IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH `B' NEW DELHI)
BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER
AND
SHRI T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A. No.2675/Del/2011
Assessment year : 2007-08
DCIT, E1-EN India (P) Ltd.,
Circle-11 (1), 43-44 DSIDC, Scheme-III,
New Delhi. V. Okhla Industrial Phase-II,
New Delhi.
(Appellant) (Respondent)
/GIR/No.AACCG-
AACCG-1119-
PAN /GIR/No.AACCG 1119-K
Appellant by : Ms. Sumana Sen, Sr. DR.
Respondent by : Shri V.K. Garg, C.A.
ORDER
PER TS KAPOOR, AM:
This is an appeal filed by the revenue against the order of Ld CIT(A)
dated 14.3.2011. The grounds raised by the revenue are as under:-
1. On the facts and circumstances of the case and in law, the CIT(A)
has erred in deleting the addition of `.25,00,000/- on account of
unexplained cash credit.
2. On the facts and circumstances of the case and in law, the CIT(A)
has erred in deleting the addition of `.22,47,517/- on account of
disallowance u/s 37 of the Act.
3. The appellant craves leave to add, alter or amend any ground of
appeal raised above at the time of hearing.
2 ITA No2675/Del/2011
2. The brief facts of the case are that the assessee is engaged in
the trading of computer parts and it filed its return of income on
22.10.2010 showing nil income. The case was selected for scrutiny.
During assessment proceedings, the Assessing Officer observed that
company was incorporated on 1.4.2004 and there was no working till
31.3.2006. The Assessing Officer has also observed that assessee had
mainly entered into transactions with two companies namely M/s
Datamini Computers Ltd. and M/s Acceton India (P) Ltd. The Assessing
Officer observed that up to October, 2006 the assessee had made
sales of `.20.05 lakhs whereas the purchases were to the tune of
`.11.74 lakhs only and, therefore, he observed that assessee was
having huge g. p. Ratio. However, the assessee had declared GP ratio
which was quite less as compared to GP ratio calculated from the sales
and purchase figures up to October, 2006. The Assessing Officer also
observed many discrepancies and listed thrice in his order at page 2,3
& 4 and from the observations made he concluded that the main
object of company was to adjust the un-explained cash credit money
received from EI EN Singapore. The Assessing Officer observed that no
such documents were filed as to prove that shares were allotted to EN
Singapore. Therefore, he held that business was not genuine and
entries were generated only to show expenditure of `.23 lakhs
approximately to adjust amount of Rs. 25 lacs received from
Singapore. Therefore, he made an addition of `.25 lakhs as un-
explained cash credit. The Assessing Officer also disallowed an amount
of `.22,47,517/- being expenses other than audit fee of Rs.22,172/-
debited by the assessee in its P&L Account. The Assessing Officer held
that assessee did not carry any business and assessee did not produce
books of accounts and transactions between the assessee and its
associate companies were sham transactions, he further held that
assessee had not maintained stock register and address of both the
3 ITA No2675/Del/2011
companies with whom transactions were carried out and that of the
assessee were same and, therefore, all transactions were bogus. In
view of above, he treated all expenditure except audit fees as bogus
and made addition of `.22,47,517/-.
3. Dissatisfied with the order, the assessee filed appeal before Ld
CIT(A) and submitted as under:-
i) That Assessing Officer was not justified in rejecting the books
of accounts of the appellant and disallowing expenses of
`.22,47,517/- whereas proper books of accounts were
maintained and even ledger remained with Assessing Officer
for about a month.
ii) That Assessing Officer was not justified in making addition of
`.25 lakhs u/s 68 on account of share application money
received from EN Singapore by alleging that main motive of
the assessee company was to adjust unexplained cash credit
money.
iii) That when books of accounts were rejected, the Assessing
Officer should have given opportunity to assessee to show
cause as to why the assessment should not be completed to
the best his of judgment.
iv) That Assessing Officer had rejected the books of accounts due
to discrepancies mentioned at page 2-4 of assessment order
and submitted that the discrepancy as mentioned by
Assessing Officer were either not a discrepancy at all or was
verifiable from record itself.
v) That the figure of sale arrived at by Assessing Officer up to
October, 2006 at `.20.05 lakhs was not correct and the actual
figure was `.18,04,863/-.
