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Facts
The assessee, having declared NIL income, faced additions by the AO for unexplained bank credits (Rs.4,24,77,876/-) under Section 68, based on a mismatch between bank entries and P&L receipts. Further additions were made for share application money and unsecured loans (Rs.19,81,000/- and Rs.1,87,800/- respectively), along with ad hoc disallowances on material purchases, site expenses, labor payments, and depreciation on computers. The CIT(A) had deleted the unexplained bank credits addition but upheld others.
Held
The Tribunal upheld the deletion of the unexplained bank credits by the CIT(A). It further directed the AO to delete additions related to share application money (Rs.15 lakhs as barter for materials, and Rs.4,81,000/- from directors/relatives) and unsecured loans (Rs.1,87,800/- from directors/relatives), finding genuineness. The 10% ad hoc disallowance on materials and site expenses was restricted to 5%, while disallowances for laborer expenses (Rs.2,02,000/-) and computer depreciation (Rs.87,000/-) were upheld due to lack of substantiation.
Key Issues
The key legal issues included the applicability of Section 68 for unexplained bank credits, share application money, and unsecured loans; the justification for ad hoc disallowances on material and site expenses; and the validity of disallowing laborer expenses and depreciation on computers.
Sections Cited
Section 68, Section 133(6)
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Income Tax Appellate Tribunal, DELHI BENCH “A” NEW DELHI
Before: SHRI G.S. PANNU, HON’BLE & SHRI CHALLA NAGENDRA PRASAD
आदेश /O R D E R PER C.N. PRASAD, J.M.
These appeals are filed by the Revenue and Assessee and Cross Objection by Assessee against the order of the Ld.CIT(Appeals)-2, New Delhi dated 31.03.2019 for the AY 2011-12.
First we take up the appeal of the Revenue in ITA No.5226/Del/2019. In this appeal the Revenue has challenged the order of the Ld.CIT(Appeals) in deleting the addition of Rs.4,24,77,876/- u/s 68 of the Income Tax Act, 1961 as unexplained credits.
Briefly stated the facts are that the assessee declared NIL income in its return filed on 23.09.2011 after adjusting brought forward losses. The case was selected for scrutiny and in the course of assessment proceedings the AO noticed from the bank statement filed by the assessee that there are credit entries for an amount of Rs.7,47,77,480/-, however, as per balance sheet and profit and loss account the total receipts of the assessee company was shown at Rs.2,93,86,547/-. Therefore, the assessee was required to furnish justification along with documentary evidence with respect to total
I.T.A.Nos.5157, 5226/Del/2019 & CO No. 65/Del/2022 receipts in the bank account. Since, no reply was furnished by the assessee company an amount of Rs.4,24,77,876/- was treated as unexplained credits of the assessee and brought to tax.
The assessee preferred appeal before the Ld.CIT(A) contending that the AO treated all credit entries in the bank statement as income of the assessee ignoring the fact that the credits represent amount received from release of fixed deposits, bank limits and short term transactions with the sister company and all these credit entries were added as income of the assessee mechanically without any application of mind. Considering the submissions and the remand report of AO the Ld.CIT(A) deleted the addition.
Ld. DR strongly supported the order of the AO.
On the other hand, Shri Ashok Kumar Tiwari, the Director of the Assessee Company who was authorized to appear before the Tribunal vide resolution passed by the Board in the meeting held on 20.12.2019, strongly supported the orders of the Ld.CIT(A).
Heard rival submissions, perused the orders of the authorities below. On perusal of the assessment order, we noticed that the AO added the difference between the total credits appearing in the bank statements and the receipts shown in the profit and loss
I.T.A.Nos.5157, 5226/Del/2019 & CO No. 65/Del/2022 account plus share application money raised during the year and the unsecured loans received during the year as addition on account of unexplained credits. We observed that in the course of appellate proceedings the Ld.CIT(A) called for a remand report and considering the remand report of the AO. The Ld.CIT(A) deleted the addition with the following observations:
“6.4 Ground no.4: - This ground is directed against addition of Rs.4,24,77,876/- u/s 68 as unexplained cash credit as all credit entries appearing in the bank statement have been considered as cash credit. After reducing the cash credit already disclosed, the said addition was made. It appears to be made as a natural corollary to continuous non-compliance of the appellant as the case was badly documented and poorly represented. 6.5 During appellate proceedings, the appellant has made humble submission that the AR was not properly representing and prayed for deleting the same. It is submitted that all the amounts – day to day business transaction, share capital money, bank limit raised against FDR etc. have been added. 6.6 The statement shows that all credit entries appearing in the bank statement have been added due to non-cooperation of the appellant. AO has not given any description of the entries for which addition was made. Appellant has prayed to consider that all credit entries are happening in day to day business transactions, share capital money, bank limit raised against FDR etc. 6.7 During remand proceedings, no comment is received on the bank statement already furnished during assessment proceeding and addition of unexplained cash credit u/s 68 in respect of share capital etc. is already made separately, this further
I.T.A.Nos.5157, 5226/Del/2019 & CO No. 65/Del/2022 addition of all credit entries in the bank statement does not appear justified. After considering the facts and circumstances, the addition on this account is deleted. This ground is allowed.” 8. Perusal of the findings of the Ld.CIT(A) it is noticed that while in the remand report the AO made no comments on the bank statement and the entries therein. Considering the remand report the Ld.CIT(A) in our opinion is rightly justified in deleting the difference which was added by the AO as unexplained credits being the difference between the total entries in the bank statement (-) receipts shown in the profit and loss account. We see no valid reason to interfere with the findings of the Ld.CIT(A) in deleting the addition made u/s 68 of the Act in respect of credit entries appearing in the bank statement of the assessee to the extent of Rs.4,24,77,876/-. Grounds raised by the Revenue are rejected.
