HIMGIRI ENTERPRISES (P) LTD.,DELHI vs. ITO, NEW DELHI

Appellant by Sh. Kapil Goel, Adv. Respondent by Sh. T. Vasanthan, Sr.DR Date of hearing 08.12.2015 Date of pronouncement 13.01.2016 ORDER PER O.P. KANT, A.M.: The present appeal by the assessee is directed against the order dated 09.01.2013 of learned Commissioner of Income Tax(Appeals)-XXVII, New Delhi, for the assessment year 2006-07. The assessee raised the following revised grounds of appeal: “

1. That on the facts and in the circumstances of the case and in law Learned Commissioner of Income Tax (Appeals) erred in sustaining the addition to the extent of Rs. 17,08,990/- being genuine share capital on basis of extraneous and irrelevant reasons.

2. That on the facts and in the circumstances of the case and in law, Learned Commissioner of Income Tax(Appeals) erred in not deleting wrongful addition Himgiri Enterprises (P) Ltd. on account of genuine travelling expenses of Rs. 425,165 on which is Fringe benefit tax is also paid.

3. That on the facts and in the circumstances of the case and in law, learned Commissioner of Income Tax (Appeals) erred in not deleting the addition of Rs. 100,000 on account of salary expenses being confirmed on ad-hoc and surmisical basis.

4. That on the facts and in the circumstances of the case and in law, learned Commissioner of Income Tax (Appeals) erred in sustaining addition under the head of genuine professional charges to the extent of Rs. 400,000 which is fully vouched and genuine in nature, incurred for business purposes.

2. The facts in brief are that the assessee filed its return of income for the assessment year 2006-07 on 12.11.2006 declaring income of Rs. 7,38,262/-, which was processed under Section 143(1) of the Income-tax Act, 1961 (for short “the Act”). The case was selected for scrutiny and notice under Section 143(2) of the Act was issued. The Assessing Officer noted that the company was engaged in manufacturing of electrical accessories having brand name “Girish” and also acting as commission agent for sale of scientific instruments to Government and Other Hospitals. While scrutiny, the Assessing Officer observed introduction of share application money of Rs. 41,20,490/- and asked the assessee for explanation of source of the same. In response, the assessee filed confirmation in respect of share application money of Rs. 18,72,500/- only. The Assessing Officer held that the assessee could not furnish evidence in support of the identification, creditworthiness and genuineness of the share applicants but in the computation to the assessment order, he held the balance share application money of Rs. 22,47,990/- (Rs. 41,20,490 – 18,72,500) as unexplained, though in the body of the order, he held the entire cash credit of Himgiri Enterprises (P) Ltd. Rs. 41,20,490/- as unexplained, however, this issue has not been disputed by the Revenue. Further, the Assessing Officer made disallowance of Rs. 4,25,165/- out of the traveling expenses on the ground that the assessee failed to furnish any details and purpose of travelling expenses. The Assessing Officer also made disallowances of Rs. 2 lakhs out of the salary expenses and disallowance of Rs. 5,29,734/- towards professional charges. Aggrieved, the assessee filed an appeal before the learned Commissioner of Income Tax (Appeals). The learned Commissioner of Income Tax (Appeals) observed that the assessee filed confirmation, copy of ITR etc. in respect of share application money of Rs. 24,11,500/- and thus, balance amount of Rs. 17,08,990/- was upheld by him as unexplained cash credit under Section 68 of the Act. Further, the addition made in respect of travelling expenses was upheld by the Commissioner of Income Tax(Appeals) observing that no voucher of tour/travelling expenses was filed even before him. Further, he allowed relief of Rs. 1 lakh against the disallowance of Rs. 2 lakhs made in respect of salary expenses by the Assessing Officer. Further, out of the addition of Rs. 5,29,734/- under the head “professional charges” the Commissioner of Income Tax (Appeals) restricted the disallowance to Rs. 4 lakhs in respect of professional charges from Mr. Rakesh Budhiraja, Liasoning consultant (Rs. 2,75,000/-) and Colour Creative Solution, Consultant for Design of Packing Material of (Rs.1,25,000/-). Aggrieved, the assessee is before us with the present appeal.

Himgiri Enterprises (P) Ltd.

