2019 (1) TMI 1591 - AT - Income Tax

Assessment u/s 153A - additions u/s 68 on account of unsecured loans, special deposits against the issue of preferential equity shares treating the same as accommodation entries availed by the assessee from the entry providers - HELD THAT - Neither in the assessment order, the Assessing Officer has referred or relied upon any incriminating material found during the course of search and seizure action in the case of assessee nor the CIT(A) has disputed this fact that the AO was not having any incriminating material in his possession found and seized during the course of search and seizure action in the case of the assessee which has disclosed any unaccounted or undisclosed income of the assessee. The information received from the Investigation Wing, Kolkata as well as the statement of Shri Anand Sharma and Shri Ankit Bagri cannot be regarded as incriminating material unearthed during the course of search and seizure U/s 132 in the case of the assessee. Hence, in view of the decisions/binding precedents as relied upon by the ld AR and also considered by this Tribunal in the case of Kota Dall Mill (supra), we have no reason to take a different view on this issue. Accordingly, by following the earlier decision of this Tribunal in the case of group concern M/s Kota Dall Mill 2019 (1) TMI 344 - ITAT JAIPUR we hold that the addition made by the Assessing Officer while passing the assessment orders for the A.Y. 2010-11 to 2012-13 u/s 153A are not sustainable and liable to be deleted. Hence, this ground of the assessee s appeal is allowed. Addition without giving the opportunity of cross examination of the witnesses and consequently there is a violation of principles of natural justice - HELD THAT - The facts and circumstances in both the cases are identical and therefore, following the earlier order of this Tribunal in case of Kota Dall Mill, we hold that the addition made by the Assessing Officer on the basis of the information/report of the DDIT (Investigation), Kolkata as well as the statements of Shri Anand Sharma and Shri Ankit Bagri without giving an opportunity of cross examination is not sustainable as the addition is solely based on the statement and information which is nothing but summary of statements recorded by the DDIT(Inv), Kolkata. Hence, the addition made by the Assessing Officer is deleted. Ground No. 2 of the appeal is decided in favour of the assessee. Addition u/s 68 - HELD THAT - AO has not brought any material on record to controvert the correctness of the evidence filed by the assessee rather all these records was subjected to the scrutiny assessment in the case of the loan creditor, therefore, once the department has accepted financial statement of the loan creditors then the same cannot be denied while examining genuineness of the transaction in the hand of the assessee. Hence, by following the earlier order of this Tribunal in the case of Kota Dall Mill (supra) wherein the issue of loan taken from M/s Jalsagar Commerce Pvt. Ltd. was examined and decided in favour of the assessee, we delete the addition made by the Assessing Officer in this regard. Addition u/s 68 on account of unexplained unsecured loans - sufficient for advancement of loan to the assessee - HELD THAT - Tribunal in the case of Kota Dall Mill 2019 (1) TMI 344 - ITAT JAIPUR has examined all the relevant details including the funds available with Teac Consultants Pvt. Ltd., which is sufficient for advancement of loan to the assessee. Further the ld. CIT(A) has deleted the addition on the basis that the Assessing Officer has not brought any material on record to controvert the documentary evidence filed by the assessee even the statement of alleged entry operator was not in possession of the Assessing Officer. The finding of the ld. CIT(A) in the case under consideration is identical as in the case of Kota Dall Mill (supra), therefore, following the earlier order of this Tribunal, we do not find any error or illegality in the order of the CIT(A) qua this issue. Hence, the appeal of the revenue is dismissed. Addition of special deposits received - allotment of equity shares on preferential basis, which was sustained by the ld. CIT(A) - AO has made addition of unsecured loan taken from M/s Birla Art Pvt. Ltd. as well as various special deposits received from five parties by treating the same as bogus accommodation entries based on the report of the Investigation Wing, Kolkata as well as the statement of one Shri Ankit Bagri - HELD THAT - Tribunal has considered the issue on the basis of various documentary evidences as well as the assessment framed U/s 143(3) of the Act in case of M/s Caplin Dealcom Pvt. Ltd. - assessee was persuading with the Kolkata Stock Exchange as well as the SEBI for delisting of this company and thereafter preferential shares to be issued to these parties. The ld AR has produced before us the letters of Kolkata Stock Exchange dated 01/8/2014 as well as SEBI dated 03/9/2014 whereby the approval was granted for voluntary delisting of the equity shares of the assessee - SEBI has regretted the request by citing the reason that there is no provision under SEBI Act for delisting or waiver sought by the company. Hence, the explanation of the assessee that the special deposits were received as per the memorandum of understanding to issue the shares on preferential basis to these parties after delisting of the shares of the company in the stock exchange is found to be correct as the assessee has already