Cross Objection filed by the assessee is only in support of the order of the Ld.CIT(A). Since, we have sustained the order of the Ld.CIT(A) and rejected the grounds of the Revenue the Cross Objection filed by the assessee becomes infructuous.
Coming to appeal of the assessee grounds of appeal raised by the assessee are as under: -
1. “That on the fact and circumstances of the case and in law, the Ld.CIT(Appeal) has erred in confirming the I.T.A.Nos.5157, 5226/Del/2019 & CO No. 65/Del/2022
addition made by the AO of Rs.19,81,000/- & Rs.1,87,800/-, received as share application money and loan respectively, without appreciating the fact that AO has brought no evidence on record to controvert the submissions of the assessee and the creditors.
2. That on the facts and circumstances of the case, the Ld.CIT(A) has erred in confirming ad hoc disallowances @10% of the total material purchased amounting to Rs.13,80,160/-.
3. That on the facts & circumstances of the case, the Ld.CIT(A) has erred in confirming ad hoc disallowances @10% of the site expenses amounting to Rs.6,07,731/-.
4. That on the facts & circumstances of the case, the Ld.CIT(A) has erred in confirming the disallowance of Rs.2,02,000/- for the expenses towards the payment made to Laborers for housekeeping (Rs.94,200/-) and security (Rs.1,08,000/-).
5. That on facts and circumstances of the case, the Ld.CIT(A) has erred in confirming the disallowances of Rs.87,000/- against depreciation on computer and printers.” 11. The Assessing Officer while completing the assessment made addition of Rs.19,81,000/- as unexplained cash credit in respect of share application money and Rs.1,87,800/- on account of unsecured loans for the reason that the assessee has not furnished any confirmations in the course of assessment proceedings and the notices issued u/s 133(6) were not responded to by the share applicants and the creditors. In the course of appellate proceedings the assessee furnished additional evidences and provided documentary evidences regarding share application money and I.T.A.Nos.5157, 5226/Del/2019 & CO No. 65/Del/2022 unsecured loans. The Ld.CIT(A) after calling for remand report and considering the comments of the AO in the remand report sustained the addition.
The director of the assessee company Shri A.K. Tiwari submitted that out of Rs.19,81,000/- an amount of Rs. 15 lakhs represents share application money received from M/s Titech Engineers Pvt. Ltd. It is submitted that assessee has provided confirmation of M/s Titech Engineers Pvt. Ltd. confirming the share application money and as a matter of fact this company has business dealings with assessee company and in fact Rs.15 lakhs was adjusted against supply of materials. The Director of the assessee company referring to page 194 of the Paper Book submits that this fact was also brought to the notice of the AO vide letter dated 02.05.2014, wherein the party has confirmed that they had supplied Rs.76 lakhs worth materials in the FY 2010-11 and received payment. It was also further stated that later on materials worth Rs.15 lakhs was supplied which was adjusted against share application money, therefore, it is submitted that the addition to the extent of Rs.15 lakhs is unwarranted. It is further submitted that the assessee has not credited in books of accounts by way of cash/cheque/draft to the extent of Rs.15 lakhs and, therefore, the provisions of Section I.T.A.Nos.5157, 5226/Del/2019 & CO No. 65/Del/2022 68 of the Act cannot be invoked. Reliance was placed on the decision of the ITAT Delhi in the case of Elevated Building Solutions Pvt. Ltd. (ITA No.2498/Del/2017 dated 24.03.2021).
