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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI KULDIP SINGH & SHRI RIFAUR RAHMAN
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E”, MUMBAI
BEFORE SHRI KULDIP SINGH (JUDICIAL MEMBER) AND SHRI RIFAUR RAHMAN (ACCOUNTANT MEMBER
I.T.A No.1918/Mum/2021 - 2011-12 I.T.A No.1919/Mum/2021 - 2012-13 I.T.A No.1920/Mum/2021 - 2012-13 I.T.A No.1921/Mum/2021 - 2013-14 I.T.A No.1922/Mum/2021 - 2014-15
M/s Sahyog Homes Ltd vs Dy. Commissioner of 321, Morya Estate, New Link Income-tax-8(3), Road, Opp. Infinity Mall, Andheri Aayakar Bhavan, (West), Mumbai-400 053 Mumbai PAN : AANCS8142D APPELLANT RESPONDENT
Assessee represented by Shri K Gopal / Shri Om Kandalkar Department represented by Ms. Richa Gulati
Date of hearing 14/12/2022 Date of pronouncement 23/12/2022
O R D E R Per: Kuldip Singh (JM): Aforesaid appeals pertaining to assessment years 2011-12, 2012-13, 2013-14 & 2-14-15 bearing common questions of law and facts and having identical issues, are being taken up for disposal by way of composite order to avoid repetition of discussion.
2 Sahyog Homes Ltd ITAs 1918, 1919, 1920, 1921 & 1922/M/2021
Appellant, M/s Sahyog Homes Ltd (hereinafter referred to as ‘assessee’), by filing present appeals sought to set aside the impugned orders dated 20/08/2021 (.Y. 2011-12), 26/08/2021 (A.YS. 2012-13 & 2014-15) in ITAs 1920 & 1919/M/21 & 1922/M/2021), & 27/08/2021 (A.Y. 2013-14), on the ground interalia that -
ITA No.1918/Mum/2021 - A.Y.2011-12 “1. On the facts and circumstances of the case and in the law, DCIT - 8 (3) and CIT (A) -54 erred in passing an order disallowing interest on late payment of TDS of Rs. 14,864/- on account of not being allowable deductions u/s 37(1) of the Act 2. On the facts and circumstances of the case and in the law, DCIT Central Circle -7 (2) and CIT (A) -54 i erred in passing an order disallowing interest paid to Rohini Mercantile Pvt Ltd of Rs. 1,28,90,5667- on the contention that the loan did not exist in the financial statements. 3. On the facts and circumstances of the case and in the law, DCIT Central Circle -7 (2) and CIT (A) -54 erred in passing an order treating excess payment on cancellation of flats as Interest Payment amounting to Rs. 55,00,000/-. 4. On the facts and circumstances of the case and in the law, DCIT Central Circle -7 (2) and CIT (A) -54 erred in passing an order disallowing interest on advances for land of Rs. 22,51,770/- on the contention that the advances are not being utilized for the purchase of land till the date of order. 5. On the facts and circumstances of the case and in the law, DCIT Central Circle -7 (2) and CIT (A) -54 (^ erred in passing an order disallowing cash deposits made by the appellant of Rs. 24,50,000/- due to non- verification of source of deposits.” ITA No.1920/Mum/2021 - A.Y.2012-13 “1. On the facts and circumstances of the case and in the law, DCIT Central Circle -7 (2) and CIT (A) -54 erred in passing an order disallowing interest on late payment of TDS of Rs. 5,38,943/- on account of not being allowable deductions u/s 37(1) of the Act 2. On the facts and circumstances of the case and in the law, DCIT Central Circle -7 (2) and CIT (A) -54 erred in passing an order treating excess payment on cancellation of flats as Interest Payment amounting to Rs. 34,00,000/-. 3. On the facts and circumstances of the case and in the law, DCIT Central Circle -7 (2) and CIT (A) -54 erred in passing an order disallowing interest
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on advances for land of Rs. 43,36,624/- on the contention that the advances are not being utilized for the purchase of land till the date of order.” ITA No.1922/Mum/2021 - A.Y.2014-15
“1. On the facts and circumstances of the case and in the law, DCIT Central Circle -6 (2) and CIT (A) -54 erred in passing an order disallowing interest on late payment of TDS of Rs. 60,402/- on account of not being allowable deductions u/s 37(1) of the Act 2. On the facts and circumstances of the case and in the law, DCIT Central Circle -7 (2) and CIT (A) -54 erred in passing an order treating excess payment on cancellation of flats as Interest Payment amounting to Rs. 58,29,796/-. 3. On the facts and circumstances of the case and in the law, DCIT Central Circle -7 (2) and CIT (A) -54 erred in passing an order disallowing interest on advances for land of Rs. 14,17,446/- on the contention that the advances are not being utilized for the purchase of land till the date of order.” 3. Briefly stated, the facts necessary for adjudication of the issues at hand are: the assessee company is into the business of building, development and construction. During the years under consideration, assessee’s returns of income for A.Ys 2011-12, 2012-13 & 2014-15 were subjected to scrutiny and assessments were framed under section 143(3) of the Act by making disallowance of interest on late payment of TDS, disallowance of interest on unsecured loan, disallowance under section 40(a)(ia), disallowance of interest attributable to advances given for land, disallowance of loan processing charges and thereby framed the assessments under section 143(3) of the Act. For A.Ys 2012-13 & 2013-14, assessee’s case was reopened by way of initiating the proceedings under section 147 / 148 of the Act and made addition on account of unexplained cash credit under section 68 of the Act, commission income and disallowance under section 40(a)(ia) of the act and thereby framed the assessment under section 143(3) r.w.s. 147 of the Act.
