M/S. UTKAL PLASTER PVT. LTD.,BHUBANESWAR vs. ITO, WARD-1(3), BHUBANESWAR

This is an appeal filed by the assessee against the order of CIT(A)-1,

Bhubaneswar, dated 31.3.2016, for the assessment year 2008-09.

is that the CIT(A) erred in confirming the action of the Assessing Officer in

disallowing expenses of Rs.1,67,295/- under the head “transportation

charges” by invoking the provisions of section 40(a)(ia) of the Act.

authorities and materials available on record. The brief facts of the case

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are that the Assessing Officer observed from the profit and loss account

that the assessee had debited Rs.3,12,252/- towards carriage inward

expenses. The Assessing Officer required the assessee to furnish details of

such expenses. The assessee produced copy of ledger account and a

statement with bills & vouchers. The Assessing Officer found from the

ledges that out of total expenditure of Rs.3,12,252/-, M/s. 0. P. Roadlines

was paid a sum of Rs.1,38,425/- on 12.1.2008 and another sum of

Rs.28,870/- on 28.3.2008 totaling to Rs.1,67,295/- towards

transportation charges on which no tax was deducted at source as

per the requirement of section 194C. Therefore, the Assessing Officer

disallowed Rs.1,67,252/- u/s.40(a)(ia) of the Act.

relying on the decisions of Hon’ble Calcutta High Court in the case of CIT

vs. Crescement Export Syndicate & Others (2013) 33 Taxman.com 250 and

the Hon’ble Gujarat High Court in the case of CIT vs. Sikndarkhan N.Tunvar

(2013) 33 Taxman.com 133 and keeping in view Circular of the CBDT

No.10/DV/2013 in F.No.279(D.V/Mis/M-61/2012-ITJ(Vol.III)

dt.16.12.2013.

High Court in the case of CIT vs. Victor Shipping Services (P) Ltd., (2013)

357 ITR 642(All), wherein, it has been held that for disallowing expenses

from business and profession on the ground that tax has not been deducted

at source, the amount should be payable and not it has been paid by the

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end of the year. He further submitted that the SLP filed against the

judgment of Hon’ble Allahabad High Court has been dismissed by the

Hon’ble Supreme Court vide judgment dated 2.7.2014 in CC No.(s)

8068/2014. He submitted that where there are contrary decisions of

Hon’ble High Courts on an issue and none of which is Hon’ble Jurisdictional

High court, then the decision in favour of the assessee should be followed

in view of the decision of Hon’ble Supreme Court in the case of CIT vs.

Vegetable Products Ltd., 88 ITR 192 (SC).

Allahabad High Court in the case of CIT vs. Victor Shipping Services (P)

Ltd., (2013) 357 ITR 642(All has held that for disallowing expenses from

business and profession on the ground that tax has not been deducted at

source, the amount should be payable and not it has been paid by the end

of the year. The decision of Hon’ble Allahabad High Court has been affirmed

by the Hon’ble Supreme Court vide judgment dated 2.7.2014 in CC No.(s)

8068/2014. Ld A.R. submitted that the assessee has made payments of

Rs.1,67,252/- to M/s. O.P. Roadlines and no amount was outstanding and

payable. Therefore, in view of the decision of Hon’ble Allahabad High Court

in the case of Victor Shipping Services (P) ltd (supra), no disallowance

u/s.40(a)(ia) was warranted in the case of the assessee.

amounting outstanding and payable at the end of the year. Therefore, I

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set aside the orders of lower authorities and respectfully following the

decision of the Hon’ble Allahabad High Court in the case of CIT vs. Victor

Shipping Services (P) Ltd(supra) delete the disallowance of Rs.1,67,252/-

made u/s.40(a)(ia) of the Act. Thus, this ground of appeal of the assessee

is allowed.

the CIT(A) erred in confirming the addition of Rs.29,40,000/- u/s.68 of the

Act.

authorities and materials available on record. In the instant case, the

Assessing Officer found from the balance sheet that the assessee has shown

receipt of share application money of Rs.29,40,000/- during the year. The

assessee was asked to furnish the details of share applicants and their

sources of investments. The assessee furnished the list of the following

share applicants from whom share application money was received.