In respect of the balance addition of Rs.4,81,000/- and Rs.1,87,800/- on account of share capital and unsecured loans respectively the Director of the assessee company submitted that all the parties made investment for shares and loans are individuals and related parties. It is submitted that Rs.3,08,000/- out of Rs.4,81,000/- is received from Directors and their Son and the remaining balance amounts are very small amount. It is submitted that in order to prove the identity, genuineness and creditworthiness of the transactions the assessee has submitted confirmation letter and ITR of the parties before the Ld.CIT(A) as additional evidence. It is submitted that only in respect of one Mr. Ashok Kumar Sharma since he was out of India and he has paid Rs.38,000/- against share capital. Confirmation could not be filed.
In respect of ground nos. 2 & 3 the director submits that an ad hoc disallowance was made at 10% of the total materials purchased and site expenses incurred in spite of providing all the bills, agreements with the parties, confirmations from the parties, copies of bills, etc. 8
I.T.A.Nos.5157, 5226/Del/2019 & CO No. 65/Del/2022
Coming to ground no.4 the Ld. Counsel submitted that an amount of Rs.2,02,000/- was incurred towards expenses for payment to labourers for housekeeping and security was disallowed for the reason that they have not responded to notice issued u/s 136 of the Act.
Coming to ground no.5 of grounds of appeal the Director of the assessee company submitted that disallowance of Rs.87,000/- was made towards depreciation on computers and printers for the reason that the name of the company on the invoices was not mentioned.
The Director of the assessee company submits that these computers were purchased from ‘Computer Emperor’ which is a shop known for its cheapest and best market place at Nehru Place Market, Delhi.
On the other hand, the Ld. DR supported the orders of the authorities below.
Heard rival submissions. Coming to ground no.1 i.e. with regard to addition made towards share application money and unsecured loans we observed that the assessee filed confirmation letter from M/s Titech Engineers Pvt. Ltd., copy of ITR, bank statement of Titech Engineers Pvt. Ltd., audited financial statements and copy of letter requesting for allotment of shares
I.T.A.Nos.5157, 5226/Del/2019 & CO No. 65/Del/2022 against supply of materials for an amount of Rs.15 lakhs. It is also the contention of the assessee that the notice issued u/s 133(6) could not be replied by Titech Engineers Pvt. Ltd. as the said notice was served on the date fixed for responding to the notice. It is also the contention of the assessee that assessee has not received any amount from Titech Engineers Pvt. Ltd. but was accepted the request of the assessee towards share application money against the liability of purchase of materials under barter arrangement.
Therefore, it is the contention that no fresh capital was brought in to the books by way of cash/cheque/draft. Placing reliance on the decision of coordinate bench of the Tribunal in the case of Elevated Building Solutions Pvt. Ltd. in dated 24.03.2021 the assessee contended that provisions of section 68 of the Act do not apply for cases of purchase of shares against allotment of shares when exchanged under barter system. In so far as the balance addition of Rs.4,81,000/- and 1,87,800/- towards share capital and loans, it is the submission that they are all made by directors and their relatives. The assessee has furnished confirmations and they are all small amounts and, therefore, the genuineness, creditworthiness of the transaction has been proved.
I.T.A.Nos.5157, 5226/Del/2019 & CO No. 65/Del/2022
In so far as the addition of Rs.15 lakhs on account of share application money is concerned, we hold that there is some force in the submission. The coordinate bench in the case of Elevated Building Solutions Pvt. Ltd. (supra) held as under:
“22. The various other decisions relied on by the Ld. Counsel for the assessee in the paper book also supports the case of the assessee that provisions of section 68 are not applicable in a case of acquiring shares of certain companies from certain shareholders without paying any cash consideration and, instead, considerations were settled through issuance of shares to the respective parties. In other words, provisions of section 68 of the Act does not apply to cases of purchase of shares and allotment of shares when the purchase and allotment are under a barter system. In this view of the matter, we do not find any infirmity in the order of the Ld.CIT(A) in deleting the addition of Rs.6,75,00,000/- (wrongly typed in the grounds as Rs.6,76,00,000/-). Therefore, the ground of appeal no.1 raised by the Revenue is dismissed.”
20. Following the said decision, we direct the AO to delete the addition as in the case on hand the assessee allotted share application money against liability for purchases and has not received any cash/cheque/draft.