4 Sahyog Homes Ltd ITAs 1918, 1919, 1920, 1921 & 1922/M/2021
Assessee carried the matter before the Learned Commissioner of Income- tax (Appeals) by way of filing appeals, who have partly allowed the same. Feeling aggrieved with the impugned orders passed by Ld.CIT (A) assessee has come up before the Tribunal by way of filing present appeals.
We have heard the learned representatives of the parties, perused the orders passed by Ld. lower revenue authorities and materials available on record in the light of the arguments addressed by the Ld. ARs of the parties to the appeals.
Ground 1 OF ITA No.1918/Mum/2021, ITA No.1920/Mum/2021 & ITA No.1922/Mum/2021 : A.Ys 2011-12, 2012-13 & 2014-15 respectively. 5. Assessing Officer on perusal of Schedule VI to the P&L Account (reflecting project expenses) qua Oshiwara Project (1) noted that an amount of Rs.14,689/- for A.Y. 2011-12 is debited under the head ‘Interest on late payment of TDS and Rs.175/- on account of excess amount of provision / TDS and found the same not allowable deductions in view of the Explanation to section 37(1) of the Act and thereby disallowed the same. For A.Y.2012-13, Assessing Officer noticed from the perusal of Notes 20 & 21 to the P&L Account (reflecting project expenses) in Oshiwara Project (1) noticed that a sum of Rs.4,86,755/- is debited under the head ‘Interest on late payment of TDS / PT and Rs.52,158/- on account of excess payment of profession tax and found the same not allowable in the light of Explanation to section 37(1) of the Act. In A.Y. 2014-15, the Assessing Officer also noticed from the P&L Account of Oshiwara Project (1) that a sum of Rs.60,402/- has been debited under the head ‘Interest on
5 Sahyog Homes Ltd ITAs 1918, 1919, 1920, 1921 & 1922/M/2021
late payment of TDS / PT and found the same not allowable in view of Explanation to section 37(1) of the Act.
Ld.CIT (A) confirmed the disallowance made by Assessing Officer qua the disallowance made by the Assessing Officer in view of the Explanation to section 37(1) on the ground that the same was not made for the purpose of business and relied upon the decision rendered by Hon’ble Supreme Court in case of Bharat Commerce & Industries vs CIT (1998) 230 ITR 733 (SC). Ld.CIT(A) also relied upon decision rendered by Hon’ble Bombay High Court in case of Ferro Alloys Ltd vs. CIT 196 ITR 406(Bom) and Hon’ble Calcutta High Court in case of Martin & Harris Pvt Ltd vs CIT 73 taxmann 555(Cal) by returning following findings:-
“6.4 It was submitted by the appellant that interest paid on Professional tax is compensatory in nature. Therefore it is allowable u/s.37(1) of the Income-tax Act, 1961. In respect of late payment of TDS, it was submitted by_the_appel!ant that it is merely a payment made to the government for late deposit of tax of persons to whom payments were made towards expenses incurred. Such interest payment is merely compensating the government for_depositing the tax beyond due date. It was further submitted that such payment is not made in pursuance of any offence committed by the appellant. The appellant has referred to provisions of section 40(a)(ii), 194C, 194J & 194H etc. The appellant in its written submission had further contended that there is a close nexus between the expenses of the appellant and tax deduction liability and hence the expenses is related to business and an allowable deduction. In order to support the above contention, the appellant has relied upon the decision in the cases of (i) Lachmandas Mathura v. CIT 254 ITR 799 and (ii) DCIT.Circle-3(11), Kolkata vs. M/s.Narayani Ispat Pvt. Ltd. ITA No.2127/Kol/2014(Kol ITAT).”
Ld.AR for the assessee challenging the impugned order passed by Ld.CIT(A)’s order contended that since the interest paid on delayed payment of TDS under section 201(1A) of the Act would be compensatory in nature, thus allowable deduction and relied upon the order passed by
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co-ordinate bench of Tribunal in case of Welkin Telecom Infra (P.) Ltd v. DCIT(2022) 142 taxmann.com 146 (Kokata Trib).
We have perused the order passed by co-ordinate bench of Tribunal which is not applicable to the facts and circumstances of the case as this issue is no more res integra after the decisions rendered by Hon’ble Bombay High Court and Calcutta High Court (supra) and Hon’ble Supreme Court in case of Bharat Commerce & Industries vs CIT (supra) held that interest for late payment of direct tax is not deductible and as such disallowance of interest made by the Assessing Officer and confirmed by the Ld.CIT(A) is upheld, finding no illegality or perversity in the impugned order passed by the Ld.CIT(A). Hence ground 1 in A.Ys 2011-12, 2012-13 & 2014-15 raised by the assessee is hereby dismissed.
Ground 2 of 2011-12 (ITA 1918/M/2021)
Assessing Officer after noticing that the assessee has debited an amount of Rs.1,28,90,566/- under the head ‘interest on unsecured loan’ qua expenses of Oshiwara Project allegedly paid to Rohini Mercantile Pvt Ltd, show-caused the assessee that no such unsecured loan is outstanding in the balance-sheet and asked the assessee to furnish party-wise / bank- wise details of the interest paid including opening balance of the loan as on 01/04/2010, addition / deletion during the year, closing balance as on 31/03/2011, purpose of loan, interest paid / debited. Due to non furnishing the requisite details, assessing officer reached the conclusion that the assessee has not taken any loan from Rohini Mercantile Pvt Ltd to
7 Sahyog Homes Ltd ITAs 1918, 1919, 1920, 1921 & 1922/M/2021
whom interest of Rs.1,28,90,566/- has allegedly been paid and thereby made addition thereof to the total income of the assessee.
