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Income Tax Appellate Tribunal, DELHI BENCH “G” NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI B.R.R. KUMAR
O R D E R PER AMIT SHUKLA, JM:
The aforesaid appeal has been filed by the assessee against the impugned order dated 28.02.2017, passed by Ld. Commissioner of Income Tax (Appeals)-XXXII, New Delhi for the quantum of assessment passed u/s.143(3) for the Assessment Year 2012-13. In the grounds of appeal
, the assessee has raised the following grounds: “1. That the order passed by Ld. CIT (A) is bad both in eyes of law and on facts.
2. That the Ld. CIT(A) has erred in law as well as on facts by upholding the addition of Rs.75,00,000/- u/s. 68 of I.T.Act,1961by treating the unsecured loans as unexplained.
3. That the Ld CIT(A) has erred in law as well as on facts by upholding the addition of Rs. 21,04,667/- u/s. 40(a)(ia) of the I.T.Act,1961.
4. That the Ld CIT(A) has erred in law as well as on facts by upholding the addition of Rs. 24,44,658/- u/s 14A of the I.T. Act,1961 5. That the Ld CIT(A) has erred in law as well as on facts by upholding the notional addition of Rs. 1,05,000/- on account of dividend from investment in a private unlisted company. 6. That the Ld. CIT(A) has erred in law as well as on facts by not adjudicating on the matter involving the addition of Rs.63,787/-on account of disallowance of expenses. 7. That the Ld. AO has erred in law as well as on facts by imposing penalty u/s 271(l)(c) of the IT Act,1961. 8. As the above additions are bad in facts and law are baseless, hence the interest charged u/s 234A,234B, 234C and 234D may also be deleted.”
2. At the outset, ground no. 5 has not been pressed. Accordingly, the same is dismissed as not pressed.
3. Ground No.1, 7 and 9 are general in nature and ground no.8 is consequential, therefore, no separate adjudication is required.
4. The brief facts qua the issue of addition of Rs.75 lacs made u/s.68 are that Assessing Officer noted that assessee had shown credit of unsecured loan amounting to Rs.75 lacs from M/s. High Ground Enterprises, Mumbai. Ld. Assessing Officer observed that the assessee was required to furnish various details, which assessee failed to furnish any information to prove the genuineness. Further, from the perusal of the bank statement furnished by the assessee, he noted that there are no credits amount of Rs.75 lacs. The assessee before the AO in order to prove the nature of transaction filed a copy of legal complaint filed by the party, M/s. High Ground Enterprises against M/s. Rama Krishna Electro Components Pvt. Ltd. in Tis Hazari Court of Delhi, wherein this amount was mentioned as due from the complainant to prove the genuineness of the loan of Rs.75 lac. However, the Assessing Officer was of the view that complaint has been filed against M/s. Ram Krishna Electro Component Pvt. Ltd. and assessee’s name does not appear in the complaint filed, and therefore, money received by the assessee remain unexplained. Accordingly, the same was added.
5. Ld. CIT(A) has confirmed the said addition on the ground that assessee has not filed any written submission.
6. Before us, ld. counsel for the assessee submitted that the entire issue has not been properly appreciated by the Assessing Officer or ld. CIT(A). The fact of the matter is that M/s. Ram Krishna Electro Component Pvt. Ltd. is a sister concern of the assessee and the partner of assessee firm, Mr. Satish Kumar Luthra, was also a Director in M/s. Ram Krishna Electro Component Pvt. Ltd. The company Ram Krishna Electro Component Pvt. Ltd. had filed a case against M/s. High Ground Enterprises Ltd. before the Hon’ble Delhi High Court on account of non-payment of sums due by the latter. As per the order, payment of Rs.1.5 crore had already been made against settlement of loan and out of Rs.1.5 crore, Rs.50 lakhs and Rs.25 lakhs were received in the account of the assessee firm. The said credit was received from Mr. Sandeep Arora, Director of M/s. High Ground Enterprises Ltd., on behalf of the said company and this fact is fully verifiable by the bank statement placed in the paper book from pages 56 & 59. Even in the books of account of the assessee, it is credited in the name of M/s. High Ground Enterprises Ltd. which has been sought to be added u/s.68. He further explained that there has been trade relationship between assessee and M/s. Ram Krishna Electro Component Pvt. Ltd. which is a debtor in the books of the assessee in the relevant previous year. The said amount received has yet not been adjusted against the debt and disclosed as unsecured loan in the name of M/s. High Ground Enterprises. because, the final verdict at that time was still pending from the Hon’ble High Court and permission to pass a Journal Voucher was yet to be granted. The judgment of the Hon’ble High Court is now available which clearly proves and support the contention and explanation of the assessee. Thus, such an amount could not have been added in the hands of the assessee-company.
