ANEEKA UNIVERSAL PRIVATE LIMITED,MUMBAI vs. PR.CIT-9, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, MUMBAI SHRI PRAMOD KUMAR, VICE PRESIDENT SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 7115/MUM/2018 (ASSESSMENT YEAR: 2013-14) Aneeka Universal P. Ltd., 502, Ghanshyam Chamber, B-12, New Link Road, Andheri (West), Mumbai - 400053 [PAN: AAJCA9423H] ……………… Appellant Vs Principal Commissioner of Income Tax-9, Room No. 214, 2nd Floor, Aaykar Bhavan, M.K. Road, Mumbai - 400020 …………….… Respondent Appearances For the Respondent/ Assessee : Shri Vijay Mehta For the Appellant/Department Shri Deepkant Prasad Date of conclusion of hearing : 14.02.2022 Date of pronouncement of order : 11.05.2022

O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant/Assessee has challenged the order, dated 23.03.2018, passed by the Ld. Principal Commissioner of Income Tax-9, Mumbai [hereinafter referred to as „the PCIT‟] under Section 263 of the Income Tax Act, 1961 [hereinafter referred to as „the Act‟] setting aside the Assessment Order, dated 29.03.2016, passed under section 143(3) of the Act.

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seeking condonation of delay of 191 days in filing the present appeal was rejected. However, the said order was recalled vide order dated 19.03.2020 passed in MA No. 621/M/2019. In paragraph 5 of the aforesaid order, the Tribunal noted as under:

“5. We have heard both the parties and perused the contents of miscellaneous application filed by the assessee, in light of the decision of the Tribunal, dated 29/11/2019 in ITA No.7115/Mum/2018 and we find that the Tribunal has dismissed appeal filed by the assesee by not condoning the delay of 191 days in filing the appeal for the reasons stated in its order dated 29/11/2019. On going through, the reasons given by the Tribunal for rejection of the claim of the assessee for condonation of delay and the pleadings taken by the assessee in its miscellaneous application, we find that although, the Tribunal has accepted the fact that delay in filing appeal was due to wrong advice of counsel, but proceeded to dismiss the appeal on the sole basis of finding that it is an afterthought of the assessee, after the Ld. AO has decided to make additions, in respect of issues questioned by the Ld.CIT(A), ignoring the pleading of the assessee, in light of affidavit of Shri Nilesh Y.Jagiwala, Chartered Accountant, who attended the proceedings u/s 263 of the Act, along with certain judicial precedents, including the decision of Hon‟ble Bombay High court. The said findings of the Tribunal constitute a mistake apparent on record, which can be rectified u/s 254(2) of the I.T.Act, 1961. Hence, we recalled the order of the Tribunal, dated 29/11/2019 in ITA No.7115/Mum/2018 for Asst.Year 2013-14 and direct the registry to refix the case for hearing in due course.” (Emphasis Supplied)

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from the Bench, the Ld. Departmental Representative submitted that as per records the order passed in MA No. 621/M/2019 has not been challenged. On perusal of paragraph 5, reproduced hereinabove, it is clear that the Tribunal had accepted that the delay in filing in appeal was on account of incorrect legal advice. The Authorised Representative of the Appellant has relied upon the Judgments of Hon‟ble Bombay High Court in the case of Procter & Gamble Hygiene & Healtycare Ltd Vs. CIT: Income Tax Appeal No. 1210 of 2017, and Vijay Vishin Megahani V. DCIT: 398 ITR 250. We note that in the aforesaid judgments, in similar circumstances, delay in filing the appeal has been condoned. The delay application is supported by an affidavit from the chartered accountant representing the Appellant at the relevant time who has, in paragraph 3 thereof, stated to have provided legal advice which was later found to be „inapt‟ leading to the filing of present appeal. In view of the aforesaid, we condone the delay and proceed to decide the appeal on merits.

“1. The order passed by the Ld. Pr. CIT u/s. 263 of the Income-tax Act, 1961 is illegal and bad in law.