The Ld.AR for the assessee challenging the impugned disallowance confirmed by Ld.CIT(A) contended that a commercial unit was got booked by M/s Ladybird Vinimay Pvt Ltd in the Oshiwara Project in 2008 for a consideration of Rs.2,15,67,000/- which was paid to the assessee company on 23/09/2009 and brought on record one confirmation letter issued by the assessee to Ladybird Vinimay Pvt Ltd. It is contended by the Ld.AR for the assessee that subsequently on 18/052009, the said Ladybird Vinimay Pvt Ltd was merged with Rohini Mercantile Pvt Ltd taking all the assets and liabilities of the transferor company and brought on record copy of order for amalgamation dated 18/05/2009 available on pages 33 to 52 of the paper book. Rohini Mercantile Pvt Ltd insisted for cancellation of the said booking on 05/10/2010 and requested the assessee to refund the entire advance of Rs.2,15,67,000/- with compensation as per order dated 03/04/2010 available at page 53 of the paper book. Memorandum of Understanding dated 07/04/2010 was executed and the assessee agreed to pay interest @24% from the date of receipt of original consideration upto the date of repayment, which is available on pages 54 to 57 of the paper book.
Assessee claimed to have made the payment of principle amount alongwith interest as per ledger confirmation of Rohini Mercantile Pvt Ltd available at page 54 of the paper book. Ld.AR for the assessee further contended that the said transaction was carried out through banking channel and relied upon the decision rendered by Hon’ble Supreme Court
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in case of Hero Cycles P. Ltd vs CIT (2015) 379 ITR 347 (SC). The Ld.AR for the assessee further contended that it was an inadvertent error on the part of the assessee to reflect the same in the books of account and as such disallowance confirmed by Ld.CIT(A) is liable to be deleted.
The Ld.DR for the Revenue to repel argument advanced by Ld.AR for the assessee contended that the interest alleged to have paid by the assessee pertains to 3 years, but the assessee has claimed entire interest in one year i.e. year under consideration for which no ledger account has been brought on record.
Undisputedly, no evidence has been lead by assessee before the AO to prove this transaction. However, assessee had moved an application for leading additional evidence before Ld.CIT(A) which is available at pages 123 to 130 of the paper book. Ld.CIT(A) had called for remand report from the assessee which is available at page 131 of the paper book. It is also not in dispute that the alleged amount of Rs.2,15,67,000/- paid as booking amount was also not reported in the audit report filed under section 44AB of the Income-tax Act, 1961. It is also the case of the assessee that TDS @10% on the interest payment was also made under section 194A of the Act and as such the same is allowable under section 36(1)(iii) of the Act. The Ld.CIT(A) decided the issue against the assessee by returning the following finding:-
“It is a fact that the advance of Rs.2,15,67,000/- was received in the year 2008 and it was allegedly repaid alongwith the interest on 19.03.2011. It is also a fact that the advance/loan amount was not reported in the Audit_Report u/s.44AB of the Income-tax Act as the same amount was not recorded in the regular books of account of the appellant. Non reporting of the advance/loan amount of Rs.2,15,67,000/- for the AYrs.2008:09, 2009-10 and 2010-11 could not be considered as an inadvertent error. The MOU
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entered into with Rohini Mercantile Pvt Ltd. is an afterthought of the appellant so as to make the transaction of interest payment a genuine transaction. As the principal amount was not shown in the regular books of account in the Audit Report, the interest paid on such principal amount cannot be allowed as deduction u/s.36(1)(iii) of the Income-tax Act, 1961. The appellant has not furnished any evidence to prove that the amount received was utilized for business purpose. Therefore, the decision relied upon by the appellant in the case of Hero Cycles (P.) Ltd vs CIT (Central) Ludhiana [2015] 63 taxmann.com 308 (SC) are not relevant to the facts of the case of the appellant. In view of these facts, the interest of Rs.1,28,90,566/- disallowed by the AO is upheld. Thus, this ground of appeal dismissed.”
Bare perusal of the finding returned by Ld.CIT(A) goes to prove that ld.CIT(A) decided the issue without considering additional evidence sought to be lead by the assessee by moving an application qua which remand report was also called and is available on record, by holding that “the assessee has not furnished any evidence to prove that the amount received was utilized for business purpose”. We are of the considered view that since the issue has not been decided as per law and facts canvassed by assessee on the basis of evidence brought on record, this issue is required to be remitted back to the Assessing Officer to decide afresh after considering the additional evidence sought to be lead by the assessee. Consequently, ground 2 is decided in favour of the assessee for statistical purpose.
