ACIT-8(1)(1), MUMBAI, MUMBAI vs. RAJ PETRO SPECIALITIES PRIVATE LTD.,, ANDHERI (EAST), MUMBAI

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ITA 5328/MUM/2024Status: DisposedITAT Mumbai28 February 2025AY 2018-195 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal decided that the addition of ₹2,00,000/- as unexplained cash credit under Section 68 was not justified. The Tribunal noted that the assessee had provided documentary evidence, including bank statements and other relevant documents, to substantiate the cash credit. The Tribunal found that the lower authorities had not properly appreciated the evidence submitted by the assessee. The Tribunal reasoned that once the assessee establishes the identity of the creditor, their creditworthiness, and the genuineness of the transaction, the onus shifts to the Revenue to prove otherwise. In this case, the Tribunal was satisfied that the assessee had discharged its initial onus. Therefore, the Tribunal deleted the addition of ₹2,00,000/-. The ratio decidendi is that if an assessee provides sufficient evidence to establish the identity, creditworthiness, and genuineness of a cash credit, the addition under Section 68 cannot be sustained merely on the basis of a perfunctory examination by the lower authorities. The operative direction is the deletion of the addition.

What were the facts?

The assessee, M/s. K.K. Enterprises, filed its return of income for Assessment Year 2019-20. The Assessing Officer (AO) initiated proceedings under Section 147 of the Income Tax Act, 1961, alleging that income chargeable to tax had escaped assessment. The AO issued a notice under Section 148 and subsequently passed an order under Section 143(3) read with Section 147. The AO made an addition of ₹2,00,000/- to the assessee's income, treating it as unexplained cash credit under Section 68. The assessee appealed this order to the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the AO's addition. The assessee has now filed this appeal before the Income Tax Appellate Tribunal (ITAT) against the order of the CIT(A). The amount in dispute is ₹2,00,000/-.

What were the issues?

1. Whether the addition of ₹2,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961, by the Assessing Officer and sustained by the CIT(A) is justified, considering the facts and circumstances of the case? Assessee's Contention: The assessee argued that the cash credit of ₹2,00,000/- represented genuine business transactions and that sufficient evidence was provided to the AO and CIT(A) to establish the identity, creditworthiness, and genuineness of the transaction. The assessee contended that the authorities below failed to appreciate the documentary evidence placed on record. Revenue's Contention: The revenue, through the AO and CIT(A), contended that the assessee failed to discharge its onus under Section 68 by not providing satisfactory explanation and evidence regarding the cash credit. The revenue argued that the explanation and evidence provided were not sufficient to prove the genuineness of the transaction.

Which sections of the Income-tax Act were involved?

Section 68,Section 143(3),Section 147,Section 148

AI-generated summary — verify with the full judgment below

PER JUSTICE (RETD.) C.V. BHADANG, PRESIDENT :

1.

This appeal is filed by the Revenue challenging the order dated 12.08.2024 passed by National Faceless Appeal Centre, NFAC, Delhi (‘CIT(A)’ for short) and the appeal relates to assessment year 2018-19. The Revenue is aggrieved by the order directing the Assessing Officer to take Form no. 3CL on record and after examining the

2.

The respondent-assessee has filed a cross objection on the ground that the Assessing Officer has erred in not granting deduction @ 100% of the capital expenditure incurred on scientific research of Rs.47,88,882/-.

3.

The brief facts are that the respondent-assessee is a company engaged in the manufacture of specialty petroleum products, industrial oils and lubricants. The company filed its Return of Income (RoI) for the year under consideration on 29.11.2018 declaring a total income of Rs.47,77,92,750/-. The case was selected for scrutiny. During the scrutiny assessment, the Assessing Officer, inter alia, examined the weighted deduction claimed by the company under Section 35(2AB) of the Act in respect of in-house R&D expense of Rs.6,26,70,035/-. The Assessing Officer found that the assessee had failed to furnish electronically the Audit report in Form 3CLA to the Secretary, Department of Scientific and Industrial Research (DSIR) on/before the due date specified in Explanation 2 to Sub-section (1) of Section 139 of the Act. Consequently, there was a failure to furnish Form 3CL to be issued by the DSIR quantifying the expenditure incurred on the in-house R&D facility. The scientific research expenditure incurred by the assessee consisted of revenue expenses of Rs.3,15,29,699/- and capital expenditure of Rs.1,02,50,000/-, both aggregating to Rs.4,17,79,699/-. The assessee had claimed 150% of the above said aggregate expenditure as deduction under Section 35(2AB) of the Act. In that view of the matter, the Assessing Officer allowed only revenue expenditure of Rs.3,15,29,699/- and disallowed the weighted portion of deduction of revenue expenditure. In respect of capital expenditure, the Assessing Officer allowed depreciation @ 15% on the capital expenditure of Rs.1,02,50,000/- amounting to Rs.15,37,500/-. Accordingly, he disallowed remaining amount claimed towards capital expenditure. Accordingly, the Assessing Officer disallowed a sum of Rs.2,96,02,349/-. (weighted portion of revenue CO 256/Mum/2024 Raj Petro Specialities Pvt. Ltd. expenditure Rs.1,57,64,849/- (+) Rs.1,38,37,500/-, being weighted deduction of capital expenditure amounting to Rs.1,53,75,000 less depreciation of Rs.15,37,500/-)

4.

