit to its profit and loss account nor has claimed any set off or carry forward in its return of income. Thus, it has no adverse effect on the revenue. Having considered the submissions made by the assessee, both before the ld. Assessing Officer as well as in the first appellate proceedings, ld. CIT(A) observed that ld. Assessing Officer seemed to have not properly considered the submissions made by the assessee. He reproduced the submission made by the assessee in respect of addition of Rs. 22,84,92,464/- details of which are tabulated below:

4.4. Thus, after careful and detailed examination of the submissions made by the assessee, ld. CIT(A) deleted the addition so made by ld. Assessing Officer on this account also. Observations and findings of ld. CIT(A) on the issues raised by the revenue in its appeal are extracted below. “..5.2.1. I have considered the submissions of the Appellant. I have also perused the assessment order. I find that the details/explanation furnished in the course of present proceedings were also furnished before the AO. I further find that the AO has not properly appreciated/considered the submissions made by the Appellant in the course of assessment proceedings. The AO has not acknowledged the fact that the Appellant did furnish copy of Demat a/c statement of buyer substantiating transfer of investment from Appellant to the buyer i.e. M/s Akarshikha Traders LLP. In fact, the AO has also not rebutted the argument of the Appellant that provisions of section 69 do not apply since the transactions are duly recorded in the books of accounts. These facts are evident from the assessment order;

“2. In this respect notice u/s 142(1) of the I.T. Act was sent to the assessee for details of above mentioned liabilities and asset was asked for. In reply the assessee company sent a chart of current liabilities and current assets where it was seen that the company debited the short term loan to the tune of Rs. 24,68,684/- and also debited Rs. 22,60,23,780/- (Emporis Projects limited) whereas no opening balance is there. Therefore, the company debited total amount of Rs. 22,84,92,464/-. The company also shown transaction of Rs. 8,07,55,300/- with Akarshika Traders LLP during f.y. 2017-18. But no Longseal Machinery Pvt. Ltd. AY 2018-19 documentary evidences i.e. confirmation of loan transaction mode, ledger or bank statement (reflecting transaction) was provided for transactions.

3. In response to the aforesaid notice, the assessee, has made its submissions. However, the submissions filed by the assessee was very general & vague in nature and not satisfactory as no corroborating evidences were submitted to prove genuineness of transactions in the bank accounts as well as that the assesse was engaged in real business activities therefore, no option left but add the said transactions. Hence, Rs. 22,84,92,464/- is added u/s 69A as unexplained money and Rs. 8,07,55,300/- is added u/s 69 as unexplained investment. Penalty u/s 271AAC of the I.T. Act, 1961.

4. A show cause notice was issued to the assesse on 13.04.2021 and the assesse company submitted its reply on 20.04.2021. In it reply the company submitted the debit note of Akarshika Traders LLP but no documentary evidences such as bank transaction details has been given by the assesse.

5. Moreover, regarding ‘Emporis Projects limited’ the assesse stated that: “That the investments held 37,92,000 by the assessee company were acquired with a understanding with M/s Emporis Projects Ltd that in case of profits on sale, the same shall be shared equally and in case of loss the same shall be borne by M/s Emporis Projects Ltd. only. The said understanding was made because the assessee company was making investments in the shares. During the year under consideration the assessee company sold investment held by it for a consideration of Rs. 8,23,36,774/- (Rs. 80755300/- to M/s Akarshikha Traders and Rs. 15,81,473.61 to M/s Achintya Securities Pvt. Ltd.) and incurred loss of Rs. 22,67,40,626/-. Out of the said loss, loss of Rs. 22,60,23,780/- was debited to the account of M/s Emporis Projects Ltd as recoverable from it.” The reply of the assesse is also not tenable as the assesse failed to provide the documentary evidences regarding the understanding between M/s Emporis Projects Ltd. and the assesse company and no corroborating evidences were submitted to prove genuineness of transactions.”