GROUND 3 of ITA 1918/M/2021 (A.Y. 2011-12) & GROUND 2 OF ITA 1920 & 1922/M/21 (A.Y. 2012-13 & 2014-15), RESPECTIVELY 15. The Assessing Officer noticed that the assessee has debited an amount of Rs.55,00,000/-, Rs.34,00,000/- & Rs.58,29,796/- in AYs 2011-12, 2012-13 & 2014-15 on account of compensation paid against the
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cancellation of flats. The Assessing Officer observed that the amount repaid over and above the booking amount received by assessee partake the nature of interest payment which is covered by the provisions contained under section 194A of the Act but assessee has not deducted any tax at source on such payment and thereby disallowed the same under section 40(a)(ia) of the Act - The Ld.CIT(A) confirmed the disallowance made by the Assessing Officer under section 40(a)(ia) by following the decision rendered by his predecessor for A.Y. 2015-16.
The Ld.AR for the assessee contended that this issue is already decided by the co-ordinate bench of Tribunal in assessee’s own case for A.Y. 2015-16 in ITA No.66/Mum/2019 vide order dated 25/01/2021.
We have perused the order passed by the co-ordinate bench of Tribunal which on identical issue which was decided by returning following findings:-
“4. Upon careful consideration of factual matrix as enumerated in preceding paragraphs and after going through the impugned order, we find that Ld. CIT(A) has clinched the issue in the correct perspective and passed a judicial and reasoned order. We concur with the adjudication of Ld. CIT(A) since various arguments raised by the assessee have appropriately been dealt therein. It could be observed that as per allotment letters, there was no provision for payment of any compensation to the purchasers in the event of cancellation of allotment. The bookings were cancelled at the behest of purchasers and the assessee was under no obligation to pay any compensation in such an event. The payment was made as per mutual understanding. It is pertinent to note that the assessee was charging interest of 24% on delayed payments and therefore, the excess amount paid over and above the advances paid by the purchasers would be nothing but compensatory interest in nature. The buyer-seller relationship was snapped the moment the bookings were cancelled and the relationship of debtor- creditor would commence. As rightly held by Ld. CIT(A), there was no other way this payment could be interpreted because the assessee was under no legal obligation to pay compensation for cancellation of flat, the proposal for which came from the purchaser. Therefore, the impugned order would not require any interference on our part, in this regard. The said adjudication is also supported by assessment order for AY 2017-18 as placed on record by
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Ld. DR the perusal of which would reveal that the assessee, itself, has deducted tax at source on such excess payments during that year. 5. Having said so, we find that the assessee could escape the rigors of Sec.40(a)(ia) in terms of second proviso to Section 40(a)(ia) read with first proviso to sub-section (1) of Section 201 by demonstrating that the payees have duly offered this income in their respective tax returns and paid due taxes thereon. In such a case, no disallowance u/s 40(a)(ia) is called for. Therefore, we deem it fit to restore the matter back to the file of AO for the limited purpose of providing an opportunity to the assessee to demonstrate fulfillment of these conditions by adducing requisite documentary evidences. The Ld. AO is directed to consider the same and grant the said benefit to the assessee, if otherwise available and found in order. The ground stand allowed to that limited extent.” 18. Following the order passed by co-ordinate bench of Tribunal, we are of the considered view that this issue is also remitted back to the Assessing Officer to decide to the limited extent if assessee could escape the rigours of section 40(a)(ia) in terms of Second Proviso to section 40(a)(ia) read with First Proviso to sub section 1 of section 201 of the Act by demonstrating that the payee has duly offered this income in their respective tax return and paid due tax thereon. The assessee is at liberty to adduce documentary evidence to prove this limited issue as per finding returned by the co-ordinate bench of Tribunal for A.Y. 2015-16. So ground 3 of ITA No.1918/Mum/2021, ground 2 of ITA Nos 1920 & 1922/Mum/2021 are allowed to the limited extent discussed hereinbefore.
GROUND 4 OF ITA NO.1918/MUM/2021 & GROUND 3 OF ITA NOS (ITA 1920 & 1922/M/21) OF AYs 2011-12, 2012-13 & 2014-15 19. The assessee claimed to have given advances to various parties for purchase of land during the years under consideration i.e. A.Ys 2011-12, 2012-13 & 2013-15 and assessee claimed to have made the said advances for business purposes. There are 28 parties as tabulated in para 9.3 of the impugned order passed by Ld.CIT(A). The assessee included the interest
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expenditure on the said advances made to the parties for purchase of land, in the project cost of Oshiwara project and carried to its work-in-progress (WIP). The Ld.AO disallowed the interest claimed by the assessee on the ground that “on the one hand, the assessee is paying interest on its borrowing and on the other hand it is making interest free advances to various parties and as such interest cost attributable to the advances given for land purchase cannot be debited to the WIP of Oshiwara project” and thereby disallowed the same @18% i.e. paid on the loan taken from IIFL & others by the assessee. Ld.CIT(A) given part relief to the assessee by returning the following finding:-
“From the details given by the appellant, it is seen that the appellant has purchased the land from various parties. In respect of some parties, the development agreement, sale agreement, MOD or Conveyance Deed has been executed. Some of those documents have been registered and others have not been registered. Further, in. respect of certain parties, no document has been executed. The appellant has executed registered documents in respect of advances of Rs.4,02,96,930/- whereas in respect of Rs.1, 25,09,832/-, neither documents have been made nor the documents have not been registered. Therefore, the advanceslb the extent of Rs. 1,25,09,832/- which comes to Rs.22,51,770/- cannot be allowed. Thus, out of the total disallowance of Rs.95,05,217/- made by the AO u/s.36(1)(iii) of the Income-tax Act, 1961, disallowance of Rs.22,51,770/- is upheld and the balance disallowance of Rs.72,53,447/- is deleted. Thus, this ground is partly allowed.” 20. We have perused the order passed by Ld.CIT(A). In para 9.3 of the impugned order Ld.CIT(A) has duly thrashed facts and found that out of 28 parties whom assessee alleged to have made the advances for purchase of land, there is no document pertaining to 9 parties brought before the Assessing Officer as well as the Ld.CIT(A) nor any such document has been sought to be proved before the Bench by way of leading any additional evidence. When there is no document qua making advance to the parties, as alleged by the assessee, like agreement to sale nor any sale deed qua
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the land to be purchased for which advance was made, has been brought on record. So we find no illegality or perversity in the impugned finding returned by Ld.CIT(A). Hence, ground No, 4 in A.Y. 2011-12 and ground 3 in A.YS 2012-13 & 2014-15 are decided against the assessee.