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(i) share application money of INR 7,25,52,000/- received from Shri Amrit Rajani; and

(ii) share application money of INR 8,51,17,856/-. received from M/s. Whiz Enterprises Pvt. Ltd.

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“6. During the year under consideration, the assessee company has not carried out any business activity. After considering the submission of the assessee, the total income of the assessee is computed as under:

Income from Business (As per Nil computation) Income from Other sources Rs. 6,98,890/- Total Income Rs. 6,98,890/-

(a) Issue No.1 - In the return of income interest amounting to INR 14,22,847/- paid to shareholders on share application money received from them pending allotment was claimed as deduction under Section 57 of the Act. PCIT was of the view that the Assessing Officer had allowed the aforesaid deduction even though no income from other sources was declared and the interest income was shown as business income in the Profit & Loss Account,

(b) Issue No. 2&3 : A sum of INR 7,25,52,000/- and INR 8,81,17,856/- was invested by Mr. Amit Rajani and Whiz Enterprises Pvt. Ltd, respectively, in the assessee-company as share application money. According to the PCIT the Assessing Officer had failed to carry over necessary reconciliation/verification. The amendment made to Section 68 by the Finance Act, 2012 which was

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applicable from Assessment Year 2013-14, was ignored by the Assessing Officer as he had failed to verify the genuineness of the source of source of this application money.

Issue No.1 “2.3 On verification of assessment records, it is seen that a sum of Rs.10,21,01,857/- was introduced as share application money pending allotment in AY 2012-13 and Rs.5,55,67,999/- was introduced as share application money pending allotment in A.Y 2013-14. A perusal of Balance sheet of the assessee company for the year under consideration reveals that the assessee company has advanced a sum of Rs.11,50,23,948/- on which no interest has been charged. The assessee company has received „Interest on Bank Deposit‟ of Rs.21,20,974/- and the same is shown as Interest income. under the head „Other Income‟. Thus, the entire interest payment of Rs.14,22,847/- against the Bank interest is not allowable u/s 57 of the I.T. Act as the nexus between the expenses expended and the earning of interest income wholly and exclusively for the purpose of making of earning income

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from other sources is not established. Thus the claim of deduction has been allowed without investigating the matter or verifying the allowability of such claim. Therefore, the assessment order passed u/s 143(3) allowing the claim of deduction u/s 57 with regard to interest expenditure against the income from other sources is erroneous and prejudicial to the interest of the Revenue within the meaning of section 263 and therefore need to be set aside on this issue.”

Issue No.2 “3.2 I have carefully considered the assessment order, submission made: by the AR of the assessee as noted above as well as the case records maintained by the Assessing Officer for this purpose. A perusal of records reveal that the assessee company has received Rs.7,25,52,000/- as share application money from Shri Amrit Rajani. On perusal of the Balance sheet of Laxmi Business Centre, proprietorship of Shri Amrit Rajani it is seen that he has introduced a capital of Rs.3,20,23,407/- and also shown secured loan from bank amounting to Rs.4,20,77,104/-. However, the share application money reflected in his books under the head „Loans and Advances‟ is only Rs.3,06,24,932/-. Further, he has invested in immovable properties and shares amounting to Rs.5,32,27,669/- and Rs.2,40,002/- respectively. Thus apparently there is a mismatch between the figures of share application money shown to have been received by the assessee company from Shri Amrit Rajani and that is reflected in his books. The A.O. has failed to verify the details by calling for the bank loan application, loan utilization certificate and reconcile the same.”