Himgiri Enterprises (P) Ltd. 3.2 We have heard the rival submissions and perused the material on record. It is undisputed that the assessee failed to furnish the confirmation in respect of share application money of Rs. 17,08,990/- out of the share application of Rs. 41,20,409/- credited during the year, either before the Assessing Officer or the first appellate authority. The submitting of the confirmation containing name, addressee and details of the transactions was the mandatory requirement for the assessee to discharge his burden of proof, as far as Section 68 of the Act was concerned. Without providing the basic details, the Assessing Officer was also handicapped in making any inquiry either under Section 133(6) of the Act or a summon under Section 131 of the Act. 3.3 In view of the above fact, the findings of the Hon’ble Supreme Court in the case of M/s Lovely Export (supra) do not apply. Further, the facts in the case of Commissioner of Income Tax Vs. Vrindavan Farms (P.) Ltd., 72/2015 & 84/2015 of the Hon’ble Delhi High Court are different. In that case, the entire details of share applicants was made available to the Assessing Officer, including PAN, confirmations, bank statements, balances sheets and profit and loss account and certificate of incorporation etc. In the case of Empire Buildtech Pvt. Ltd. (supra), the Hon’ble High Court distinguished the fact of M/s Lovely Exports and held as under: “8. Having regard to the circumstances, particularly, the fact that these investors not only did not submit any confirmation and had concededly reported far less income than the amounts invested, this court is of the opinion that the assessee could not under the circumstances be said to have Himgiri Enterprises (P) Ltd. discharged the burden which was upon it in the first instance in view of the law declared in Lovely Exports (supra) matter. It is not sufficient for the assessee to merely disclose the addresses or identities of the individuals concerned. The other way of looking at the matter is that having given the addresses, the inability of the notices who are approached by the Assessing Officer to afford any reasonable explanation as to how they got the amounts given the nature of their income which was disproportionally less than what they subscribed as share capital would also amount to the Revenue having discharged the onus if at all which fell upon it. This court also notices that the assessee in this case was incorporated barely few months before the commencement of the assessment year, and there is no further information, or anything to indicate why its mark up of the share premium thousand folds in respect of the shares which were of the face value of Rs. 10 lakhs was justified.” 3.4 In view of the above discussion, we hold that the assessee has not discharged his burden of proof and failed to furnish the confirmation/creditworthiness and genuineness of the transaction in respect of share application money of Rs. 17,08,990/- before the lower authorities and therefore, we find that there is no infirmity in the order of the Commissioner of Income Tax(Appeals) and accordingly, the ground no. 1 of the assessee is dismissed.

Himgiri Enterprises (P) Ltd. 4.1 On the other hand, the learned Departmental Representative submitted that no supporting documents were furnished either before the Assessing Officer or before the Commissioner of Income Tax (Appeals) and therefore, the disallowance was rightly made by the Assessing Officer. 4.2 We have heard the rival submissions and perused the material on record. We have seen the assessment order of the fringe benefit tax for the relevant assessment year. Fringe benefit of Rs. 2,55,875/- declared by the assessee was accepted by the Assessing Officer. Further, in the case, cited by the assessee, the matter was restored to the Assessing Officer to verify whether the impugned expenditure was subjected to fringe benefit tax. 4.3 Following the above decision of the Tribunal, we restore the matter to file of Assessing Officer who will verify the contention of the assessee whether the said travelling expenses were subject to the fringe benefit tax. If those expenditure are subject to fringe benefit tax, then no disallowance shall be made. Accordingly, this ground of appeal is allowed for statistical purposes.

5. As regard to ground no. 3, learned Authorized Representative submitted that there was no basis in restricting the addition on ad-hoc basis by the Commissioner of Income Tax (Appeals). 5.1 On the other hand, learned Departmental Representative submitted that in absence of any justification of expenses, reducing the disallowance to Rs. 1 lakhs was proper in the case of the assessee.

Himgiri Enterprises (P) Ltd. 5.2 We have heard the rival submissions and perused the material on record. We are of the opinion that the disallowance in respect of salary on ad-hoc basis is not warranted in view of the fact that the turnover as well as the income of the assessee have increased substantially as compared to the last year. Therefore, we deleted the disallowance of Rs. 1 lakh sustained by the Commissioner of Income Tax(Appeals) and accordingly this ground of appeal is allowed.

