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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI AMARJIT SINGH
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 07.03.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.
The assessee has raised the following grounds of appeal: “1. The learned CIT (A) has erred in law and on facts in upholding the additions made by the Assessing Officer u/s. 143(3) r.w.s. 153C of the Income-tax Act, 1961 which is invalid and bad in law.
2. The learned CIT(A) has erred in upholding the addition of Rs.65,00,000/- made by the Assessing Officer u/s.68 of the Act.
3. The learned CIT(A) has erred in upholding the addition of Rs.48,750/- made by the Assessing Officer, being alleged unexplained expenditure @ 0.75% on aforesaid alleged capital introduced of Rs.65,00,000/-.
2 M/s. Swati Capital Pvt. Ltd. 4. The learned CIT(A) has erred in law and on facts in upholding the disallowance made by the Assessing Officer u/s. 14A of the Act read with Rule 8D of IT. Rules, 1962. 5. The order passed by the learned CIT(A) is in violation of principles of natural Justice and bad in law. 6. The appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal.”
3. The jurisdictional issue raised in ground No.1 is not pressed at the time of hearing. Therefore, the same is dismissed as not being pressed.
4. The issue raised in ground No.2 is against the confirmation of addition of Rs. 65 lakhs by Ld. CIT(A) as made by the AO under section 68 of the Act.
5. At the outset, the Ld. Counsel of the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of the co-ordinate bench of the Tribunal in assessee’s sister concern case in A.Y. 2010-11 M/s. Acqua Proof Wall Plast Pvt. Ltd. vs. DCIT vide order dated 29.08.2019 the Ld. A.R. therefore submitted that the above ground may kindly be allowed in favour of the assessee following the said decision of the co-ordinate bench of the Tribunal.
The Ld. D.R., on the other hand, relied on the order of authorities below by submitting that the addition made in this case is under section 68 of the Act on account of unexplained cash credits in respect of share capital raised by the assessee which could not proved during the course of assessment as well as appellate proceedings. The Ld. D.R., therefore, prayed that the ground may please be dismissed.
The facts in brief are that the assessee has raised capital from two parties namely Sampada Chemical Ltd. Rs.14 lakhs and Fair Ground Venture Pvt. Ltd. Rs.65 Lakhs. In this case, we find that the assessee filed before the AO the details of share application money receipt with the name, address and PAN number of the shareholders and the number of shares allotted to them etc. The assessee has also filed the ROC returns, certificate of incorporation, memorandum of article of association and their ITRs, financial statements and bank statements evidencing the payments made to the assessee company through banking channels.
The Ld. CIT(A) dismissed the appeal of the assessee by holding that the menace of shell companies and hawala operators can not be ignored and this may be sophisticated and well organized way to evade the taxes.
We have heard the rival submissions of both the parties and perused the order of co-ordinate bench of the Tribunal in assessee’s sister concern case M/s. Acqua Proof Wall Plast Pvt. Ltd. vs. DCIT vide order dated 29.08.2019 in A.Y. 2010-11 & ors and find that similar issue has been decided in favour of the assessee under same set of facts. The operative part is reproduced as under: “18. In this view of the matter and considering the facts and circumstances of this case and also taking into consideration various case laws as discussed hereinabove, we are of the considered view that the assessee has discharged its initial onus to prove identity, genuineness of transactions and creditworthiness of the parties by filing various documents. The AO, without carrying out further inquiries in order to ascertain the claim of the assesses, jumped into conclusion on the basis of financial statements of the subscribers that none of them had enough source of income to establish creditworthiness. Therefore, we are of the view that the AO was erred in making additions towards share capita! u/s 68 of the Income Tax Act, 4 M/s. Swati Capital Pvt. Ltd. 1961. The learned CIT(A) without appreciating relevant facts has confirmed additions made by the AO towards share capital u/s 68 of the Income Tax Act, 1961. Hence, we reverse findings of Ld. CIT(A) and direct the AO to delete the additions made towards share capital u/s. 68 of the Income Tax Act, 1961.”
Since the facts of the present case before us is similar to one as decided by the co-ordinate bench of the Tribunal, we are inclined to set aside the finding of the Ld. CIT(A) on this issue and direct the AO to delete the addition. The ground no. 2 is allowed.