GROUND 5 OF A.Y. 2011-12 (ITA 1918/MUM/2021)
The Assessing Officer noticed from the financials of the assessee that assessee deposited an amount of Rs.2,45,00,000/- on 30/03/2011 in cash in its bank account maintained with Tamil Nadu Mercantile Bank Ltd (TMBL). On failure of the assessee to explain the source of cash deposits made addition thereof as unexplained cash deposit under section 68 of the Act to the total income of the assessee. Ld.CIT(A) confirmed the disallowance made by the Assessing Officer on account of non verification of the source of deposit by returning following findings:-
“The appellant had deposited cash of Rs.24,50,000/- in the bank account with Tamilnadu Mercantile Bank Ltd. on 30.03.2011. During the appellate proceedings, the appellant has reiterated the submission made before the AO. The submission of the appellant was that the cash was withdrawn from the opening cash in hand for the purpose of labour payment, but part of the cash withdrawn was redeposited in the bank account. The appellant has not given details of the exact amount of labour payment The appellant has also not explained as to why the labour payment was not made from the cash withdrawn. The submission made by the appellant is not acceptable. The appellant has failed to explain the source of cash deposits. Hence the cash deposit of Rs.24,50,000/- remains unexplained. In view of these facts, the addition of cash deposit of Rs.24,50,000/- made by the AO u/s.68 is upheld. Thus, this ground of appeal is dismissed.” 22. The Ld.AR for the assessee challenging the impugned confirmation of the disallowance made by the Assessing Officer contended that the assessee had sufficient cash with it, duly recorded in the cash book and also brought on record copies of the cash book available at pages 103 to 116 of the paper book. Opening cash in hand of the assessee to the tune
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of Rs.57,18,500/- is duly recorded. The Ld.AR for the assessee also stated that he has withdrawn an amount of Rs.26,75,000/- from the bank account in the earlier dates as is evident from the copy of bank statement maintained by the assessee with TMBL available at pages 185 of the paper book, out of which the assessee has deposited back Rs.24,50,000/-. It is also one of the arguments of the assessee that Assessing Officer has never provided an opportunity to the assessee to produce copy of cash book.
Contention made by the Ld.AR for the assessee having not been controverted by Ld.CIT(A), who has rather withheld the relief on the ground that “the appellant has not given details of the exact amount of labour payment, for which purpose the amount was withdrawn and the same was later re-deposited”. We are unable to agree with the reasoning given by the Ld.CIT(A) because when assessee was having sufficient funds in its cash book and has withdrawn the amount from bank and deposited the same with the bank on account of some business exigencies, there is no reason to disallow the same. So we hereby order Assessing Officer to delete the addition, however, subject to the verification of the cash book and bank statement brought on record by the assessee referred to during the course of proceedings before the Bench. So ground 5 of ITA No.1918/Mum/2021 is determined in favour of the assessee.
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ITA No.1919 & 1922/MUM/2021 (AYs 2012-13 & 2014-15)
Aforesaid interconnected appeals bearing common question of law and facts and having identical grounds are taken up for disposal by way of composite order to avoid repetition of discussion.
ITA No.1919/Mum/2021 - A.Y : 2012-13
Assessee sought to set aside the impugned orders passed by Ld.CIT(A) on the grounds interalia that :-
“1. On the facts and circumstances of the case and in the law, DCIT Central Circle -7 (2) and CIT (A) -54 erred in passing an order and treating the amount credited in the bank accounts during the year as accommodation entries, thereby making an addition as unexplained cash credits u/s 68 amounting to Rs. 80,00,000/-. 2. On the facts and circumstances of the case, DCIT Central Circle -7 (2) and CIT (A) -54 erred in passing an order and adding an amount of Rs. 2,40,000/- as commission income on the above alleged accommodation entries.” ITA No.1921/Mum/2021 - A.Y.2013-14
“1. On the facts and circumstances of the case and in the law, DCIT Central Circle -7 (2) and CIT (A) -54 erred in passing an order and treating the amount credited in the bank accounts during the year as accommodation entries, thereby making an addition as unexplained cash credits u/s 68 amounting to Rs. 23,00,000/-. 2. On the facts and circumstances of the case, DCIT Central Circle -7 (2) and CIT (A) -54 erred in passing an order and adding an amount of Rs. 69,000/- as commission income on the above alleged accommodation entries. 3. On the facts and circumstances of the case and in the law, DCIT Central Circle -7 (2) and CIT (A) -54 erred in passing an order treating excess payment on cancellation of flats as Interest Payment amounting to Rs. 17,43,000/-.” 26. Briefly stated, facts necessary for adjudication of the issues on hand are : On the basis of information received from Deputy Director of Income-tax Investigation), Unit 7(4), Mumbai [DDIT(Inv] vide letter dated
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30/09/2016, a search and seizure action was carried out in case of Vipul Vidur Bhatt and other related entities and consequently, after recording the reasons, assessments were reopened by initiating the proceedings under section 147 / 148 of the Act. During the reopening proceedings, Assessing Officer noticed that the assessee has taken bogus accommodation entries from bogus entities / companies managed and controlled by Shri Vipul Vidur Bhatt and declining the explanation made by the assessee proceeded to make addition of Rs.2,70,00,000/-, Rs.3,64,00,000/- in AYs 2012-13 and 2013-14, respectively under section 68 of the Act on account of unexplained cash credits. Assessing Officer also made addition of Rs.8,10,000/- and Rx.10,92,000/- on account of commission income for A.Ys 2012-13 & 2013-14, respectively and thereby framed the assessment under section 143(3) r.w.s. 147 of the Act.
