M/s. Altina Finance Pvt. Ltd. 303, Anand House, 13th Road Khar (W), Mumbai 400052 Vs. D C I T - 9(1) Aayakar Bhavan, M.K. Road Mumbai 400020
May, 01st 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" Bench, Mumbai
Before Shri D. Manmohan, Vice President
and Shri N.K. Billaiya, Accountant Member
ITA No. 2655/Mum/2011
(Assessment Year: 2002-03)
M/s. Altina Finance Pvt. Ltd. D C I T - 9(1)
303, Anand House, 13 Road Vs. Aayakar Bhavan, M.K. Road
Khar (W), Mumbai 400052 Mumbai 400020
PAN - AAACM5825C
Appellant by: Shri Sanjay Parikh
Respondent by: Shri Manish Kumar Singh
Date of Hearing: 23.04.2014
Date of Pronouncement: 30.04.2014
Per D. Manmohan, V.P.
This appeal by the assessee is directed against the order dated
11.01.2011 passed by the CIT(A)-19, Mumbai and it pertains to A.Y. 2002-03.
2. Addition of `1,00,000/- upheld by the CIT(A) under section 68 of the
Act is subject matter of dispute before us.
3. Facts necessary for disposal of the appeal are stated in brief. The
assessee company is engaged in the business of share trading. For the year
under consideration it had filed its return of income declaring loss of
`12,37,966/-. During the course of assessment proceedings the AO noticed
that the Balance Sheet of the assessee reflected sundry creditors of
`1,00,000/- in the name of M/s. Hatima Textiles Ltd. The assessee was
asked to explain the nature of the credit entry. In response thereto it was
submitted that a sum of `1,00,000/- was received from Mr. Alfred D'souza
and Ms. Nandita D'souza in connection with public issue (private placement)
of Hatima Textiles Ltd. but the transactions having not been materialised
the amount was shown as payable to Hatima Textiles Ltd.
4. It deserves to be noticed that if the amount is paid by Mr. Alfred
D'souza and Ms. Nandita D'souza to Hatima Textiles Ltd., it can at best be
2 ITA No. 2655/Mum/2011
M/s. Altina Finance Pvt. Ltd.
considered as cash credit in the hands of Hatima Textiles Ltd. but the
assessee showed Hatima Textiles Ltd. as sundry creditor. Under these
circumstances, the explanation of the assessee was not accepted. Since no
confirmation has been filed by the assessee that it has to pay to M/s.
Hatima Textiles a sum of `1,00,000/-, it was treated as income of the
assessee "on account of cessation/non-existence of liability", presumably by
invoking provisions of section 41(1) of the Act. The addition made by the AO
was challenged unsuccessfully before the CIT(A). Though the CIT(A)
observed that the amount in question cannot be taxed under section 41(1)
or 28(iv), the disallowance is maintainable as unexplained cash credit under
section 68 of the Act. On a further appeal, the ITAT set aside the matter in
the light of certain fresh facts, i.e. the assessee obtained affidavits of Mr.
Alfred D'souza and Ms. Nandita D'souza to the effect that they had given a
sum of `50,000/- each to the assessee for investing in shares of Hatima
Textiles Ltd. In other words, the case of the assessee is that on behalf of
Hatima Textiles Ltd. the assessee collected a sum of `1,00,000/- from the
aforementioned parties and hence Hatima Textiles Ltd. was shown as
creditor. Since fresh evidence was filed before the Tribunal, the matter was
restored to the file of the AO to examine the same and to decide afresh.
Accordingly the AO issued notices under section 143(2) of the Act and
examined the material placed before him. The case of the assessee was that
the assessee collected similar amounts from several other persons also apart
from Mr. Alfred D'souza and Ms. Nandita D'souza towards share application
money. The understanding was that Hatima Textiled Ltd. shall be coming
out with public issue of shares which may result in substantial gains to
investors. Subsequently Hatima Textiles Ltd. informed the assessee that
they had dropped the proposal to issue shares to the public. Therefore, the
assessee had to refund the money to the subscribers. Out of a total sum of
`3,00,000/-, `2,00,000/- was repaid to 19 investors between April, 1998
and February, 1999 and the balance amount was repaid on 31.03.2005.
5. The AO observed that the assessee company failed to establish that
the amount of `1,00,000/- shown as liability in the books of account relates
to two creditors, i.e. Mr. Alfred D'souza and Ms. Nandita D'souza. He,
therefore, added a sum of `1,00,000/- presumably under section 68 of the
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M/s. Altina Finance Pvt. Ltd.