4 ITA No2675/Del/2011
vi) That it is general practice that some times goods are received
earlier as per challan and the bill is received latter on and
same is entered in to books of accounts when bill is received.
The assessee in support of it filed copy of challan and
confirmed copies of accounts of Datamini Technology Pvt. Ltd.
and EN India Pvt. Ltd. as an additional evidence.
vii) That many expenses claimed by the assessee are on account
of salary and consultation charges and are mostly paid by
cheque and tax at source was deducted wherever is
applicable and Assessing Officer has not brought any adverse
material on record.
4. It was also contended before Ld CIT(A) that necessary
opportunity was not provided to assessee and therefore fresh
evidences were filed. The Ld CIT(A) after getting remand report from
Assessing Officer and after going through the submissions of assessee
deleted the addition made by the Assessing Officer. The relevant
portion of Ld CIT(A)'s order is reproduced below:-
"I have carefully gone through the assessment order and the
submission of the appellant. On perusal of the details of this total
expenditure of `.22,47,517/- disallowed by the Assessing Officer,
the expenses on salary is `.11,97,881/- major portion of salary
has been found to be paid by cheque and TDS has been
deducted and few certificates have been filed with Assessing
Officer copy of which has been filed with me at paper book
No.71-76 along with copy of letter dated 21.10.2009 submitted
before Assessing Officer. Management consultancy was paid of
`.4 lakhs which is confirmed by the recipient of these expenses
and the balance are minor expenditure on account of running the
business. It is seen that the Assessing Officer has made
5 ITA No2675/Del/2011
sweeping statements that no business was conducted, however,
I find that the Assessing Officer has accepted the entire sales
and purchases and only the entire expenditure incurred has been
disallowed."
5. With regard to addition u/s 68 of the Act amounting to `.25 lakhs,
the Ld AR submitted before Ld CIT(A) that the assessee had started
business operation only during the year and had received share
application money from EN Singapore and in this respect copy of share
application money account, copy of confirmation from Singapore
company, copy of bank account of EN Singapore, copy of Demand
Draft of `.20 lakhs and registration proof of Singapore company were
also filed and it was argued and relying upon the decision of Lovely
Exports Pvt. Ltd. 216 CTR (SC) 195 that identity, creditworthiness and
genuineness of the transactions has been proved and therefore the
amount of money received cannot be regarded as undisclosed income
u/s 68 of the Act. The Ld CIT(A) after going through the submissions of
Ld AR deleted the addition of `.25 lakhs. The relevant portion of Ld
CIT(A)'s order is reproduced below:-
"I have carefully considered the assessment order as well as the
submission of the appellant. I find that all the documents stated
above i.e. confirmation, share application money account, bank
account of the investor and the appellant's bank account have
been filed before the Assessing Officer. The Assessing Officer has
not conducted any further verification even though sufficient
time was available and has without bringing any evidence on
record proceeded to add the amount u/s 68 of the Act by
concluding that the main motive of the company is to adjust the
unexplained cash credit. In the light of the prevalent judicial
6 ITA No2675/Del/2011
ruling, the fact that the names and address was available with
the Assessing Officer for further enquiry and the payments were
through regular banking channels and the Assessing Officer has
not brought any material to prove that this money is of the
appellant company, I am of the view that the addition u/s 68 is
unjustified and directed to be deleted."
6. Aggrieved, the revenue filed appeal before this Tribunal.
7. At the outset, the Ld DR argued that Assessing Officer had
proved that no business was done by the company and in this respect
page 2 to 4 of assessment order was read. He further argued that no
books of accounts were produced before the Assessing Officer and the
Assessing Officer has seen the whole transactions in its entirety and
after holding that transactions were bogus and there was no business
undertaken by the company had disallowed all expenses. Continuing
his arguments, he submitted that Ld CIT(A) accepted additional
evidence despite Assessing Officer's insistence that additional
evidences should not be accepted. In view of above, the Ld DR
submitted that Assessing Officer had rightly made the addition.