In this regard, I find that the Appellant has made a detailed submission before the AO, which seems to have not been properly considered /rebutted by the AO. Submission made by the Appellant before the AO is reproduced below:

4. In respect of proposed addition of Rs. 8,07,55,300/- in respect of amount receivable by the assessee company from M/s Akarshikha Traders LLP it is clarified that the said amount is recoverable by the assessee company from said entity against sale of investments. Copies of debit notes issued to the party and demat account statement substantiating the transfer of investment is also enclosed.

Further, since the additions of unexplained investment are proposed in the case of the assessee company; the governing provisions of Sec. 69 of the Act are enumerated hereunder:

“69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.”

From the perusal of the governing provisions of law it is evident that investments which are not recorded in the books of account of an assessee are assessable as unexplained investment. However, in the case of the assessee company; the amount receivable from M/s Akarshikha Traders LLP is duly recorded in the books of account of the assessee company. Thus, the same is not assessable as unexplained investments as per the governing provisions of law.

Longseal Machinery Pvt. Ltd. AY 2018-19 In view of the stated facts of the case and law enumerated supra; it is most humbly requested that the amount receivable by the assessee company and duly recorded in the books of account shall not be assessed as unexplained investment.”

Thus, as per the details submitted by the Appellant, and which remains to be rebutted by the AO, the Appellant has sold its investments to M/s Akarshikha Traders LLP for an amount of Rs. 8,07,55,300/- and the same is recoverable from M/s Akarshikha Traders LLP. This transaction is duly recorded in books of accounts of the Appellant. There are no ambiguities, whatsoever, regarding this. Thus, independent of the fact whether these transactions represent investments by the Appellant in M/s Akarshikha Traders LLP, these move beyond the applicability of section 69 as these are duly recorded in books of accounts. Provision of section 69 is reproduced below for reference:

“69. Unexplained investments.—Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the 1 [Assessing Officer], satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.”

Thus, section 69 applies when two conditions are cumulatively met: • Transactions are not recorded in the books of accounts, if any, maintained by the Appellant, and • the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the AO, satisfactory

In view of the above, I tend to agree with the Appellant that the AO has erred in applying section 69 in respect of Appellant’s transactions with M/s Akarshikha Traders LLP and subsequently making an addition of Rs. 8,07,55,300/-there under. In this regard, reliance is placed on the decision of Hon’ble Jurisdictional ITAT Mumbai in the case of Abalabba Developers Pvt. Ltd. vs ITO, 12/04/2024, wherein the Hon’ble Tribunal has held that provisions of section 69 is not applicable in respect of transactions recorded in books of accounts. In this regard, relevant part of the decision is reproduced below: “10. The provisions of section 69 is clear that the addition under the said section can be made only towards those investments which are not recorded in the books accounts. In assessee's case it is an admitted fact that the purchase of the impugned property is recorded in the books of the assessee and therefore there is merit in the contention that the addition could not have been made under section 69. Now coming to the question of whether addition could be made under section 69B, a careful reading of the section leads us to the interpretation that the AO has to "find" that the assessee has "expended" an amount which is more than the amount recorded in the books of accounts for the purpose of invoking section 69B of the Act. In this regard we notice that the Hon'ble Delhi High Court in the case of Dinesh Jain HUF (supra) has considered a similar issue of addition under section 69B of the Act where it has been held that the burden of providing satisfactory explanation to the AO by the assessee regarding the amount in excess of what is recorded in the books of accounts would arise after the AO first finds that the assessee has expended more that what is recorded in the books of accounts. From the perusal of the materials, we notice that the AO has not brought on record any evidence to support that the assessee has expended more than what is recorded in Longseal Machinery Pvt. Ltd. AY 2018-19 the books and has made the addition based on the valuation for stamp duty purposes. Therefore, we are inclined to agree with the contention of the assessee that addition towards the impugned transaction under section 69B of the Act could not have been made without the AO recording a finding that the assessee has spent more amount towards purchases than what is recorded in the books of accounts.”