Act since the order passed by the CIT(A) in the first round of litigation was
not challenged by the Revenue. Aggrieved, assessee contended before the
first Appellate Authority, vide its grounds of appeal, that the amount shown
as payable to Hatima Textiles Ltd. was actually payable to Mr. Alfred
D'souza and Ms. Nandita D'souza towards share application money and
hence the addition in the hands of the assessee is not warranted. Without
prejudice to the above, a sum of `1,00,000/- cannot be taxed in the year
under consideration as the amount had neither been received during the
year under consideration nor there was cessation of liability during the year
under consideration. Ground No. 5 reads as under: -
"5. Without prejudice to the above, the learned AO failed to appreciate
that the sum of Rs.1,00,000/- could not be taxed for the year
under consideration as the amount had neither been received
during the year under consideration nor was there a cessation of
liability during the year under consideration."
The learned CIT(A), however, observed that the refund of the amount to Mr.
Alfred D'souza and Ms. Nandita D'souza was not proved. He, therefore,
confirmed the action of the AO.
6. Further aggrieved, assessee is in appeal before us. The learned
counsel for the assessee submitted that in order to invoke provisions of
section 41(1) of the Act it has to be shown that the assessee gained benefit/
claimed deduction in any of the earlier years in the form of liability and only
in such an event, in the year of remission of liability it can be brought to tax.
In the instant case the plea of the assessee that there was no such benefit
obtained in the earlier years was accepted by the learned CIT(A). The AO
having not objected to the findings of the CIT(A), it cannot now be said that
section 41(1) is applicable to the instant case and, therefore, the issue has
to be considered only under section 68 of the Act, since it was treated as
unexplained cash credit. In this regard, the learned counsel for the assessee
submitted that the credit, if any, is recorded in the books of account in an
earlier year since the amount was collected during 1998-99. Section 68 is
applicable in respect of any cash credit recorded in the books of the assessee
in the previous year relevant to the assessment year under consideration
whereas in the instant case the credit pertains to the earlier year and hence
no addition is maintainable in this year. He also relied upon the Affidavits of
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M/s. Altina Finance Pvt. Ltd.
Mr. Alfred D'souza and Ms. Nandita D'souza in support of the claim of the
assessee company that the assessee received the amount from them, which
in turn has to be given to Hatima Textiles Ltd. but the company having
dropped the idea of private placement of its shares, the assessee showed
Hatima Textiles Ltd. as creditor. At any rate, even if there is a dispute as to
who should be treated as creditor, the undisputed fact is that it is not a
fresh cash credit and hence the addition is not maintainable in this year.
7. On the other hand, the learned D.R. strongly relied upon the orders
passed by the tax authorities. He mainly submitted that there is no proof of
payment made to Mr. Alfred D'souza and Ms. Nandita D'souza in the year
2005. At any rate, the assessee had shown Hatima Textiles Ltd. as creditor
but the existence of such a company could not be proved. He thus strongly
supported the orders passed by the tax authorities.
8. We have carefully considered the rival submissions and perused the
record. It is not in dispute that in the first round of litigation the learned
CIT(A) observed that provisions of section 41(1) cannot be applied to the
instant case and the addition, if any, can be made under section 68 of the Act
as unexplained cash credit. Since the view taken by the CIT(A) having not
been challenged by the Revenue, the same attained finality. Therefore, the
case of the Revenue deserves to be considered only in the backdrop of section
68 of the Act. It is not in dispute that the plea of the assessee that no fresh
cash credit was taken in the previous year relevant to A.Y. 2002-03 was not
disputed by the tax authorities. Whether the creditor is Hatima Textiles Ltd.
or D'souzas, the fact remains that there is no fresh cash credit in the year
under consideration in which event, in our considered opinion, addition
cannot be made under section 68 of the Act in this year. We hold accordingly.
9. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 30th April, 2014.
(N.K. Billaiya) (D. Manmohan)
Accountant Member Vice President
Mumbai, Dated: 30th April, 2014
5 ITA No. 2655/Mum/2011
M/s. Altina Finance Pvt. Ltd.
1. The Appellant
2. The Respondent
3. The CIT(A) 19, Mumbai
4. The CIT 9, Mumbai City
5. The DR, "A" Bench, ITAT, Mumbai
ITAT, Mumbai Benches, Mumbai