Issue No.3 “3.3 Similarly, a sum of Rs. 8,51,17,856/- has been invested by M/s Whiz Enterprises Pvt. Ltd. in the assessee

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company as share application money. On going through the financial statements of M/s Whiz Enterprises Pvt. Ltd. it is noticed that the said company has declared income of only Rs. 77,93,978/- in A.Y. 2013-14 and had a Authorized capital of meager Rs. 1,00,000/-. Analysis of the Bank statements of M/s Whiz Enterprises Pvt. Ltd. shows immediate deposits before transfer of funds to the assessee company but does not throw any light on the source of funds of the subscriber company. For instance, on 27.07.2012 there is a credit of Rs. 3,600,000/- in the account of M/s Whiz Enterprise Pvt. Ltd. and on the very same day an amount of Rs. 3,600,000/- has been transferred to M/s Anika Universal Pvt. Ltd. and it had been a regular practice that whenever there is transfer to M/s Anika Universal P. Ltd. there is immediate credit before the said transaction. Thus the AO has failed to verify the source of money introduced by M/s Whiz Enterprises Pvt. Ltd. in the light of amendment to Section 68 of the I.T. Act wherein the source of sources of funds provided by a person is to be verified when the assessee has received credit.”

Conclusion & Directions “4. In view of the above Judgments relied upon and In the light of the amendment to section 68 of the Act, which Inserted the proviso by which the explanation offered by the assessee company shall be deemed to be non satisfactory unless the person, being a resident in whose name such credit is recorded In the books of account also offers and explanation about the nature and the source of such sum, as the source of sources of fund received by the assessee was not verified during the assessment proceedings, the assessment order is held to erroneous and prejudicial to the interest of the Revenue within the meaning of section 263 of the Income Tax Act.”

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8,51,17,856/- was closing balance of the share application money account pertaining to AMR and WEPL, respectively. Further, while concluding that the that the AO has failed to verify the pertaining share application money received from AMR, the PCIT has incorrectly relied upon the figures of INR 3,06,24,932/-, being share application money as reflected Schedule H-Loans And Advances forming part of annual accounts of Lakshmi Business Centre, Sole Proprietorship firm of AMR. Referring to the Letter, dated 01.03.2016, filed during the assessment proceedings, Ld. Authorized Representative submitted that the share application money was received during the relevant previous year from AMR and WEPL, existing shareholders of the Appellant- company, for the bona fides business purpose of building a manufacturing facility. He submitted that during the assessment proceedings the Appellant had filed share application money ledger and share application forms pertaining to share application money received from AMR & WEPL, acknowledgement of income tax return along with the computation of total income for assessment year 2013- 14 of AMR & WEPL, and the annual accounts for WEPL & Laxmi Business Centre, proprietorship firm of AMR. Further, vide letter dated 25.02.2016, the Appellant had also filed the relevant extracts of bank statements of WEPL. On the basis of the aforesaid, the Ld. Authorised Representative submitted that the Appellant had discharged the onus cast upon the Appellant under Section 68 of the Act to the satisfaction of the AO who had carried out necessary inquiry and verification during the assessment proceedings before accepting the submission/claims of the Appellant.

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therefore, the Assessment Order, dated 29.03.2016, was clearly erroneous and prejudicial to the interest of revenue in terms of Section 263 of the Act. He further submitted that in Paragraph 3.3 the PCIT has noted the fact that as per relevant extracts of the bank statement of WEPL filed by the Appellant, there were deposits/fund transfers immediate before transfer of funds to the Appellant. However, the AO had failed to raise any queries regarding the source of these deposits/fund transfers. Similarly, no verification has been done in respect of source of funds paid by ARM to the Appellant as share application money. Further, as regards interest expenditure of INR 14,22,847/- claimed under Section 57, no submissions were filed before PCIT in response to the show-cause notice. Thus, PCIT was justified in invoking powers of revision under Section 263 of the act to set aside such Assessment Order.

