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2013 (1) TMI 185 - AT - Income TaxPayments to private parties liable to TDS - Non business expenditure - addition by AO as said sum of Rs.18.79 crores was not expended wholly and exclusively for the purposes business - CIT(A) deleted the addition - assessee s claim of reimbursement of the said amount from its clients - Held that - Assessee received the said payment of Rs.18,79,38,741 on account of reimbursement of expenses from its clients apart from agency commission and the agency commission has been considered as assessee s income and the same is reflected in its profit and loss account. Assessee has adjusted reimbursement of the expenses received on behalf of its clients and, therefore, agreeing that the same do not constitute part of assessee s income. As decided in Jay Kay Freighters Pvt Ltd (2013 (1) TMI 167 - ITAT NEW DELHI) that the amount mentioned in the bill raised by shipping companies on ultimate consumer were initially paid by the assessee and, thereafter assessee got reimbursed the said amount from its client including the charges of the assessee for service rendered. Therefore, assessee was not a person responsible for deduction of tax at source in terms of section 194C, accordingly, provisions of section 40(a)(ia) cannot be invoked - in favour of assessee. Bad debts written off - disallowance as assessee could not demonstrate that debts which have been claimed as bad debts has actually become irrecoverable - Held that - As per existing provisions of section 36(1)(vii), after amendment w.e.f. 1.4.1989, it is not necessary for the assessee to prove that the amount written off as bad debt is indeed bad for the purpose of allowance under section 36(1)(vii) as decided in TRF Ltd Vs CIT 2010 (2) TMI 211 - SUPREME COURT - in favour of assessee. Addition on account of share premium amount - AO on statement of Shri George Joseph and relying on the statement made u/s.133A at the time of survey considered the issuance of share capital as bogus and not genuine - Held that - assessee filed copies of requisite details viz; copy of share application form from each of the above named four applicants along with copy of board resolution, their bank statement giving particulars of cheque nos. and the amount debited from their accounts, as also copy of confirmation letters. Assessee has also filed the copy of the income tax return of each of the applicants evidencing that they are assessed to tax establishing their identity. Assessee has also filed copy of the certificate of incorporation and the Memorandum and Article of Association in the paper book, thus not only proving the identity of the share applicants but also established the creditworthiness of the share applicants and the genuineness of the transactions. The CBDT in its Instruction dated 10.3.2003 stated that confessions, if not based upon credible evidence, are later retracted by the concerned assessee and, therefore, such confession during the course of search and seizure and survey operations do not serve any useful purpose. The CBDIT also advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income tax Department. Also while recording statement during the course of search & seizure and survey operation, no attempt should be made to obtain confession as to the undisclosed income - as decided CIT vs. S.Khader Khan son (2007 (7) TMI 182 - MADRAS HIGH COURT) and Paul Mathew & Sons vs CIT (2003 (2) TMI 25 - KERALA HIGH COURT ) that no addition can be made or sustained simply on the basis of statement recorded at the time of survey/search. Therefore, there should be some material to co-relate the undisclosed income with such statement. Thus said statement made at the time of survey on 23.2.2006 cannot be the sole basis for making the addition by treating the issuance of share at a premium of Rs.8000 as bogus. Thus as assessee has furnished details of share application with PAN No. and bank statement. Further, said share applicants have also filed confirmation letters mentioning bank details to make the payment to assessee company for allotment of shares it can be concluded that transactions are admittedly recorded in the books of account both by the assessee company as well as aforesaid share applicants - no addition on account of unexplained cash credit is warranted - the action of AO is contrary to the decision of Hon ble apex Court in the case of Lovely Exports (2008 (1) TMI 575 - SUPREME COURT OF INDIA) - in favour of assessee.
Issues Involved:
1. Deletion of addition of Rs.18.79 crores by CIT(A). 2. Deletion of addition of Rs.22.28 lakhs claimed as bad debt. 3. Sustaining the addition of Rs.72,00,000/- on account of share premium amount. Issue-wise Detailed Analysis: 1. Deletion of Addition of Rs.18.79 Crores by CIT(A): The department contested the deletion of the addition of Rs.18.79 crores by CIT(A), arguing that the assessee failed to produce detailed evidence for the said amount, did not produce books of accounts, and the claim of reimbursement was incorrect. The assessee, engaged in the business of clearing and forwarding, argued that the amount was collected from clients for various payments made on their behalf and not claimed as expenses in the profit and loss account. The CIT(A) accepted the assessee's submission, stating that the addition was devoid of merit and contrary to evidence on record. The Tribunal upheld CIT(A)'s order, noting that the assessee had provided sufficient evidence that the amounts were reimbursements and not its own expenses, and thus, the provisions of section 40(a)(ia) did not apply. 2. Deletion of Addition of Rs.22.28 Lakhs Claimed as Bad Debt: The department argued that the CIT(A) erred in deleting the addition of Rs.22.28 lakhs claimed as bad debt without proper verification. The assessee contended that the amount was written off due to non-recoverability and to maintain business relationships. The CIT(A) accepted the assessee's argument, noting that post-amendment to section 36(1)(vii), it is sufficient if the debt is written off in the books of account. The Tribunal upheld CIT(A)'s order, referencing the Supreme Court's decision in TRF Ltd. v. CIT, which stated that it is not necessary to establish that the debt has become irrecoverable; writing it off in the accounts is sufficient. 3. Sustaining the Addition of Rs.72,00,000/- on Account of Share Premium Amount: The assessee contested the addition of Rs.72,00,000/- on account of share premium, arguing that the transaction was genuine and supported by adequate documentary evidence. The AO had based the addition on a statement made by the assessee's Director during a survey, which was later retracted. The CIT(A) sustained the addition, but the Tribunal found that the assessee had provided ample evidence to establish the identity, creditworthiness, and genuineness of the share applicants. The Tribunal noted that the AO had not brought any material evidence to counter the assessee's claims and that the retraction of the statement was justified. Citing the Supreme Court's decision in CIT v. Lovely Exports Ltd., the Tribunal held that if the share application money is received from alleged bogus shareholders, the department should proceed against the individual shareholders rather than the company. Consequently, the Tribunal deleted the addition of Rs.72,00,000/-. Conclusion: The Tribunal upheld the CIT(A)'s deletion of the addition of Rs.18.79 crores and Rs.22.28 lakhs, and it also deleted the addition of Rs.72,00,000/- on account of share premium, thereby rejecting the department's appeal and allowing the assessee's appeal.
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