Further, it would be apt to refer to the following observation made by Hon’ble Supreme Court in a recent decision in the case of M/s. D.N. SINGH versus COMMISSIONER OF INCOME TAX, CENTRAL, PATNA AND ANOTHER, CIVIL APPEAL NO(S).3738-3739 OF 2023 (Arising out of SLP(C) No(S).10617-10618 OF 2023 @ Diary No(s).7803 of 2018) dated MAY 16, 2023:

“26. Section 69 and Section 69A, apart from being close neighbours, do bear resemblance with one another. Section 69 deals with unexplained investment. Section 69A deals with unexplained money, bullion, jewellery or other valuable articles. Section 69A was inserted by Amending Act 5 of 1964 and it came into effect w.e.f. 01.04.1964. Both Sections require that the subject matter of the provisions, viz., investments in the case of Section 69 and money, bullion, jewellery or other valuable articles in the case of Section 69A are not recorded in the Books of Account. That is, in a case where Books of Accounts are maintained.“

Thus, in view of facts of the case as discussed hereinabove and respectfully following the decisions of Hon’ble Supreme Court in the case of M/s D.N. Singh (supra) and Hon’ble Jurisdictional ITAT Mumbai in the case of Abalabba Developers Pvt. Ltd (supra), I hold that the AO has erred in making the impugned addition by invoking section 69 of the Act. Accordingly, addition of Rs. 8,07,55,300/- is directed to be deleted. Ground is, this dismissed.

5.3. Ground 3

Vide this Ground, the Appellant has submitted that the AO has erred in making addition of Rs. 22,84,92,464/- being the amount of increase in short term loans and advances given by the Appellant. The Appellant has submitted that Investments in the shares (quoted)of Allied Computers Intl. Asia, Atlanta Ltd. and Yantra Natural Resources Ltd., were made with an understanding with M/s Emporis Projects Ltd. that in case of profits on subsequent sale of these investments, the same shall be shared equally and in case of loss the same shall be borne by M/s Emporis Projects Ltd only. During the year under consideration the Appellant sold investment held by it for a consideration of Rs. 8,23,36,774/- (Rs. 8,07,55,300/- to M/s Akarshikha Traders and Rs. 15,81,473.61 to M/s Achintya Securities Pvt. Ltd.) and incurred loss of Rs. 22,67,40,626/-. Out of the said loss, loss of Rs. 22,60,23,780/- was debited to the account of M/s Emporis Projects Ltd. as recoverable from it. The said loss of Rs. 22,60,23,780/- was not debited to Profit and Loss account and was also not claimed in the ITR filed. The said loss was debited to the account of M/s Emporis Projects Limited and the Ld. The Appellant has further submitted that the provisions of Sec. 69A of the Act are invokable in respect of money of an assessee which is not recorded in the books of account. The amount debited to account of M/s Emporis Projects Limited do not represent any money as defined in the provisions of law contained in Sec. 69A of the Act..The Appellant has further clarified that the understanding was entered into by the directors of Appellant company and of M/s Emporis Projects Limited; however, since substantial losses have been incurred by the Appellant, M/s Emporis Projects Limited is unwilling to admit said loss and thus, the Appellant is unable to furnish confirmation of account in this regard. As regards transaction pertaining to Achintya Securities Pvt. Ltd. (Rs.15,81,474/-) , the As regards transaction pertaining to Gill Entertainment Pvt. Ltd. (Rs.8,79,710), liability of Gill Entertainment Pvt Ltd was taken over by M/s Haritima Infrastructure Pvt. Ltd. and there was no banking transaction in respect of this as well. Further, as regards Audit Fee Payable of Rs.7500/-, the amount is due to be paid to the auditor. The Appellant has, thus, submitted that since the transactions of the assessee company with these parties are duly explained and further there is no adverse finding in the assessment order in respect of these balances; the additions of Rs. 24,68,684/- ((Rs. 15,81,474+ Rs. 8,79,710+Rs.7500) erroneously made by Ld. AO to the income of the assessee company deserves to be deleted and may please be deleted.