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12.1. Issue No.1 pertains to the claim of deduction for interest expenditure of INR 14,22,847/- made by the Appellant and allowed by the AO under Section 57 of the Act. On perusal of records it is clear that sufficient inquiry/verification was conducted by the AO during the assessment proceedings. Specific query in relation to claim of deduction were raised in the notice, dated 28.01.2016, issued under Section 142(1) of the Act. The AO had asked for justification of claim for deduction under Section 57 of the Act, details/break-up of interest accrued amounting to INR 12,79,876/- along with names & address of parties, details/break-up of finance cost as well as nexus between other income of INR 21,20,974/- & finance cost of INR 79,90,682 (which included expenditure of INR 14,22,847/- claimed as deduction under Section 57 of the Act). The Appellant had, in para b), j), & m) of the letter, dated 19.02.2016, as well as vide letter, dated 01.03.2016, furnished the information and explanation/justification for claim of deduction under Section 57 of the Act. The conclusion drawn by the PCIT that “the claim of deduction has been allowed without investigating the matter or verifying the allowability of such claim” is contrary to material on record. Further, in letter dated 28.02.2016, the Appellant had submitted that the borrowed funds were kept in fixed deposits and the interest income earned was used for paying interest cost on borrowed funds, thus, explaining the nexus. The submission of the Appellant have been reproduced by the PCIT in para 3.1 of the impugned order under heading „Written Submission‟ However, the PCIT failed to consider the same and returned incorrect finding that no submission were made by the Appellant. In view of the aforesaid, we set aside the order of PCIT on issue no.1.

1.2. Issue No. 2 pertains to the share application money received form AMR. The Ld. Authorized Representative rightly pointed out that only INR 2,99,04,000/- had been received from AMR during the relevant previous year as share application money. Further, the PCIT had also

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incorrectly, taken INR 3,06,24,932/- as the amount of share application money reflected in the books of accounts of AMR whereas the aforesaid figure represented the figure of share application money as reflected in the books of accounts of Lakshmi Business Centre, a proprietorship firm of AMR under Schedule H – Loans and Advances (at page 94 of paper-book) which had remained same as compared to immediately preceding assessment year. Thus, in our view, the PCIT moved upon incorrect understanding of facts. Further, perusal of record shows that the Appellant had, during the assessment proceedings, vide letter dated 19.02.2016 as well as before PCIT, vide letter dated 27.02.2018, provided explanation about the source of funds being his capital of INR 3,02,33,407/- and secured loans from bank amounting to INR 4,20,77,104/- as reflected in Balance Sheet of Lakshmi Business Centre, proprietorship firm of AMR (at page 90 of paper-book). Further, as per the computation of income for the Assessment Year 2013-14, AMR had net taxable income of INR 42,12,652/-. The aforesaid information and supporting documents were filed during the assessment proceedings. The PCIT had, relying upon incorrect facts, proceeded to conclude that the AO had failed to carry out necessary reconciliation of bank loan with its utilization. Accordingly, in view of the aforesaid, we set aside the decision of the PCIT on this issue.

12.3. Issue No. 3 pertains to share application money of INR 2,56,64,000/- received by the Appellant from WEPL. We note that the reply, dated 27.02.2018, filed in response to the show-cause notice, dated 19.02.2018, issued by PCIT provides no explanation about the source of funds used by WEPL to make payment towards share application money of INR 2,56,64,000/- to the Appellant. The Learned Authorised Representative of the Appellant vehemently argued that the Appellant had filed relevant extracts of the bank statements of WEPL during the assessment proceedings and therefore, had complied with

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requirements of the amended Section 68 of the Act. We find that on the examining of the bank statements submitted by the Appellant, the PCIT had pointed out that there were deposits/fund transfers immediately prior to transfer of funds to the Appellant as share application money and referred to one such instance of fund transfer from of INR 36,00,000/- credited to the account of the Appellant on 27.07.2012 in paragraph 3.3 of the impugned order. Perusal of the bank statements shows that the observations of PCIT are factually correct as there were deposit/fund transfers (including fund transfers from Anika Universal Pvt. Ltd.) credited to the bank account of the Appellant. In our view, in absence of an explanation, merely by going through the narration given in the bank statement one cannot form an opinion about the nature or source of funds received in terms of the proviso to Section 68 of the Act inserted by the Finance Act, 2012, with effect from 1.04.2013, which reads as under: "68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year: Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless – The person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and Such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory” (Emphasis Supplied)