SI. Name Date of Amount Mode of No. introduction payment 1. Chandulal Patel 13.02.2008 5,00,000 Cheque

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tax returns of the above persons, copies of bank statements relating to the

accounts maintained by them in banks and also produce them for personal

examination. Since the assessee failed to comply with the above

requirements, the Assessing Officer made an addition of Rs.29,40,000/-

u/s.68 of the Act by treating the above share application money received

from above persons as not genuine.

alongwith copies of documents including copies of income tax returns of 8

persons, who had allegedly contributed share application money. The

CIT(A) called for a remand report and the Assessing Officer in his report

dated 28.3.2016 stated as under:

“ With regard to the contention of the assessee, it is to state that summons were issued on dated 13.12.2010 and 16.12.2010 to the followings:

SI. Name of Date Amount Mode Date Date of Nature No. the share of (Rs.) Payment summon Despatch compliance holder introducti on 1 Chandulal 13-02- 500000 Cheque 16-12- By hand No personal Patel 2008 2010 on same deposition. I. day T. Return for A. Y. 2007-08 Shows income at Rs. 105259/- 2 Smt. Chanda 26-03- 250000 Cash 16-12- 14-12- Failed to Devi Jajodia 208 2010 2010 depose Speed Post 3 Pranab 14-04- 240000 Cash No No Deposed but income is Kishore 2007 summon summons commensurate Pattnaik with the Share application money

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4 Tarun 25-03- 500000 Cash 13-12- 14-12- Failed to Kumar 208 2010 2010 depose Jajodia Speed Post c Kiran Jajodia 26-03- 250000 Cheque 13-12- 14-12- Failed to 2008 2010 2010 depose Speed Post 6 Navin Bajoria 20-04- 250000 Cheque 13-12- 14-12- Failed to 2007 2010 '2010 depose Speed Post 7 Smt. Mina 25-04- 400000 Cheque 16-12- By hand Failed to Patel 207 2010 same day depose 8 Subhasis Pani 30-04- 250000 Cheque 13-12- 14-12- Failed to 2007 2010 2010 depose Speed Post

As the assessee has failed to prove the creditworthiness of the share applicants till the date of assessment order, the assessing officer had no option to treat the entire sum of Rs.29,40,000/- as unexplained cash credit u/s. 68 of the I. T. Act.

It submitted that as could be observed from para 3 above the summons were duly served on the parties concerned well before the date of hearing i.e. 21-12-2010 and as noted by the A.O. at page 5 of the assessment order that after considering ail the compliances made to the summons issued the above seven share applicants (except Pranab Kishore Pattnaik) had not ostensible source of income to invest in the assessee-company towards share application money totaling to Rs.29,40,000/-. It is therefore for the kind consideration that the A.O. had accepted the identity of the parties and that they only do not have the credit worthiness to advance the amount stated to have been made by them, Therefore the contention of the assessee that there was no opportunity to establish the genuineness of the creditors as the summons issued on 13-12-2010 fixing hearing on 21-12- 2010 were served only on 28-12-2010 is devoid of merit. It is also submitted that the confirmation letters filed on the date of passing of the assessment order on 28-12-2010 has been considered and reckoned."

under:

“3.2 I have considered the mater threadbare and gone through the facts on record including the written submission of the assessee and the remand report of the AO. In the course of appeal hearing, the assessee had furnished copies of I. T. returns of all the share applicants. The total incomes as disclosed by these persons in their IT. returns for a few years prior to the alleged investment are as under;

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Name of the person Asst.Year Total income in the return