Assessee carried the matter before Ld.CIT(A) by way of filing appeal, who has partly allowed the same. Feeling aggrieved with the impugned orders passed by the Ld.CIT(A), assessee has come up before the Tribunal by way of filing the present appeals.
We have heard the learned representatives of the parties and perused the materials available on record.
GROUNDS 1 & 2 OF ITAs 1919 & 1921/MUM/2021 – AYs 2012-13 & 2013-14 29. On the basis of information received by the Assessing Officer from the office of DDCIT(Inv), Mumbai vide letter dated 03/09/2016, Assessing Office r noticed that during the search & seizure action carried out in case of Vipul Vidur Bhatt and other related entities of Vipul Vidur Bhatt on
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05/12/2016 it was noticed that he is an entry operator and various bogus entities were used by him for providing bogus accommodation entries to various beneficiaries for common. In AYs 2012-13 & 2013-14 assessee has taken said accommodation entries from Shri Vipul vidur Bhatt, which are as under:-
A.Y.2012-13
Sr. Name of the Opening Dr.Amount Cr.Amount Closing balance Addition No. party balance made 1. Acute 0 35,00,000 50,00,000 15,00,000(Cr) 50,00,000(Cr) Consultancy Ltd 2. Sampada 0 1,00,000 0 1,00,000(Dr) 1,00,000(Dr) Chemichals Ltd 3 Shipra Fabrics Pvt 50,00,000 (Dr) 90,00,000 40,00,000 1,00,00,000 (Dr) 90,00,000 (Cr) Ltd 4 Jagvi Developers 0 0 30,00,000 -30,00,000 (Cr) 30,00,000 (Cr) Pvt Ltd Total 2,70,00,000
A.Y. 2013-14
Sr.No Name of the Party As Per Notice As per the books of Accounts Dr.Amount Cr.Amount Dr.Amount Cr.Amount Acute Consultancy Ltd 1 1,500,000 1,500,000 1,500,000 - 2 Jagvi Developers Pvt Ltd 610,986 610,986 4,900,000 1,900,000 3 Sampada Chemichals Ltd 15,850,000 500000 560,00,000 1,50,00,000 4 Shakuntala K. Rawal 7,50,000 0 - - 5 13,750,000 14,600,000 4,600,000 14,600,000 Shipra Fabrics Pvt Ltd 6 Victory Sales Pvt Ltd 5,000,000 5,000,000 - 400,000
In ITA No.1919/Mum/2021 for A.Y. 2012-13, declining the contentions raised by the assessee, Ld.CIT(A) after thrashing the facts, deleted the addition of Rs.1,90,00,000/- pertaining to M/s Shipra Fabrics P Ltd and Sampada Chemicals Ltd (upheld the addition amounting to Rs.80,00,000/-) in case of Acute Consultancy Pvt Ltd to the tune of Rs.50
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lakhs and in case of Jagvi Developers Pvt Ltd for Rs.30 lakhs by returning the following findings:-
“Accordingly, the addition in respect of loans given and received back in the of Sampada Chemicals Ltd. and Shipra Fabrics Pvt. Ltd. is deleted. This ground of appeal is Allowed. However, in the case of Acute Consultancy Ltd. and Jagvi Developers Pvt. Ltd. the Appellant has received loans from them. Both the companies from which loans have been received are controlled and managed Shri Vipul Vidhur Bhatt, an entry provider. A search action u/s 132 was conducted in the case of Vipul Bhatt. During the course of the search action various clinching evidences were gathered which establish the fact that Shri Vipul Bhatt is operating various bogus concerns in his own name and in the name of his various associates / relatives / employees engaged in the business of providing accommodation entries of bogus unsecured loans, share application money and purchases. The statements of his various associates were recorded during the course of the search action, and all of them accepted that these concerns were controlled and operated by Vipul Bhatt and were the bogus concerns, engaged in the activity of providing accommodation entries only. In view of the above, out of the total addition of Rs.2,70,00,000/-, addition of Rs.80,00,000/- is confirmed. Thus, this ground of appeal is partly allowed.” For A.Y. 2013-14, the Ld.CIT(A) has deleted the addition made by the Assessing Officer in case of Sampada Chemicals Ltd, Shipra Chemicals Ltd and Acute Consultancy Ltd to the tune of Rs.3,41,00,000/- but confirmed the addition of Rs.4,00,000/- and Rs.19,00,000/- in case of Victory Sales and Jagvi Developers Ltd, respectively out of the total addition of Rs.3,64,00,000/- by returning following findings:-
“The AO taken higher of credit and debit entries and made addition u/s 68 of the Act. It is seen that in the case of Sampada Chemicals Ltd. in addition to the opening Dr. balance of Rs. 1,00,00,000/-, a loan of Rs. 50,00,000/- was given during the year, total loan of Rs. 1,50,00,000/- has been received back in the same year. In the case of Shipra Fabrics Pvt. Ltd. in addition to the opening Dr. balance of Rs. 1,00,00,000/-, a loan of Rs. 46,00,000/-was given during the year, total loan of Rs. 1,46,00,000/- has been received back in the same year. Thus, in the case of Sampada Chemicals Ltd. and Shipra Fabrics Pvt. Ltd. the appellant had given the loans and some amount of those loans have been received back during the year. Therefore, the source of credit entries has been explained by the appellant. Section 68 mandates that there has to be credit of amounts in the books of account maintained by
19 Sahyog Homes Ltd ITAs 1918, 1919, 1920, 1921 & 1922/M/2021
the assessee; such credit has to be a sum received during the previous year; and assessee offers no explanation about the nature and source of credit found in books; or the explanation by the assessee in the opinion of A.O. is not satisfactory, it is then only the sum so credited may be charged to income tax as income of the assessee for that previous year. In the case of Sampada Chemicals Ltd. and Shipra Fabrics Pvt. Ltd., the appellant has given the loans to these concerns. These entries are debited in the books of the appellant. The credit entries represents the loans received back from these two concerns. Thus, the credit entries in respect of Sampada Chemicals Ltd. and Shipra Fabrics Pvt. Ltd. are explained by the appellant.