5.3.1. I have considered the submissions of the Appellant. I have also perused the assessment order. I find that the details/explanation furnished in the course of present proceedings were also furnished before the AO. I further find that the AO has not properly appreciated/considered the submissions made by the Appellant in the course of assessment proceedings. The AO has not acknowledged the fact that the Appellant did furnish explanation about these transactions. The AO, however, proceeded to make addition merely in absence of bank statement and agreement between the Appellant and of M/s Emporis Projects Ltd. In fact, the AO has also not rebutted the argument of the Appellant that provisions of section 69A do not apply since the transactions are duly recorded in the books of accounts. These facts are evident from the assessment order;

“2. In this respect notice u/s 142(1) of the I.T. Act was sent to the assessee for details of above mentioned liabilities and asset was asked for. In reply the assessee company sent a chart of current liabilities and current assets where it was seen that the company debited the short term loan to the tune of Rs. 24,68,684/- and also debited Rs. 22,60,23,780/- (Emporis Projects limited) whereas no opening balance is there. Therefore, the company debited total amount of Rs. 22,84,92,464/-. The company also shown transaction of Rs. 8,07,55,300/- with Akarshika Traders LLP during f.y. 2017-18. But no documentary evidences i.e. confirmation of loan transaction mode, ledger or bank statement (reflecting transaction) were provided for transactions.

3. In response to the aforesaid notice, the assessee, has made its submissions. However, the submissions filed by the assessee was very general & vague in nature and not satisfactory as no corroborating evidences were submitted to prove genuineness of transactions in the bank accounts as well as that the assesse was engaged in real business activities therefore, no option left but add the said transactions. Hence, Rs. 22,84,92,464/- is added u/s 69A as unexplained money and Rs. 8,07,55,300/- is added u/s 69 as unexplained investment. Penalty u/s 271AAC of the I.T. Act, 1961.

The reply of the assesse is also not tenable as the assesse failed to provide the documentary evidences regarding the understanding between M/s Emporis Projects Ltd. and the assesse company and no corroborating evidences were submitted to prove genuineness of transactions.”

In this regard, I find that the Appellant has made a detailed submission before the AO, which seems to have not been properly considered /rebutted by the AO. Submission made by the Appellant before the AO is reproduced below:

From the perusal of the details enumerated supra it is evident that the assessee company does not have any unexplained money assessable under Section 69A of the Act”

Thus, as per the details submitted by the Appellant, and which remains to be rebutted by the AO, the above transactions are duly recorded in books of accounts of the Appellant. There are no ambiguities, whatsoever, regarding this. Thus, independent of the fact whether the explanation of the Appellant explaining these transactions were found to be satisfactory or not by the AO, provisions of section 69A could not be invoked in reference to these transactions for the purpose of making any additions. Provision of section 69A is reproduced below for reference:

“69A. Unexplained money, etc.—Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.”

Longseal Machinery Pvt. Ltd. AY 2018-19 Thus, section 69A applies when two conditions are cumulatively met: • Transactions are not recorded in the books of accounts, if any, maintained by the Appellant, and • The assessee offers no explanation about the nature and source of acquisition of the money…….. or the explanation offered by him is not, in the opinion of the AO, satisfactory In view of the above, I tend to agree with the Appellant that the AO has erred in applying section 69A in respect of the above transactions since are these are duly recorded in books of accounts maintained by the Appellant. In this regard, I place reliance on the decisions of Hon’ble Supreme Court in the case of M/s D.N. Singh (supra) and Hon’ble Jurisdictional ITAT Mumbai in the case of Abalabba Developers Pvt. Ltd (supra). Accordingly, addition of Rs.22,84,92,464/- is directed to be deleted. Ground is, this allowed.”

5. Ld. CIT DR placed reliance on the order of ld. Assessing Officer to support the appeal filed by the revenue.

Longseal Machinery Pvt. Ltd. AY 2018-19 6.1. ld. Assessing Officer has taken these transactions to be advancing of loans /advances to the other parties and recoverable from them and thus, held them to be unexplained money/unexplained investments to apply the provisions of section 69 and 69A of the Act. Importantly, it is also a fact on record that all these transactions are duly recorded in the books of accounts of the assessee and has been adequately explained in the proceedings before the authorities below. From the factual findings arrived at by ld. CIT(A), we are in agreement with the same and do not find any reason to interfere with the so well examined findings arrived at by ld. CIT(A).