Chandulal Patel 2005-06 Rs.1,47,888/- 2006-07 Rs.1,86,979/- 2007-08 Rs.1,05,259/- 2008-09 Rs.1,22,670/-

Chanda Devi Jajodia 2005-06 Rs.98,540/- 2007-08 Rs.1,26,560/- 2008-09 Rs.1,41,570/- Pranab Kishore Pattnaik 2007-08 Rs.95,865/- 2008-09 Rs.l,11,723/- Tarun Kumar Jajodia 2006-07 Rs.l,10,244/- 2007-08 Rs.l,51,300/- 2008-09 Rs.l,30,943/- Kiran Jajodia 2005-06 Rs.98,040/- 2007-08 Rs.l,21,250/- 2008-09 Rs.l,38,190/- Navin Bajoria 2006-07 Rs.l,05,643/- 2007-08 Rs.l,05,850/- 2008-09 Rs.98,364/- Mina Patel 2006-07 Rs.l,13,709/- 2007-08 Rs.l,23,930/- 2008-09 Rs.l,36,634/- Subhasis Pani 2005-06 Rs.67,000/- 2008-09 Rs.l,11,600

A look at the returns of income of the above persons makes it abundantly clear that they do not have the creditworthiness to investment in the form of share application money. The income disclosed by them appears to be not even enough to meet their personal and domestic expenses. The returns of many of them also appear clearly to be capital build-up returns. The AO in the assessment order has discussed about the creditworthiness of one the investors viz. Sri Pranab Kishore Pattanaik and has concluded that he cannot be said to have saved as high an amount of Rs.2,00,000/- from a small monthly income of Rs.8,000/- to Rs.10,000/-. I fully agree with the AO in this regard. Since the creditworthiness of the investors have not been proved and except Sri Pattanaik, nobody else was produced for examination before the AO even though specifically asked, it is to be held that the above investors did not have the capacity to invest in the form of share application money as'claimed by the assessee. In this regard, the decision of the Hon'ble ITAT, Delhi Bench in the case of DCIT v. Smt. Phoolwati Devi (2009) 314 ITR(AT) 1 may be relied upon. Accordingly, the addition of Rs.29,40,000/- u/s.68 is held to be in order and confirmed.”

u/s.131 of the Act dated 13.12.2010 to Smt. Chanda Devi Jajodia, dated

16.12.2010 to Smt. Mina Patel, dated 13.12.2010 to Smt. Kiran Jajodia and dated

13.12.2010 to Sri Tarun Kumar Jajodia.

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the above share applicants. He pointed out that even though summons were

dated 13.12.2010 and 16.12.2010, they were actually posted on 24.12.2010

requiring the assessee to be present on 20.12.2010 in respect of Smt. Kiran

Jajodia and on 21.12.2010 in respect of other share applicants, which was

impossible. Hence, it was his submission that the claim of the Assessing Officer

as well as the CIT(A) that the share applicants did not appear before him and

depose of having invested in the share capital of the assessee company is not

correct on the facts of the case. He further pointed out from the order of the

CIT(A) that the CIT(A) has mentioned as quoted above that the Remand Report

of the Assessing officer on 28.3.2016 that summons issued on 13.12.2010 and

16.12.2010 were duly served on 21.12.2010. Even if it is assumed, I fail to

appreciate how a summon served on 21.12.2010 can be complied by a person on

a date prior to the date of service on 20.12.2012. Thus, no adverse inference

against the assesse can be drawn on the basis of above alleged non-compliance

which was factually impossible to comply with. Therefore, I find that the assesse

has discharged his initial burden by filing the PAN Nos. and copy of income tax

returns of the share applicants, which establish the identity of the share applicants

beyond any shadow of doubt. Thereafter, the department could not bring any

positive material on record to show that either the share applicants have not

actually advanced the share application money in question or they could not have

advanced the same. The CIT(A) has drawn an adverse inference regarding

creditworthiness of the share applicants merely on the basis of suspicion alone. It

was not the case of the assesse that the share applicants had advanced the money

out of the income of the year alone and no positive material has been brought on

record to show that share applicants could not have any other source like his

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capital i.e. saving of earlier years or receipt from any other person from which the

applicant could not have advanced the share application in question.