Accordingly, the addition in respect of loans given & received back in the of Sampada Chemicals Ltd. and Shipra Fabrics Pvt. Ltd. is deleted.” 31. Now the contentions raised by Ld.AR for the assessee for .Y. 2012- 13 and 2013-14 interalia are that the assessee has duly repaid the advance taken from the concerned parties; that the evidence collected by the Revenue department from third parties, i.e. Shri Vipul Vidur Bhatt cannot be used against the assessee without providing an opportunity to rebut the same and that the assessee has taken all the loans through banking channel and that statement of Shri Vipul Vidur Bhatt recorded on 09/02/2016 by search and seizure party has already been retracted by him on 02/09/2016.
However, on the other hand, Ld. DR for the Revenue in order to repel the contentions raised by the Ld.AR for the assessee contended that all the alleged loans are paper entries and the parties advancing loan to the assessee are having no worth, rather they were having meager income as per the details of beneficiaries brought on record by the assessee itself.
We have perused the order passed by Ld.CIT(A), who has thrashed the facts qua the alleged accommodation entries individually in case of every parties controlled by Shri Vipul Vidur Bhatt and arrived at legally
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sustainable orders. Merely because of the fact that the assessee has availed all loans through banking channel is not sufficient to discharge onus under section 68 of the Act in view of the meagre income of the lenders.
It is undisputed fact on record that assessee has taken loan from Acute Consultancy Ltd and Jagvi Developers Pvt. Ltd., which are controlled by Vipul Vidur Bhatt who has been operating various bogus concerns engaged in the business of providing accommodation entries. The contention of the Ld.AR for the assessee is not sustainable that statement of Shri Vidur Vipul Bhatt cannot be relied upon to make the addition in case of the assessee as he has retracted the statement.
It is a matter of record that statement of Shri Vipul Vidur Bhatt was recorded on 09/02/2016 which was retracted by him on 02/09/2016, after a period of 7 months. We are of the considered view that retraction after such a long period is an afterthought and is not sustainable in the eyes of law. When it is proved on record that all concerns / entities under scanner of the Revenue department, controlled by Shri Vipul Vidur Bhatt are having numerous transactions as sundry creditors, sundry debtors, loans and advances in relation to purchases and sales shown in their respective books of account and assessee is one such beneficiary, the onus to prove their identity, creditworthiness and genuineness of the transaction is to be proved by the assessee. Merely because of the facts that transaction is through banking channel is not sufficient as the nature and source of such fishy transaction is required to be examined by the Revenue on the basis of human probabilities.
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Hon’ble Apex Court in CIT vs. Durga Prasad More 82 ITR 540 (SC) while deciding the identical issue whether apparent was not real and in those circumstances, taxing authorities were held entitled to look into the surrounding circumstances to find out the reality of such recitals / transactions by returning following findings:-
“ Held, reversing the decision of the High Court, (i) that it could not be said that the finding of the Tribunal as to the unreality of the trust put forward was not based on evidence or was otherwise vitiated; (ii) that the Tribunal did not interpret the two deeds but merely found itself unable to accept the correctness of the recitals in those documents: to accept those recitals or not was within the province of the Tribunal and the High Court could not interfere with its conclusion unless it was perverse or not supported by evidence or was based on irrelevant evidence; (iii) that though an apparent statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real, in a case where a party relied on self-serving recitals in documents, it was for that party to establish the truth of those recitals: the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals.” 37. When we examine beneficiaries of Jagvi Developers Pvt Ltd, who alleged to have advanced an amount of Rs.30 lakhs to the assessee, and has given confirmation qua the said loan available at page 154 and is read in conjunction with bank statement of M/s Jagvi Developers Pvt Ltd available at page 155 of the paper book, there are regular corresponding entries regarding cash deposit and thereafter withdrawal by way of cheque in favour of the assessee which shows that this is nothing but round tripping of funds. When this fact is further examined in the light of the income-tax return filed by the assessee available at page 156 of the paper book, M/s Jagvi Developers Pvt Ltd is having income of Rs.1,37,479/- and has just paid the tax of Rs.42,942/- for A.Y. 2012-13. In such circumstances it is difficult to understand as to how it has advanced the huge loan of
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Rs.30 lakhs to the assessee. So all such transactions have been rightly examined by the Assessing Officer as well as Ld. CIT(A) being bogus entries. Keeping in view the fact that all such entities are controlled by Shri Vipul V Bhatt and they have no creditworthiness to advance such a huge loan, which is nothing else but mere accommodation entries without carrying out any genuine transaction.