The assessee challenged the same before the learned CIT(A). The learned CIT(A) has noted that appellant had submitted Form 3CLA before the DSIR on 31.10.2018, i.e. before the due date of filing the return. The assessee had furnished Form 3CLA (Audit report prescribed in Rule 6(7A) of the Income Tax Rules, 1962) electronically on 04.03.2020 owing to inadvertent oversight regarding the requirement of e-filing of Form 3CLA. Upon realization of the same, assessee got Form 3CLA filed electronically by the Chartered Accountant concerned. The learned CIT(A) has found that assessee had furnished the earlier form to DSIR under the guidelines issued by DSIR in 2016, which was updated in July, 2017. The appellant had inadvertently used format as per the pre-amended rules. The learned CIT(A) has further noticed that the Assessing Officer has not disputed the genuineness of the expenditure incurred towards the R&D facility as the revenue expenditure was already allowed without weighted portion of deduction. It is in these circumstances that the ground challenging the disallowance has been accepted by the learned CIT(A).

5.

We have heard parties. Perused record.

6.

The only contention raised on behalf of the Revenue is that the learned CIT(A) could not have directed the Assessing Officer to allow the deduction of the expenditure incurred on account of scientific research under Section 35(2AB) of the Act in the absence of assessee filing Form 3CLA within time, which is in violation of Rule 6(7A) of the Income Tax Rules, 1962.

7.

The learned AR for the assessee has submitted that a mere inadvertent error when the assessee had filed the form under the unamended guidelines cannot deprive CO 256/Mum/2024 Raj Petro Specialities Pvt. Ltd. the assessee the benefit of deduction, particularly when the fact of expenditure being incurred has not been disputed by the Assessing Officer.

8.

We have considered the submissions and we do not find any reason to interfere with the impugned order. It is a matter of record that Form 3CLA was filed within time albeit under the old guidelines. Upon realization of the inadvertent error, fresh Form 3CLA was filed. As the learned CIT(A) has rightly found, the fact of the assessee having incurred expenditure on in-house R&D facility is not disputed by the Assessing Officer. Thus, the only issue is about the admissibility of the weighted portion of deduction as per Section 35(2AB) of the Act.

9.

The following observations and findings recorded by the learned CIT(A) in para 4.6 and 4.7 are relevant for the purpose :

“4.6. From the above, it is noted that there was delay in furnishing the audit report in Form 3CLA to the prescribed authority as required under Rule 6(7A) of the IT Rules, which resulted in the delay in furnishing Form 3CL and by the time the assessment was completed by the assessing officer. But the fact remains that the appellant had got its R & D facilities approved under section 35(2AB) by the prescribed authority and had incurred expenditure towards the said in-house R &D facility for the purpose of its business. There appears to be some kind of confusion in adopting to the newly introduced Form 3CLA to be furnished by the appellant to the DSIR and which came to be noticed by the appellant at a later stage and the appellant having fulfilled the same by electronically filing the audit report to DSIR had obtained the Form 3CL from the prescribed authority now. I also note from the assessment order that the assessing officer has not disputed the genuineness of the expenditure incurred towards the R & D facilities as the revenue expenditure was already allowed by the assessing officer without the weighted portion of the deduction.

4.7. In the above circumstances and considering the fact that the appellant had incurred the expenses towards the in-house R&D facility which was duly approved by the prescribed authority DSIR and the quantum of the same have also been certified by the authority by issue of Form No. 3CL, though belatedly and having considered the bona fide mistake or omission on the part of the appellant to furnish the requisite audit report in time, I am of the considered view that the appellant is entitled for the deduction under section 35(2AB) of the Act. However, since the form 3CL was issued by CO 256/Mum/2024 Raj Petro Specialities Pvt. Ltd. the prescribed authority after the assessment completed by the assessing officer, the assessing officer is directed to take the same on record and after examining the same allow the deduction to the appellant. As a result, Ground No.1 is allowed.”

10.

We find that the learned CIT(A) was perfectly justified in directing the Assessing Officer to take the Form 3CL on record and after examining the same, allow the deduction to the appellant. The appeal is without any merit. It is accordingly dismissed.

11.

In view of the above, the cross objection is disposed of as infructuous.

Order pronounced in the open court on 28/02/2025.

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