applied to the Kolkata Stock Exchange as well as SEBI for delisting of its equity shares. Even otherwise when the creditworthiness of the party as well as genuineness of the transaction through the banking channel was established without pointing out any discrepancy either in the books of account or in the bank statement of the creditor or the assessee, the addition made merely on the basis of the statement is not sustainable. In view out finding on this issue in case of Kota Dall Mill (supra), the addition made by the Assessing Officer is deleted. Addition in respect of five creditors - HELD THAT - The statement itself does not give a clear picture but Shri Ankit Bagri has stated that prior to 07/4/2012 he was involved in providing accommodation entries alongwith his partner Late Shri Sumit Kejriwal but after the death of Sumit Kejriwal on 07/4/2012 he has not done any activity of providing accommodation entry. Since all these transactions are subsequent to the said date of death of Shri Sumit Kejriwal, therefore, the statement itself is not helping the case of the Assessing Officer. Even otherwise when the assessee has produced the documentary evidence in support of its claim and the Assessing Officer has not brought on record any contrary material to dispute the correctness of the documentary evidence filed by the assessee then the addition made by the Assessing Officer merely on the basis of the statement is not sustainable. Further we have already taken a view that the statement relied upon by the Assessing Officer without giving opportunity of cross examination is clear violation of principles of natural justice and consequently the addition made merely on the basis of statement is not sustainable. Even otherwise the ld. CIT(A) has deleted the addition on the ground that the Assessing Officer was not having in his possession the statement of the alleged entry providers in respect these five parties except in the case of M/s Caplin Dealcom Pvt. Ltd. Hence, in view of the above facts and circumstances as discussed above, we do not find any error or illegality in the order of the ld. CIT(A) qua this issue. Disallowance of depreciation on guest house building - AO has disallowed the depreciation on guest house on the ground that the assessee has failed to establish that the guest house was used exclusively for the business purposes - CIT(A) has allowed the claim of depreciation - HELD THAT - Once the guest house is situated in the factory premises itself, then the use of the guest house is not in dispute. It is not a claim of deduction U/s 37(1) of the Act to consider the expenditure is laid out wholly and exclusively for the business of the assessee. The claim of depreciation U/s 32 of the Act is allowable once the asset is put to use, therefore, the fact of the guest house is in factory premises itself not in dispute which established that the guest house is used for the business purposes of the assessee and not for any other purpose - where the guest house is situated in the factory premises and being used for the purpose of business of the assessee, we do not find any error or illegality in the order of the ld. CIT(A) qua this issue. Restriction of depreciation on UPS from 60% to 15% - HELD THAT - This Tribunal has been taking a consistent view that the UPS is an integral part of computer and therefore, eligible for depreciation @ 60% - no error or illegality in the impugned order of the ld. CIT(A) qua this issue. Hence, this ground of the revenue s appeal stands dismissed. Disallowance of foreign travel expenses - AO held that the assessee has incurred these expenditure towards foreign travel expenses in respect of the visits of the Directors - HELD THAT - An identical issue was decided in the A.Y. 2011-12, which was not challenged by the revenue before us. Hence, we do not find any error or illegality in the impugned order of the ld. CIT(A) qua this issue. Disallowance of non- recoverable electricity charges paid to IEX of written off - HELD THAT - assessee has finally written off the said amount during the year under consideration. We note that the payment made by the assessee for purchase of electricity from open access is otherwise an allowable expenditure being laid out for the purpose of business of the assessee. The only dispute is whether the excess payment made by the assessee over and above the consumption of electricity can be allowed for the year under consideration as written off amount. Once the said expenditure is an allowable claim for the respective years during which the payment was made for purchase of electricity then there is no bar for allowing the said excess amount paid by the assessee which could not be recovered due to the complications involved in the process of purchase of energy from open source and transmission of the same through various intermediaries and written off. Even otherwise the claim of the assessee is revenue neutral as the assessee has also paid maximum marginal rate of tax for the assessment year 2012-13 and 2013- 14 during which the payment was made. Once the expenditure is otherwise an allowable business expenditure then the non-recoverable amount was finally written off by the assessee is allowable as business loss incurred during the course of business of the assessee. The electricity is an essential requirement of the assessee for carrying out the manufacturing activity and therefore, the expenditure incurred for purchase of electricity cannot be disallowed merely on technical grounds.

