BLUESUN EXPORTS PVT LTD,ANDHERI(W) vs. ITO CIRCLE-9(2)(1), MUMBAI

PER B.R. BASKARAN, ACCOUNTANT MEMBER :

The assessee has filed this appeal challenging the order dated 20-07-
2023 passed by Ld CIT(A), NFAC, Delhi and it relates to the assessment year
2009-10. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the validity of reopening of assessment and also confirming the additions made by the AO.
2. The assessee company is engaged in trading and distribution business. The return of income filed by the assessee was processed u/s 143(1) of the Act. Subsequently, the AO received information from the investigation wing that they have conducted search in Pravin Kumar Jain group of cases and found out that they were providing only accommodation entries, inter alia, in the form of giving share application money. The investigation wing also reported that the assessee is one of the beneficiaries

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of the accommodation entries. Accordingly, the AO reopened the assessment of the year under consideration by issuing notice u/s 147 of the Act.
3. The AO noticed that the assessee has received share application money of Rs.25.00 lakhs each from three of group companies of Mr Pravin
Kumar Jain, viz., M/s Alka Diamond Ind Ltd; M/s Ansh Merchandise P Ltd and M/s Triangular Infocom Ltd, aggregating to Rs.75.00 lakhs. Hence the AO made enquiries about the share application money received from the above said three companies. In response thereto, the assessee filed
Valuation certificate of shares, which had valued the shares at Rs.125/- per share. The assessee had issued 20,000 shares to each of these three companies and accordingly, it submitted that it had collected share application money of Rs.25.00 lakhs each from these three companies. The AO found fault with the method of valuation. Further, he placed his reliance fully on the report of the Investigation wing and also the statement recorded from Shri Pravin Kumar Jain and other officials of the group. According to Ld A.R, the assessee furnished all the documents to prove the share application money in terms of sec.68 of the Act. However, the AO took the view that the genuineness of transaction is questionable, in view of the report given by the Investigation wing. Accordingly, the AO assessed the share application money of Rs.75.00 lakhs received from the above said three companies as unexplained cash credit u/s 68 of the Act.
4. The AO also took the view that the assessee would have paid commission @ 2% on getting the above said share application money.
Accordingly, he assessed a sum of Rs.1,50,000/- as unexplained expenditure u/s 69C of the Act.
5. The assessee had incurred business promotion expenses of Rs.2,86,875/- and it related to a hotel bill towards food bill. Since the assessee did not declare any income during the year, the AO disallowed the above said expenses claimed by the assessee.
6. Before Ld CIT(A), the assessee challenged the validity of reopening of assessment and also the various additions made by the AO. However, the Ld

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CIT(A) dismissed the appeal of the assessee and hence the assessee has filed this appeal.
7. We heard the parties and perused the record. The first issue relates to the addition of share application money of Rs.75.00 lakhs made u/s 68 of the Act. Under the provisions of sec.68 of the Act, it is the primary responsibility of the assessee to prove the cash credits in terms of sec. 68 of the Act, i.e., it has to prove three main ingredients, viz., identity of the creditor, the credit worthiness of the creditor and the genuineness of the transactions. If the assessee discharges the initial onus placed upon it, then the burden to disprove those documents would shift to the AO. If the assessing officer could not disprove the documents by any other credible material, then the AO cannot make addition u/s 68 of the Act. Accordingly, we shall examine as to whether the assessee has discharged the primary onus placed upon it.
8. We notice that the assessee has furnished following documents to prove the three main ingredients for each of the three share applicants:-

(a) Copy of PAN Card.

(b) Copy of Income tax return

(c) Copy of financial statements,

(d) Copy of bank statements of the share applicants.

(e) Copy of returns filed with ROC for allotment of shares.
The share application money has been received through banking channels and the investments made by these three companies are duly reflected in their Balance Sheet. Thus, we notice that the assessee has discharged the onus of proving three main ingredients, viz., the identity of the creditor, the credit worthiness of the creditor and genuineness of the transactions. When the assessee has discharged his burden, then the AO is not justified in adding the cash credit u/s 68 of the Act, as held by Hon’ble juri ictional

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11. Accordingly, in view of the foregoing discussions, we are of the view that the tax authorities are not justified in assessing the share application money of Rs.75.00 lakhs as unexplained cash credit u/s 68 of the Act.
Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the above said addition.
12. Since we have upheld the genuineness of the share application money received by the assessee, the AO was not justified in assessing the alleged commission expenses of Rs.1.50 lakhs. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this addition.
13. The next issue relates to the disallowance of business promotion expenses of Rs.2,86,875/-. Even though the assessee furnished copy of bill for incurring the above said expenditure, the AO disallowed this expenditure

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M/s. Bluesun Exports Pvt. Ltd.
mainly for the reason that the assessee did not carry on any business activity. The Ld CIT(A) further observed that the hotel bill does not mention the purpose of expenditure as “Investor Meet”.
14. We heard the parties on this issue and perused the record. The settled proposition of law that any expenditure incurred after setting up of business is allowable as business expenditure, even if no revenue is generated. We notice that it is not the case of the tax authorities that the business of the assessee was not set up. In the absence of such a finding, in our view, the disallowance of entire hotel expenses is not justified, when the assessee has stated that it has been incurred towards investor meet. We notice that the AO has not disproved this submission of the assessee. Accordingly, we are of the view that the above said claim of the assessee cannot be disallowed under the law. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this disallowance.
15. The next issue urged by the assessee relates to the rejection of claim of carry forward loss. We notice that the Ld CIT(A) has confirmed the disallowance on the reasoning that the return of income of earlier year was not filed in time. Before us, the assessee could not disprove this observation of Ld CIT(A). Accordingly, we confirm the decision of Ld CIT(A) rendered on this issue.
16. The assessee has also challenged the validity of reopening of assessment. Since we have granted relief on merits, we leave this legal issue open.
17. In the result, the appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 16th January, 2025. (RAJ KUMAR CHAUHAN)
JUDICIAL MEMBER
Mumbai, Date : 16th January, 2025

*SSL*

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M/s. Bluesun Exports Pvt. Ltd.

Copy to :

1)
The Applicant
2)
The Respondent
3)
The CIT concerned
4)
The D.R, “B” Bench, Mumbai
5)
Guard file

By Order

Dy./Asstt.