the case of Pr. Commissioner of Income Tax vs. Jatin Investment Pvt Ltd. in ITA

Nos.43/2016 and 44/2016 order dated 18.1.2017, wherein, the Hon’ble High

Court has held as under:

5.4 The appellant has adduced the documentary evidences in support of the transaction in question. The identity of the purchasers of the shares was established as it was borne on the record of the Income Tax Department. The purchasers have PAN card as well. Turning to the shares which were sold by the appellant as per its version, there is no evidence or material to even suggest, as pointed out as on behalf of the appellant, that the cheques directly or indirectly emanated from the assessee so that it could be said that the assessee’s own money was brought back in the guise of sale proceeds of the shares. Though, the purchasers of the shares could not be examined by the AO, since they were existing on the file of the Income Tax Department and their Income Tax details were made available to the AO, it was equally the duty of the AO to have taken steps to verify their assessment records and if necessary to also have them examined by the respective AOs having jurisdiction over them which has not been done by him.” 17. He submitted that the facts being identical, respectfully following the

same, the addition should be deleted.

share applicants identity was established as it was borne on the record of

the income tax department. Though the share applicants could not be

examined by the Assessing Officer since they were existing on the file of

the Income Tax Department and their income tax details were made

available to the Assessing officer, it was equally the duty of the Assessing

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Officer to have taken steps to verify their assessment records and if

necessary to also have them examined by the respective Assessing Officer

having jurisdiction over them which has not been done by the Assessing

Officer.

Commerce Ltd (2014) 101 DTR 413 (Cal)has held that once the identity

and other relevant particulars of shareholders are disclosed, it is for those

shareholders to explain the source of their funds and not for the assessee

company to show wherefrom these shareholders obtained funds. It was

held that Tribunal was justified in deleting addition in the hands of the

assessee company.

2014 222 Taxman 58 (Mag) (All) held that the assessee has discharged

the onus by furnishing the name and address and Permanent Account

Number of the share applicants and if the Assessing Officer was having any

doubt he could have issued summons to the persons who were claimed to

be assessed to income tax and was having permanent account number.

case is assessment year 2008-09 which is prior to the amendment made in

section 68 w.e.f. 1.4.2013. In the pre-amended provision of the law in

case of share application money, it is settled position that once the assessee

establishes the identity of the share applicants then even if the share

application money is received by the assessee company from alleged bogus

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shareholders, whose names are given to the AO, then the Department is

free to proceed to reopen their individual assessments in accordance with

law, but it cannot be regarded as undisclosed income of assessee company.

The above view was settled by the Hon’ble Supreme Court in the case of

COMMISSIONER OF INCOME TAX vs. LOVELY EXPORTS (P) LTD. (2008)

216 CTR 0195. I, therefore, set aside the orders of lower authorities and

delete the addition of Rs.29,40,000/- and allow this ground of appeal of the

assessee.

In the result, the appeal filed by the assessee is allowed. 23. Order pronounced in the open court on 02/02/2017 in the presence of parties.

Sd/- (N.S Saini) ACCOUNTANT MEMBER

Cuttack; Dated 02/02/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : M/s. UJtkal Plaster Pvt Ltd., C/O. Jagannath Saw Mill, Cuttack Road, Bhubaneswar 2. The Respondent. ITO Ward-1(3), Bhubaneswar. 3. The CIT(A)-1, Bhubaneswar. 4. Pr.CIT-1, Bhubaneswar. 5. DR, ITAT, Cuttack BY ORDER, 6. Guard file. //True Copy// SR.PRIVATE SECRETARY ITAT, Cuttack