21. In respect of the balance addition of Rs.4,81,000/- and Rs.1,87,800/- the assessee filed confirmations as well as the Income tax returns before the Ld.CIT(Appeals) and the details of share
I.T.A.Nos.5157, 5226/Del/2019 & CO No. 65/Del/2022 application money loan taken from the directors and their relatives and friends are as under:
Name of Party Share Application Loan Amount Money A.K. Tiwari (Director) 80,000/- 90,025/- Rashmi Tiwari (Director) 1,24,000/- 50,025/- Abhishek Tiwari 1,04,000/- 47,750/- (Shareholder) Advocate B.P. Lathwal 95,000/- Nil Mukut-Mani Mishra 40,000/- Nil Ashok Sharma 38,000/- Nil Total 04,81,000/- 1,87,800/- 22. Perusal of the above details shows that the share application money and the loans were taken only from the directors and their relatives and friends. Keeping in view the smallness of the amounts and also the evidences adduced in the form of confirmations and Income tax returns of all these parties, we hold that the genuineness, creditworthiness and identity cannot be doubted.
Thus, we direct the AO to delete the addition made on account of share application money and unsecured loans u/s 68 of the Act.
Ground no.1 of grounds of appeal is allowed.
23. Coming to ground no.2 and 3, we noticed that adhoc disallowance of 10% was made from materials purchased and site expenses incurred. It is the finding of the Ld.CIT(A) that letters of enquiries were issued u/s 133(6) of the Act to various parties and none of the parties confirmed the payments including the associate
I.T.A.Nos.5157, 5226/Del/2019 & CO No. 65/Del/2022 parties. It is also the observation of the Ld.CIT(A) that even during the assessment proceedings the assessee submitted only confirmations, only consolidated bill produced and no independent bills were submitted as to when the material was supplied and in what quantity, the rates for the entire year. It is also the observation that in the remand proceedings, no compliance was made from the suppliers. With respect to other expenses, it is the observation that assessee has given only copy of receipts for agreement to prove the payment. It is the observation that it is difficult to accept the genuineness of all the expenses incurred.
Therefore, in the absence of any corroborative evidences even in the remand proceedings the adhoc disallowance of 10% made was sustained by the Ld.CIT(A).
On the other hand, it is the contention that the assessee has provided party wise details, all the bills were filed before the AO vide replies dated 24.02.2014, 02.05.2014 and the AO has not asked any specific confirmation with respect to site expenses also. It is the contention that vide reply dated 24.02.2014 assessee had provided all the bills, rent receipt, wage/salary sheet and other documents to prove the genuineness of the expenses incurred in spite of providing all the details the AO disallowed 10% on adhoc
I.T.A.Nos.5157, 5226/Del/2019 & CO No. 65/Del/2022 basis. It is further submitted that books are audited AO has not rejected the books of account.
On perusal of the assessment order, we noticed that it is the finding of the AO that assessee submitted copies of bills for expenses, for consumption of material and number of such bills did not bear any address. Notices were issued u/s 133(6) of the Act only where the addresses are appearing on the bills. It is the finding that none of the enquiries made in the form of notices support assessees claim as either the notices were returned back un-served bearing comments as “no such firm” or no reply has been received.
In so far as the site expenses are concerned, position remained the same. It is also the observation of the AO that assessee has not given copy of any receipts, any agreement proving the payments in relation to expenses booked as rent towards staff accommodation/guest house, rent towards equipments and vehicles, construction of hutments, construction of office and godown, etc. establishing the incurring of expenses by the assessee.
Therefore, taking the totality of facts and circumstances into consideration, we restrict the disallowance to 5% which meets the ends of justice. Ground nos. 2 & 3 are partly allowed.
I.T.A.Nos.5157, 5226/Del/2019 & CO No. 65/Del/2022
Coming to ground no.4 i.e. disallowance of Rs.2,02,000/- for the expenses towards payment to labourers for housekeeping and security the disallowance was confirmed for the reason that the genuineness is not proved due to non furnishing of any evidence to prove that the assessee has made payments to these persons. The notices issued u/s 133(6) were returned back un-served and in view of non verification of the persons AO made disallowance which was sustained by the Ld.CIT(A). The contention of the assessee is that these are all labourers who keep moving and, therefore, the genuineness of the incurring of expenses cannot be doubted simply because they have not responded to the notices.
Considering the averments of the AO and also the assessee, we do not see any good reason to interfere with the observations of the authorities below. Ground no.4 of grounds of appeal of the assessee is rejected.
30. Coming to disallowance of Rs.87,000/- in respect of depreciation on computers, we observe that the depreciation was denied for the reason that the bills were not in the name of the assessee. The assessee’s contention is that the computers were purchased in a famous shop known for its cheapest and best market place at Nehru Place Market where they were sold at lesser price. 15
I.T.A.Nos.5157, 5226/Del/2019 & CO No. 65/Del/2022 As the assessee could not prove that the computers were purchased with authentic bills, we find no fault in the assessment order in rejecting the claim for depreciation. This ground is rejected.
In the result, appeal of the Revenue and Cross Objection filed by the Assessee are dismissed and appeal of the assessee is partly allowed as indicated above.
Order pronounced in the open court on 16/02/2024