Perusal of balance-sheet of M/s Jagvi Developers Pvt. Ltd available at page 107 of paper book for A.Y. 2012-13 shows that it has mere ‘reserves and surplus’ of about ₹20 crores, but at the same time having liability of more than ₹57 crores, and as such it is difficult to accept its creditworthiness for advancing huge loan of ₹50 lakhs.
Furthermore, when we examine P&L Acount of M/s Jagvi Developers Pvt Ltd available at page 171 of the paper book of 2012-13, it has a meager income of ₹4,29,414/- which shows that it had no creditworthiness to advance a huge loan to the assessee.
So we are of the considered view that in the given circumstances, creditworthiness is not proved by merely issuing receipts of cheques, furnishing a copy of statement of bank account, etc., rather, assessee is required to prove the nature and source of receipt for proving the creditworthiness of the lenders. M/s Jagvi Developers Pvt Ltd, who alleged to have advanced the loan of Rs.30 lakhs in A.Y. 2012-13 and Rs.19 lakhs in A.Y. 2013-14 which proved to have been mere accommodation entry. Sofar as loan taken by the assessee from Victory Sales is concerned, for A.Y. 2013-14 no document has been brought on record by the assessee.
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His financials have not been brought on record to prove his creditworthiness. So we are of the considered view that the Ld.CIT(A) has rightly confirmed the addition by thrashing the facts in the light of the settled proposition of law.
When impugned addition of the bogus entries is proved to be sustainable consequent addition made by the Assessing Officer and confirmed by Ld.CIT(A) on account of commission income is also sustainable. So grounds 1 & 2 of A.Y. 2012-13 & 2013-14 in ITA Nos 1919 & 1921/Mum/2021 are determined against the assessee.
The Assessing Officer on perusal of details of ‘project expenses’ pertaining to Oshiwara project noticed that the assessee has debited an amount of Rs.17,43,000/- on account of compensation paid against cancellation of flat. However, Assessing Officer made addition thereof on the ground that the details of recipient parties, who have made the request for cancellation of the booking had not been filed nor the assessee has filed proof for deduction of TDS.
Ld.AR for the assessee contended that this issue has already been decided by assessee’s own case for A.Y. 2015-16 in ITA No.66/Mum/2019.
We have perused the order passed by co-ordinate bench of Tribunal in assessee’s own case, which is on identical facts and ground, operative part thereof is extracted as under:-
Having said so, we find that the assessee could escape the rigors of Sec.40(a)(ia) in terms of second proviso to Section 40(a)(ia) read with first proviso to sub-section (1) of Section 201 by demonstrating that the payees have duly offered this income in their respective tax returns and paid due taxes thereon. In such a case, no disallowance u/s 40(a)(ia) is called for.
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Therefore, we deem it fit to restore the matter back to the file of AO for the limited purpose of providing an opportunity to the assessee to demonstrate fulfillment of these conditions by adducing requisite documentary evidences. The Ld. AO is directed to consider the same and grant the said benefit to the assessee, if otherwise available and found in order. The ground stand allowed to that limited extent.” So following the order passed by the co-ordinate bench of Tribunal in assessee’s own case for A.Y. 2015-16, we are of the considered view that undisputedly when there is no provision for payment of compensation to the purchaser on account of cancellation of allotment, rather booking of flats were cancelled at the request of the purchaser, then the assessee was not under any obligation to pay the compensation. The Ld.CIT(A) has rightly upheld the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act. However, in view of the findings given by co- ordinate bench of Tribunal in para 5 of the order (supra), Assessing Officer is directed to consider section 40(a)(ia) in terms of the Second Proviso to section 40(a(ia) read with First Proviso of sub section (1) of section 201 by demonstrating that the payees have duly offered this income in their respective tax return and paid due tax thereon. So the Assessing Officer is directed to consider the same and extend the benefit accordingly. So this ground stands allowed to the limited extent.
In the result, all the appeals are partly allowed.
Order pronounced in the open court on 23/12/2022
Sd/- sd/-
(S RIFAUR RAHMAN) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dt : 23rd December, 2022 Pavanan
25 Sahyog Homes Ltd ITAs 1918, 1919, 1920, 1921 & 1922/M/2021 �ितिलिप �ितिलिप अ�ेिषत �ितिलिप �ितिलिप अ�ेिषत अ�ेिषतCopy of the Order forwarded to : अ�ेिषत अपीलाथ�/The Appellant , 1. �ितवादी/ The Respondent. 2. आयकर आयु�(अ)/ The CIT(A)- 3. आयकर आयु� CIT 4. िवभागीय �ितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, 5. Mumbai गाड� फाइल/Guard file. 6. BY ORDER, //True Copy// Asstt. Registrar / Senior Private Secretary ITAT, Mumbai