DCIT 1(2)-2, MUMBAI vs. MANAGING EMISSION P.LTD, MUMBAI

The revenue has raised the following grounds of appeal:- 1. "Whether on the facts and in the circumstances of the case and in Law, the CIT(A) erred in allowing the disallowance of Rs. 1,92,86,737/- debited to the profit and loss account for the year and claimed by the assessee as revenue expenditure, without appreciating the Assessing Officer's findings that the business of the assessee was not yet set-up in the year in reference, further, provisions of section 35D specify that any expenditure before the commencement of the business must be amortized and there is nothing shown by the assessee that the business has commenced, therefore, the Assessing Officer disallowed the expenditure accordingly." 2. "Whether on facts and in the circumstances of the case and in Law, the Ld.CIT(A) erred in deleting the addition of Rs. 1,30,21,000/- in respect of money received from Foram Dattani Kapoor, without appreciating the fact that assessee had not filed signed confirmation from the share applicant during the scrutiny proceedings and the assessee failed to discharge its onus to establish the genuineness of the identity of the parties and the creditworthiness of the parties from whom the assessee received money. "

The first issue that came up for our consideration from ground No.1 of revenue appeal is disallowance of expenditure debited into profit and loss account amounting to Rs.1,92,86,737/-. The Ld. DR for the revenue submitted that the Ld.CIT(A) has erred in deleting additions made by the Ld. AO towards disallowances of expenses, without appreciating the fact that although, the business of the assesee has been set-up for the year under consideration, but the business has not been commenced, which is evident from the fact that there is no revenue from business operations and consequently, expenditure incurred under the head income from business cannot be allowed as deduction. The Ld. DR, further submitted that as per provisions of section 35D of the I.T.Act, 1961, any expenditure

The Ld. AR for the assesee, on the other hand strongly supporting order of the Ld.CIT(A) submitted that the assessee has commenced its business activities, which is evident from the fact that it has set-up its plant and machinery for production of finished goods and has also, purchased raw material, which is evident from the fact that during the year under consideration, it has shown raw material consumption of Rs.14,09,071/- and also, incurred various manufacturing and other administrative expenses. The Ld. AR for the assessee, further submitted that the assessee has already commenced its business activities and has started manufacturing its specialized machinery, which is used in reduction of emission. The assesee has also, installed its machinery in clients place and earned revenue from its business, for which necessary evidences, including agreement between the parties and bills raised to the customers has been filed before the Ld. AO. The Ld.CIT(A) after considering relevant facts has rightly deleted additions made by the Ld. AO and his findings should be upheld.

We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The term business set-up and commencement of business are two

The next issue that came up for our consideration from ground No. 2 of revenue appeal and ground No.1 of cross objection filed by the assesse is addition of Rs.1,47,75,000/- towards share application money received from Shri Foram Dattani Kapoor and from Global Emission Management Pvt.Ltd. The facts with regard to the impugned disputes are that the assessee has received share application money of Rs.1,30,21,000/- from Shri Foram Dattani Kapoor and a further sum of Rs.17,54,000/- from Global Emission Management Pvt.Ltd. During the course of assessment proceedings, the Ld. AO called upon the assessee to file necessary evidences,

The Ld. DR, submitted that the Ld.CIT(A) has erred in deleting the addition of Rs.1,30,21,000/-, in respect of share application money received from Shri Foram Dattani Kapoor, without appreciating the fact that the assesee had not filed signed confirmation letter from the share applicant during the assessment proceedings and has also, failed to discharge its onus to establish genuineness of the transactions and the identity of the parties.

The Ld. AR for the assesee, on the other hand submitted that the assesee has discharged its onus by filing enormous documents, including name and address of the creditors, their PAN number, bank statements and other relevant details to prove the identity and genuineness of transactions and creditworthiness of the parties. The Ld. AR, further submitted that although, the Ld.CIT(A) has accepted the transactions between the assesee and Shri Foram Dattani Kapoor is genuine, but failed to appreciate the other transactions with Global Emission Management Pvt.Ltd. even though, the assesee has filed various details, including signed confirmation from the creditor.

We have heard both the parties, perused the material available on record and gone through orders of the authorities below. It is an admitted fact that the share application money has been received from closely held companies and related parties of the assesee. It is also, not in dispute that one of the creditor Shri Foram Dattani Kapoor has responded to notice issued u/s 133(6) of the I.T.Act, 1961 and filed all evidences called for by the Ld. AO, including confirmation letter for having paid share application money to the assessee along with bank statements, financial statements for the year and income tax return filed acknowledgment. Insofar as, Global Emission Management Pvt.Ltd, although notice issued u/s 133(6) was returned unserved, but fact remains that the assesse has subsequently filed signed confirmation letter from the party along with financial statements, bank statements and, ITR filed for the relevant year. These are undisputed facts. The Ld.CIT(A) has accepted the claim of the assesee, insofar as share application money received from Mr.Foram Dattani Kapoor, where he had Co.No.110/Mum/2018 Managing Emission P.Ltd. recorded categorical finding that the assesse has proved, the ingredients provided u/s 68 of the I.T.Act, 1961 and consequently, the additions towards amount received from said party is unjustified. The revenue fails to bring on record any evidences to prove that the findings of fact recorded by the Ld.CIT(A) is incorrect. Rather, the Ld. DR has relied upon plethora of judicial precedents, which are not at all applicable to the facts of present case. On the other hand, the assesee has filed complete set of documents, including confirmation letter obtained from the creditor, as per which the creditor has issued a signed confirmation letter along with name and address and PAN number. The assessee has also filed bank statements of the creditors to prove movement of funds through proper banking channels. The assessee has also filed financial statement of the creditors and income tax return acknowledgment which proves the capacity of the creditors to explain source of income for share application money paid to the assessee. Therefore, we are of the considered view that the Ld.CIT(A) was right in deleting additions made by the Ld. AO towards share application money received from Shri Foram Dattani Kapoor. Insofar as, share application money received from Global Emission Management Pvt.Ltd, the assessee has filed necessary evidences, including signed confirmation from the creditor, bank statements, and financial statements for the relevant period and income tax return acknowledgment copy. From the above records, it is very clear that the assesee has received share application money through proper banking channels. The creditor has filed its financial statements and ITR acknowledgment, which clearly suggest that the creditor has enough source of income to explain the capacity to advance share application money. The other facts brought out by the Ld. AO, as well as the Ld.CIT(A)

In the result, appeal filed by the revenue is dismissed and cross objection filed by the assessee is allowed.