8. The Ld AR, on the other hand, argued that assessment was
completed without giving any opportunity. He further argued that all
documents were before the Assessing Officer and only a few were filed
before Ld CIT(A) which were again sent to Assessing Officer and
Assessing Officer has given comments on additional evidence and in
this respect our attention was invited on pages 119 to 122 of paper
book wherein copy of remand report was placed. It was further argued
that Ld CIT(A) after going through the objection of Assessing Officer in
his remand report had deleted the additions. He further argued that
7 ITA No2675/Del/2011
between the last date of hearing and date of order, there was a gap of
two months and assessee had requested Assessing Officer as if any
other document or information was required by her but she did not ask
for anything. He further argued that assessee had replied to each
query of Assessing Officer and in this respect our attention was invited
to pages 4 to 11 of paper book wherein each observation of Assessing
Officer was replied to.
9. With regard to addition of `.25 lakhs, it was argued that assessee
had submitted all evidences regarding identity, creditworthiness and
genuineness of the party from whom share application money was
received and moreover money was received from proper banking
channel and therefore the Ld CIT(A) has rightly deleted the addition.
10. In his rejoinder, the Ld DR submitted that assessee had not
submitted any proof for allotment of shares.
11. We have heard the rival submissions of both the parties and
have gone through the material available on record. We find that
company is a private limited company registered under the Companies
Act and is liable to statutory audit under Companies Act and tax audit
u/s 44AB of the Income Tax Act, 1961. A copy of the audited balance
sheet along with tax audit report u/s 44AB of the Act is placed at paper
book pages 16 to 35. The Assessing Officer had made the
disallowances of all expenses excluding audit fees of `.22,472/-
alleging that the company had not done any business and it had
booked expenditure only to adjust share application money amounting
to `.25 lakhs. We are not able to understand this proposition of
Assessing Officer as share application money is not an item of income
rather it is a liability which is shown in the balance sheet of the
8 ITA No2675/Del/2011
company and is not shown in Trading & P&L account. Therefore, logic
of Assessing Officer in disallowing whole of the expenses is not correct.
As rightly observed by the Ld CIT(A), out of total expenditure of `.
22,69,989/-, `.13,16,265/- was on account of salary and wages and `.4
lakhs was on account of management consultancy on which TDS was
deducted. Relevant certificates are placed in paper book page
No.60,71,73 & 75. Therefore, the disallowance of expenses by the
Assessing Officer without recording the factual finding was not justified
and we do not see any reason to interfere in the order of Ld CIT(A) on
this account.
12. As regards addition on account of share application money of
`.25 lakhs we observe that share application money was received from
EN Singapore through proper banking channel and money had traveled
from Singapore account of EN Singapore which is placed at paper book
page 77 & 78. Copy of Pay Order of `.20 lasklhs is placed at page 82
of paper book, similarly, copy of confirmation of Singapore company
regarding investment of `.25 lakhs in the assessee company is placed
at paper book page 61. Therefore, keeping in view all these facts and
circumstances we do not find anything to interfere in the order of Ld
CIT(A).
13. In the result, the appeal filed by the revenue is dismissed.
14. Order pronounced in the open court on 15th day of February,
2013.
Sd/- Sd/-
(U.B.S. BEDI) (T.S. KAPOOR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
9 ITA No2675/Del/2011
Dt. 15.2.2013.
HMS
Copy forwarded to:-
1. The appellant
2. The respondent
3. The CIT
4. The CIT (A)-, New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.
True copy.
By Order
(ITAT, New Delhi).
Date of hearing 10.12.2012
Date of Dictation 12.2.2013
Date of Typing 13.2.2013
Date of order signed by 15.2.2013
both the Members &
pronouncement.
Date of order uploaded on net 15.2.2013
& sent to the Bench concerned.
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