7. On the other hand, ld. DR strongly relied upon the order of the Assessing Officer and submitted that onus has not been discharged by the assessee before the Assessing Officer and even confirmation was not furnished. Thus, the addition made by the Assessing Officer should be sustained.
8. After considering the rival submissions and on perusal of the relevant material placed on record, it is seen that the assessee had credited an amount of Rs.75 lac in its books of account in the name of M/s. High Ground Enterprises Ltd. The said amount has been received on account of certain dispute with M/s. Rama Krishna Electro Component Pvt. Ltd. which is a sister concern of the assessee firm who had filed a case against M/s. High Ground Enterprises Ltd. in Tis Hazari Court, Delhi on account of sums due by the said party. From the perusal of the judgment and order of the Hon’ble High Court dated 23rd July, 2018 which has been placed in the paper book from pages 47 to 51, it is seen that in the suit filed by M/s. Rama Krishna Electro Component Pvt. Ltd. against M/s. High Ground Enterprises Ltd., the Hon’ble High Court has noted in paragraph 3 that defendant had repaid a sum of Rs.1.5 crores to the plaintiff. The Hon’ble High Court in paragraph 10 has also noted that the defendant has repaid a sum of Rs.1.5 crore and the same has been admitted also, therefore, claim relating to Rs.1.5 crore and for proportionate interest is not maintainable. Out of the same very amount of Rs.1.5 crore, sum of Rs.75 lacs has been received in the account of the assessee firm from M/s. High Ground Enterprises Ltd. received through Mr. Sandeep Arora, Director of the Company. This is also evident from the bank statement placed in the paper book at pages 56 and 59 which shows two entries one dated 23.06.2011 for sum of Rs.50 lacs which is a RTGS by Sandeep Arora and amount and Rs. 25 lacs on 08.11.2011 which is also an RTGS by Sandeep Arora. Further, it is seen that M/s. Rama Krishna Electro Component Pvt. Ltd. is a debtor in the books of the assessee which is also evident from list of debtors on 31.03.2013 given in Schedule 8 of the balance sheet. It has been further claimed that the said amount has not been adjusted against the debt as it still appears as unsecured loan in the name of M/s. High Ground Enterprises Ltd., because during that period the final verdict of the Hon’ble High Court had not come. Now that the judgment of Hon’ble High Court has come therefore, it is no longer in the nature of loan. Under these facts and circumstances, it cannot be held that the source of credit of Rs.75 lacs remained unexplained, because admittedly the said amount has come from M/s. High Ground Enterprises Ltd. in pursuance of suit filed by the sister concern of the assessee which is an amount due by the said party to the sister concern, i.e., M/s. Rama Krishna Electro Component Pvt. Ltd.. Accordingly, the addition made by the Assessing Officer is directed to be deleted.
9. As regards the addition of Rs.21,04,667/- made u/s.40(a)(ia), the brief facts are that, assessee has paid freight charges amounting to Rs.21,04,667/- which were debited to the Profit & Loss account. The said amount has been paid to the following parties: a. M/s. Sai Dutta Shipping Agency Rs.9,34,,472/- b. M/s. Deft Shipping Agency Rs. 57,433/- c. M/s. Reliable Transport of India Rs.6,55,015/- d. M/s. Godara Freight Carriers Rs.4,57,747/- Rs.21,04,667/- Total AO further noted that the assessee has not deducted TDS at the applicable rate as per provision of Section 194C, therefore, he made the disallowance u/s.40(a)(ia). The said addition has also been confirmed by the Ld. CIT(A).
10. Before us, ld. counsel had submitted that though assessee has not deducted TDS on the freight payments to the four parties, but these parties were regular assessed to tax. In support, copy of income tax return for the Assessment Year 2012-13 of the three parties namely, M/s. Sai Dutta Shipping Agency; M/s. Reliable Transport of India and M/s. Godara Freight Carriers was filed, which shows that these parties have declared these amounts in the return of income, and therefore, no disallowance can be made in view of the 2nd proviso to Section 40(a)(ia) read with 1st proviso to Section 201. In support, he strongly relied upon the judgment of Hon’ble Supreme Court in the case of M/s. Hindustan Coca Cola Beverages Pvt. Ltd. vs. CIT, (2007), 293 ITR 226 (SC); CIT vs. Ansal Land Mark Township (P) Ltd., (2015) 377 ITR 635 (Del.).