6. Ground no. 4 is in respect of disallowance of Rs. 4 lakhs out of the profession expenses. Learned Authorized Representative submitted that the disallowance was in respect of the two parties, First, M/s Rakesh Budhiraja of Rs. 2,75,000/- , who provided services of liasioning /marketing and development of new customers and Second, M/s Colour Creative Solutions of Rs. 1,25,000/-, towards cost of consultancy, packaging and designing for the brand. Learned Authorized Representative referred to copy of the account of M/s Rakesh Budhiraja appearing in the books of account of the assessee, at page no. 42 of the paper book. Learned Authorized Representative also drawn our attention towards the copy of contract agreement with M/s Rakesh Budhiraja filed at page no. 43 of the paper book and bills raised by M/s Rakesh Budhiraja filed at page nos. 44, 45 and 46 of the paper book. He further relied on the decision of the Tribunal in the case of Ms. Asha Priya Sridhar Vs. Income Tax Officer, dated 28th March, 2012.

Himgiri Enterprises (P) Ltd. 6.1 On the other hand, learned Senior Departmental Representative relied on the order of the lower authorities and submitted that documentary evidence filed in respect of services of Sh Bhudiraja were lacking reliability looking to manner of their maintenance and absence of his signature on them. 6.2 We have heard the rival submissions and perused the material on record. The ld CIT(A) in respect of the two parties, in paragraph 23 of the order has mentioned as under: “…….. However, with respect to payment made to M/s color creative solutions, the purpose of the payment as mentioned on the bill is “ Towards the cost of consultancy and packing design for the brand for the month of December 05 and February 06” –Rs. 1,00,000/- and “ Towards the cost of shoot and material charges”- Rs. 25,000/-. Nothing has been brought on record by the appellant to show what services were actually received from the party. Further in respect of the payment of Rs. 2,75,000/- paid to Rakesh Budhiraja, the narration of the entry mentioned by the appellant is “ Liasioning work undertaken with various Govt. hospitals for supply of surgical equipments during the year under consideration” and “Search of new customers and their developments for promotion of your product girish all over India during the year under consideration”. What liasioning work has been done and what development of new customers has been done, nothing has been stated in Himgiri Enterprises (P) Ltd. this regard. The so called contract supposed to have been signed with Sh Rakesh Budhiraja , has been signed on a letter head of the company according to which Sh Rakesh Budhiraja was supposed to perform certain functions as already stated above. No detail of any such function has been placed on record by the appellant. ……………..” 6.2 Perusal of the above findings of the Ld CIT(A) makes it clear that the assessee failed to submit proof of services rendered. As regard to the contention of the learned Authorized Representative that services were duly rendered by Sh. Rakesh Budhiraja, before us a copy of contract letter on a plane letter was filed at page 43 of the paper book, which is different from the contract filed on letter head of the company before the ld CIT(A). The contract letter filed before is also not signed by Sh. Rakesh Budhiraja and the contract letter is bearing Contract No. 001/2005-06 i.e. the first contract signed by Mr. Budhiraja, which raises doubt on his experience in the field of his consultancy. Further, the bills placed at page nos. 44 to 46 of the paper book are also having running serial no. 1 to 3, though the bills have been issued at an interval of many days. More importantly, these bills are not signed either by Sh. Rakesh Budhiraja or any of the person authorized on his behalf. In view of the facts, the services rendered by M/s Buddhiraja are not getting established and therefore, in our view the disallowance has rightly been confirmed by the Commissioner of Income Tax (Appeals). As regards to M/s Color Creative Solutions also no documentary Himgiri Enterprises (P) Ltd. proof of services rendered were filed either before the lower authorities or before us. The facts of the case of Ms. Asha Priya Sriqdhar, cited by the assessee are different as in that case in search no material qua the disallowance in respect of land development expenses was found. In view of above facts, we are of considered opinion that there is no infirmity in the order of the Commissioner of Income Tax (Appeals), on issue in dispute, accordingly, this ground of appeal is dismissed.

7. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. The decision is pronounced in the open court on 13th January, 2016.