2013 (5) TMI 523 - AT - Income Tax

Unsecured loan - Search and seizure u/s. 132 - notices u/s. 153A - unaccounted share application money - Held that - As far as addition on account of share application money is concerned,AO submitted that the assessee company filed a confirmation from the investor by name Mr. Pavan Kumar Nallamala stating that he had given a demand draft for Rs. 50 lakhs bearing No. 125623 dated 21-1-2008 drawn on Citibank, Hyderabad towards share application money for allotment of 5 lakhs equity shares @ face value of Rs. 10/- each in M/s. Lahari Impex Pvt. Ltd. In the remand proceedings the AO but the same could not be materialized on the ground that the alleged investor/creditor is an NRI, hence not produced before the AO. No compliance from the assessee to the above query raised in the appeal proceedings. As held in earlier A.Y. 2007-08, remit the issue to the file of the AO with a direction to the assessee to furnish necessary details to discharge the burden cast upon it u/s. 68 as any credit appearing in the books of account, the assessee is required to explain the identity of the parties, genuineness of the transaction and capacity of the creditors as held by jurisdictional High Court in the case of R.B. Mittal (2000 (8) TMI 54 - ANDHRA PRADESH High Court). Accordingly, the issue is remitted back to the file of the Assessing Officer for fresh consideration - assessee appeals are partly allowed for statistical purposes.

Issues Involved:
1. Disallowance of expenditure claims.
2. Treatment of unsecured loans as unexplained cash credits.
3. Treatment of new creditors for expenses as unproved liabilities.
4. Taxation of capital gains on transfer of land.
5. Disallowance of depreciation on new vehicles.
6. Treatment of share application money as unexplained cash credits.

Issue-wise Detailed Analysis:

1. Disallowance of Expenditure Claims:
The Assessing Officer (AO) disallowed 50% of the total expenditure claimed under various heads such as consumption of material, workers' payment, and administrative expenses for the assessment years (AYs) 2002-03 to 2008-09 due to the assessee's failure to produce books of account and other documents. The AO relied on judicial precedents, including Govindarajuly vs. CIT and Kale Khan Mohammd Hanif vs. CIT, to support the disallowance.

2. Treatment of Unsecured Loans as Unexplained Cash Credits:
The AO observed unsecured loans amounting to Rs. 41,55,920 and Rs. 5,85,000 for AYs 2002-03 and 2007-08, respectively, and required the assessee to furnish details and confirmations, which were not provided. Consequently, the AO treated these amounts as unexplained cash credits under Section 68 of the Income Tax Act, citing cases like Bharati Pvt. Ltd. vs. CIT and CIT vs. Baishnab Charan Mohanti.

3. Treatment of New Creditors for Expenses as Unproved Liabilities:
The AO noted new creditors for expenses in the balance sheets for AYs 2002-03, 2003-04, 2004-05, 2005-06, and 2007-08 but the assessee failed to furnish details. Thus, the AO treated these credits as unproved and added them to the total income. The CIT(A) partially agreed but reduced the addition for AY 2007-08 to Rs. 30,05,195 after verifying some subsequent payments.

4. Taxation of Capital Gains on Transfer of Land:
The AO taxed the capital gains on the transfer of land from fixed assets to stock-in-trade in AY 2002-03, adopting Rs. 7,000 per gunta as the market value and calculated short-term capital gains of Rs. 16,54,000. The CIT(A) confirmed this addition. However, the appellate tribunal remitted the issue back to the AO for further enquiry to establish whether the assessee still owns the property or has sold it.

5. Disallowance of Depreciation on New Vehicles:
The AO disallowed depreciation claims on new vehicles purchased in AYs 2004-05 to 2008-09 due to the assessee's failure to provide details of the assets. The CIT(A) upheld this disallowance.

6. Treatment of Share Application Money as Unexplained Cash Credits:
For AY 2008-09, the AO added Rs. 80,55,762 as unexplained cash credits, which included Rs. 30,55,762 as unsecured loans and Rs. 50,00,000 as share application money. The CIT(A) deleted the addition of Rs. 30,00,000 after verifying the sale deed but sustained the addition of Rs. 50,55,762 due to the assessee's failure to produce the investor for examination and lack of evidence of the transaction's genuineness.

Separate Judgments:

ITA No. 1635/Hyd/2012 (A.Y. 2004-05):
The tribunal remitted the issue of profit on the sale of land at Kondapur to the AO for further enquiry to establish the exact position of the property.

ITA No. 1636/Hyd/2012 (A.Y. 2007-08):
The tribunal remitted the issue of disallowance on creditors amounting to Rs. 30,05,195 to the AO for fresh consideration, allowing the assessee to furnish necessary details.

ITA No. 1637/Hyd/2012 (A.Y. 2008-09):
The tribunal remitted the issue of confirming the disallowance of Rs. 50,55,762 under Section 68 to the AO for fresh consideration, directing the assessee to provide necessary details to discharge the burden cast upon it.

Conclusion:
All the assessee's appeals were partly allowed for statistical purposes, with directions for further enquiry and fresh consideration by the AO on specific issues. The order was pronounced in open court on 3rd May 2013.

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