11. On the other hand, ld. DR strongly relied upon the order of the Assessing Officer and Ld. CIT(A) and submitted that if assessee is claiming benefit under 2nd proviso to Section 40(a)(ia), then onus was upon the assessee. Alternatively, he submitted that matter can be restored back to the Assessing Officer to verify whether the payees have disclosed these payments in the return of income for which the assessee shall furnish a requisite certificate of the Chartered Accountant of the payees.
We have heard the rival submissions and perused the relevant material placed on record. It is not disputed that on the freight charges paid to the aforesaid four parties, TDS was required to be deducted u/s.194C for which Assessing Officer has made the disallowance u/s.40(a)(ia). However, before us, the ld. counsel for the assessee had submitted that now in view of 2nd proviso to Section 40(a)(ia) read with 1st proviso to Section 201 which has been brought in the statute w.e.f. 01.07.2012, provides that where the assessee has failed to deduct whole or any part of the TDS, but if the payee has shown the said amount in his return of income filed u/s.139 and has taken into account such sum for computing the income and has paid the taxes, then no disallowance can be made. Now it is a well settled law in view of the Hon’ble Jurisdictional High Court judgment in the case of Ansal Land Mark Township (P) Ltd. (supra) that said proviso is clarificatory in nature and will apply respectively. Before us, ld. counsel had placed copies of income tax return of the parties to prove that these parties are regularly assessed to tax and has also shown these payments in the return of income and have paid taxes thereon. However, merely from the return the same is not very discernable. Accordingly, we are of the opinion that this matter should be restored back to the file of the Assessing Officer to verify, whether the payees have offered this amount in their return of income and have taken into account such sum for computing the income and have paid taxes thereon. The assessee will co-operate before the AO to furnish the requisite document and certificate from the payees to the Assessing Officer to substantiate this contention.
Lastly, with regard to the addition of Rs.25,49,658/- u/s.14A, we find that Assessing Officer has made the addition on account of interest and bank charges. Before the Assessing Officer, assessee’s case was that the assessee has given trade advance to sister concern and no interest has been charged from the such loan. Moreover, these advances have been given out of interest free funds and nothing has been diverted to the sister concern out of borrowed funds. However, from the assessment order, it is seen that the ld. Assessing Officer has observed that funds over drawn by the payee were never utilized for the purpose of business and has tried to make the disallowance u/s.14A without any giving any reasoning or basis. There is no whisper as to why the provision of Section 14A is attracted on addition of Rs.25,49,658/- for disallowance of interest in bank charges, when there is no exempt income earned by the assessee during the year. The fact of the matter is that the assessee had made investment amounting to Rs.10,50,000/- in shares of unlisted company on which Assessing Officer has made separate addition of Rs.1,05,000/- u/s.14A which stands deleted by the ld. CIT(A). Even otherwise also, it is seen that assessee had huge interest free funds and capital of Rs.68,64,871/- and there is no material or finding by the Assessing Officer that any interest- bearing fund have been diverted for the non-business purpose. We are unable to appreciate the reasoning given by the Assessing Officer for making such kind of addition without application of mind and thus same is directed to be deleted.
In Ground No.6, the assessee has challenged the addition of Rs.63,787/- on account of disallowance of expenses, which has not been adjudicated by the Ld. CIT(A).
From the perusal of the assessment order, it is seen that Assessing Officer has made adhoc addition @ 20% on the following expenses debited: i) Car Insurance: Rs. 5,618/- ii) Car Running & Maintenance expense: Rs. 64,758/- iii) Depreciation on car Rs.1,48,799/- iv) Misc. Expenses Rs. 1849/- v) Staff welfare Rs. 36,745/- vi) Telephone Expenses Rs. 61,168/- A short reasoning given by the Assessing Officer is that the element of personal use cannot be ruled. Nothing has been stated by him as to whether there is any discrepancy in the bill and vouchers and whether there is any defect in the books of account. If at all, there could be some element of personal use that could be only on account of car running and telephone expenses. The observation of the Assessing Officer is not only general but also vague and purely based on adhoc without finding any defect in the evidence submitted by the assessee. Accordingly, such an adhoc addition is directed to be deleted.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 8th November, 2019.