Summary

Issues Involved:
1. Validity of reassessment under Section 153A of the Income Tax Act.
2. Addition based on statements without cross-examination.
3. Merits of additions under Section 68 for unsecured loans and special deposits.
4. Denial of benefit of telescoping and peak credit theory.
5. Disallowance of depreciation on guest house building.
6. Disallowance of higher depreciation on UPS.
7. Disallowance of foreign travel expenses.
8. Disallowance of professional service charges as prior period expenses.
9. Disallowance of non-recoverable electricity charges.
10. Disallowance of telephone and mobile phone charges.

Detailed Analysis:

1. Validity of Reassessment under Section 153A:
The Tribunal held that for the assessment years 2010-11 to 2012-13, the assessments were not pending on the date of search, and no incriminating material was found during the search. Therefore, the additions made by the AO were not sustainable. The Tribunal relied on precedents like CIT vs. Kabul Chawla (380 ITR 573) and Principal CIT vs. Meeta Gutgutia (395 ITR 526).

2. Addition Based on Statements Without Cross-Examination:
The Tribunal found that the AO relied on statements from third parties recorded by the Investigation Wing, Kolkata, without providing the assessee an opportunity for cross-examination. This was deemed a violation of natural justice. The Tribunal cited the Supreme Court's decision in Andaman Timber Industries vs. CCE (2016) 15 SCC 785, which held that not allowing cross-examination makes the order a nullity.

3. Merits of Additions Under Section 68:
The Tribunal examined the documentary evidence provided by the assessee, including financial statements, bank statements, and assessment orders of the loan creditors. It concluded that the AO failed to bring any material evidence to dispute the genuineness of the transactions. The Tribunal deleted the additions made on account of unsecured loans from entities like M/s Jalsagar Commerce Pvt. Ltd., M/s Teac Consultants Pvt. Ltd., and others.

4. Denial of Benefit of Telescoping and Peak Credit Theory:
Since the Tribunal deleted the additions made by the AO, the issue of telescoping and peak credit theory became infructuous.

5. Disallowance of Depreciation on Guest House Building:
The Tribunal upheld the CIT(A)'s decision to allow depreciation on the guest house building, noting that it was situated within the factory premises and used for business purposes.

6. Disallowance of Higher Depreciation on UPS:
The Tribunal confirmed that UPS is an integral part of a computer and eligible for higher depreciation at 60%, following precedents like ACIT vs. Ram Kishan Verma (2011) 30CCH 0561.

7. Disallowance of Foreign Travel Expenses:
The Tribunal found that the AO made an ad hoc disallowance without pointing out specific instances of personal use. It upheld the CIT(A)'s decision to allow the full claim, noting that the assessee is a company and cannot have personal expenses.

8. Disallowance of Professional Service Charges as Prior Period Expenses:
The Tribunal upheld the CIT(A)'s decision to allow professional service charges incurred for appeals related to earlier years, as the bills were raised during the year under consideration.

9. Disallowance of Non-Recoverable Electricity Charges:
The Tribunal allowed the claim for non-recoverable electricity charges written off, stating that the expenditure was incurred for business purposes and the write-off was justified when recovery was deemed impossible.

10. Disallowance of Telephone and Mobile Phone Charges:
The Tribunal deleted the disallowance, noting that in the case of a company, such expenses cannot be personal. If any personal use is involved, it should be treated as a perquisite subject to fringe benefit tax.

Conclusion:
The Tribunal provided a comprehensive analysis, addressing each issue with detailed reasoning and reliance on established legal precedents. The decisions favored the assessee on most counts, emphasizing the importance of procedural fairness and the necessity of substantive evidence in making additions under the Income Tax Act.