The issue raised in ground No.3 is in respect of confirmation of Rs.48,750/- by Ld. CIT(A) as made by the AO towards unexplained expenditure which is calculated at the rate of 0.75% of the alleged share capital of Rs.65 lakhs.
We find that the issue raised in this ground is consequential to one which has been decided by us in ground No.2. We have already deleted the addition made by the AO towards share capital in ground No.2 (supra). Therefore, consequent addition made towards commission @ 0.75% is also deleted. This issue is also covered by the above decision of the co-ordinate bench of the Tribunal vide para No.19. Accordingly, we are inclined to direct the AO to delete the addition of Rs.48,750/-. Ground no. 3 is allowed.
The issue raised in ground No.4 is against the confirmation of disallowance of Rs.67,591/- by Ld. CIT(A) as made by the AO under section 14A read with rule 8D of the Income Tax Rules, 1962.
At the outset, the Ld. Counsel of the assessee submitted that the issue is squarely covered by the above decision of the 5 M/s. Swati Capital Pvt. Ltd. co-ordinate bench of the Tribunal vide para No.20 wherein it has been held that no addition towards the disallowance under section 14A can not be made without any incriminating material as the assessment was framed under section 143(3) red with section 153C of the Act. The Ld. Counsel submitted that since in the present case the assessment is framed under section 153C read with section 143(3) of the Act therefore, there has to be some incriminating material which has to be found during the course of search and only then the addition could be made to the income of the assessee under section 14A read with rule 8D. The Ld. A.R. therefore, requested that the said addition may kindly be deleted.
The Ld. D.R., on the other hand, relied on the order of authorities below.
After hearing both the parties and perusing the material on record and co-ordinate bench of the Tribunal in A.Y. 2010-11 & ors., we find that the identical issue came up before the Bench and the Bench has decided the same in favour of the assessee by holding as under: “20. The next issue that came up for our consideration from ground No.4 of assessee’s appeal is additions towards disallowances of expenditure incurred in relation to exempt income. We find that the AO has made additions towards disallowances of expenditure in the assessment framed u/s 143(3) r.w.s. 153A of the IT. Act, 1961, without reference to any incriminating material found as a result of search. It is settled position of law that in order to make any additions in the assessments, which are framed u/s 153A, the additions qua incriminating material is a must. Unless/the AO has incriminating material in his possession to prove that any item of addition is supported by incriminating material found, as a result of search, no additions could be made in the assessments framed u/s 153A, if such assessment has been completed /unabated as on the date of search. In this case, the facts with regard to no reference to incriminating material, in respect of additions towards disallowances of expenditure u/s 14A r.w.Rule 8D is not disputed by the revenues When, the bench has specifically asked the Ld. DR about incriminating, material, the Ld. DR failed to prove that the additions made by the 6 M/s. Swati Capital Pvt. Ltd. AO towards disallowances of expenditure is supported by any incriminating material. Therefore, we are of the considered view that in absence of any incriminating material found as a result of search, no additions could be made in the assessment framed u/s 153A of the I.T. Act, 1961. This legal proposition is supported by the decision of Hon'ble jurisdictions! Bombay High Court in the case of CIT vs Continental warehousing corporation (Nhava Sheva Ltd. (2015) 374 ITR 645, where the Hon'ble High Court clearly held that in absence of incriminating material no additions could be made, in respect of assessment which become final and no proceedings is pending, as on the date of search. Therefore, we are of the considered view that the AO was erred in making additions towards disallowances of expenditure, in relation to exempt income u/s 14A r.w.Rule 8D(2), in absence of seized materials. The Ld. CIT(A) without appreciating the facts simply upheld the additions made by AO. Therefore, we reverse the findings of Ld.CIT(A) and delete additions made by the AO towards disallowance of expenditure incurred in relation to exempt income u/s 14A of the I.T. Act, 1961.”
Since the facts in the present case are similar, we are therefore inclined to set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the disallowance made under section 14A. Consequently ground no. 4 is allowed.
The other grounds are general in nature and need no adjudication.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 13.01.2021.