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12.4. In the present case, we are of the view, that the AO was duty bound to carry out necessary verification in terms of proviso to Section 68 of the Act and more so, for the reason that the case was selected for scrutiny under CASS, inter alia, for large share application money received against un-allotted shares as noted by the AO in paragraph 1 of the Assessment Order. Further, at the relevant time AMR held 46% shareholding of the Appellant, whereas balance 54% shareholding was held by WEPL. As per annual accounts of WEPL filed by the Appellant, AMR was also one of the directors of WEPL. Therefore, the Appellant was in a position to gather information and provide explanation about the nature and source of funds used by WEPL for making payment towards share application money. We are of the view that neither the assessment order nor the material on record supports the contentions of the Appellant the AO had carried out necessary inquiries and verification during the assessment proceedings, and therefore, the provisions of Explanation 2(a) to Section 263 are attracted. The decision of Tribunal in the case of Sir Dorabji Tata Trust Vs DCIT (ITA No. 3909/Mum/2019) on which reliance has been placed by the Authorised Representative of the Appellant, therefore, does not advance the case of the Appellant as the case of the Appellant falls in the category of „third possibility‟ as explained in Paragraph 22 of the said decision of the Tribunal, the relevant extract of which reads as under:

“22. Having said that, we may also add that while in a situation in which the necessary inquiries are not conducted or necessary verifications are not done, Commissioner may indeed have the powers to invoke his powers under section 263 but that it does not necessarily follow that in all such cases the matters can be remitted back to the assessment stage for such inquiries and verifications. There can be three mutually exclusive situations with regard to exercise of powers under section 263, read with Explanation 2(a) thereto, with respect to lack of proper

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inquiries and verifications. The first situation could be this. Even if necessary inquiries and verifications are not made, the Commissioner can, based on the material before him, in certain cases straight away come to a conclusion that an addition to income, or disallowance from expenditure or some other adverse inference, is warranted. In such a situation, there will be no point in sending the matter back to the Assessing Officer for fresh inquiries or verification because an adverse inference against the assessee can be legitimately drawn, based on material on record, by the Commissioner. In exercise of his powers under section 263, the Commissioner may as well direct the Assessing Officer that related addition to income or disallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the Commissioner finds that necessary inquiries are not made or verifications not done, but, based on material on record and in his considered view, even if the necessary inquiries were made or necessary verifications were done, no addition to income or disallowance of expenditure or any other adverse action would have been warranted. Clearly, in such cases, no prejudice is caused to the legitimate interests of the revenue. No interference will be, as such, justified in such a situation. That leaves us with the third possibility, and that is when the Commissioner is satisfied that the necessary inquiries are not made and necessary verifications are not done, and that, in the absence of this exercise by the Assessing Officer, a conclusive finding is not possible one way or the other. That is perhaps the situation in which, in our humble understanding, the Commissioner, in the exercise of his powers under section 263, can set aside an order, for lack of proper inquiry or verification, and ask the Assessing Officer to conduct such inquiries or verifications afresh.” (Emphasis Supplied) Since this is not a case where no enquiry has been conducted by the PCIT, the judgment of Hon‟ble Delhi High Court in the case of DCIT Vs. Delhi Airport Metro Express Pvt. Ltd. in ITA No. 705/2017 would also not be of any aid to the Appellant. Accordingly, we confirm the order of PCIT on this issue.

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In the result, the present appeal is partly allowed.

Order pronounced on 11.05.2022.

Sd/- Sd/- (Pramod Kumar) (Rahul Chaudhary) Vice President Judicial Member

म ुंबई Mumbai; दिन ुंक Dated : 11/05/2022 Alindra, PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.

आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदिकरण, म ुंबई / ITAT, Mumbai