2018 (7) TMI 2154 - AT - Income Tax

Disallowance u/s 35D being ROC fees for increasing authorized Capital which is a capital expenditure - HELD THAT - Undisputedly ROC expenses incurred by assessee is in respect of increase in authorised share capital. This issue has attained finality with the decision of Hon ble Supreme Court in case of Punjab State Industrial Development Corporation Ltd. 1996 (12) TMI 6 - SUPREME COURT and Brooke Bond India Ltd. 2004 (2) TMI 32 - CALCUTTA HIGH COURT - Accordingly this ground raised by Revenue stands allowed. Disallowance of car depreciation on personal car of Sh. Rajinder Kalra - HELD THAT - No doubt that assessee is eligible to claim of depreciation on vehicle though purchased in the name of Director which must be proved to have been used exclusively for the purposes of business. In the present case assessee has not provided any Log Book maintained to establish that the vehicle was used during the relevant F.Y. for the purposes of business to be eligible for depreciation. Ld.CIT(A) has not called for/verified any such details. Further a very categorical observation by Ld.AO regarding the date of purchase of vehicle being 31.03.2009 establishes that vehicle could not have been used during the relevant F.Y. This very fact has been ignored by Ld.CIT(A). Assessee has also not proved before Ld.CIT(A) the utilization of vehicle during the relevant F.Y. for justifying the claim of depreciation. We therefore reverse the findings of Ld.CIT(A) which is not based upon the facts of the present case. Disallowance u/s 14A r.w.r. 8D - HELD THAT - CIT(A) restricted disallowance u/s 14A r.w. Rule 8D at 25, 000/- without any basis. We direct Ld.AO to re-compute disallowance u/s 14A r.w. Rule 8D having regard to various decisions of Hon ble Delhi High Court in the case of CIT vs. Holecim India P.Ltd. HOLCIM INDIA P. LTD. 2014 (9) TMI 434 - DELHI HIGH COURT as well as the decision of Apex Court in the case of Maxapp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT . Addition being loss on share trading and termed as speculation loss - HELD THAT - Assessee admits to the fact that trading in shares was undertaken by assessee during the year under consideration for the first time and it has been able to show that it was an investment company. Explanation to Sec.73 is attracted the moment any assessee does not fall within the excluded categories stated therein and such assessee shall be deemed to be carrying on speculation business to that extent for the purposes of Sec.73. The application of the said Explanation has to be considered as a whole and not in part. The Explanation has the import of treating the transaction of purchase and sale of shares which otherwise is not of speculative nature deemed to be a speculation business. Therefore to interpret that the said Explanation applies only to a case where there is a speculation business in terms of Explanation 2 to Sec.28 is not mandated by law. The deeming fiction contained in Explanation to Sec.73 is in relation to the entire activity of purchase and sale of shares whether or not they were effected by actual delivery. We disagree with the observations of Ld.CIT(A) that loss accrued to assessee could be set off against other business income. Addition on diminution of value of property as the properties were held as capital assets and during the year it was converted to stock in trade only to set off the profit of paper business - HELD THAT - On perusal of order passed by Ld.CIT(A) it is observed that Ld.CIT(A) has not taken into consideration the manner in which these properties have been treated by assessee in the past. It is observed that ld.CIT(A) has not called for any details regarding the value of the properties as on the date of conversion in order to ascertain the actual loss if any post conversion of these properties into stock-in-trade. We therefore direct Ld.AO to call for relevant details from assessee and verify the same as per law. Assessee shall furnish all requisite details of conversion of properties as stock-in-trade. Ld.AO while considering the claim of assessee shall also take into consideration the surrender made by assessee during the survey proceedings. Unaccounted cash transactions - transactions contained in slip pad marked as an annexure A-18 A19 A-32 A-33 treated as transaction made out of unaccounted cash - HELD THAT - Peak of all transactions amounting to 1, 93, 66, 043/- has not been explained by assessee transaction-wise. Ld.AO categorically mentioned that no money was in rotation. In fact ld.AO observes that assessee was not at all in money lending activity as has been observed by Ld. CIT(A). Merely accepting bald statements of assessee without any supportive evidences cannot be accepted. It is observed that assessee has not been able to substantiate generation of cash neither during assessment stage nor before Ld.CIT(A) because of which surrender was made during survey proceedings.We direct Ld.AO to compute peak of entries in the slip pads seized containing details of cash transactions. Additions are based on seized documents - HELD THAT - We do not find any infirmity in Ld. AO in making this addition as nothing else has been submitted by assessee before Ld. CIT (A) which would require any further verification. Addition on account of unexplained expenditure - HELD THAT - Assessee has not discharged its onus of proving these documents to be dumb documents. Ld.AO is directed to investigate and enquire from the books of accounts of the assessee regarding the regular customers of assessee and transactions written off in respect of the same. Assessee shall assist Ld.AO in order to verify the relevant details by providing necessary information/producing evidences in support of its write-off.

Summary

Issues Involved:
1. Deletion of addition on account of ROC fees as capital expenditure.
2. Deletion of addition on account of car depreciation on personal car.
3. Deletion of addition on account of disallowance under Section 14A read with Rule 8D.
4. Deletion of addition on account of loss on share trading termed as speculation loss.
5. Deletion of addition on account of diminution of value of property.
6. Deletion of addition on account of transactions treated as unaccounted cash.
7. Deletion of addition on account of Annexure A-2.
8. Deletion of addition on account of unexplained expenditure.
9. Deletion of addition on account of unexplained cash credit.
10. Deletion of addition on account of unexplained cash credit in Annexure A-3.
11. Deletion of addition on account of unexplained cash credit in Annexure A-1.
12. General assertion that the CIT(A)'s order is erroneous.
13. Grounds of appeal are without prejudice to each other.
14. Appellant's right to add, alter, amend, or forgo any grounds of appeal.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of ROC Fees as Capital Expenditure:
The AO disallowed ?50,226/- as ROC fees for increasing authorized capital, considering it a capital expenditure. The CIT(A) allowed 1/5th of this expenditure without verification. The Tribunal noted that ROC expenses for increasing share capital are capital expenditures, as established by the Supreme Court in Punjab State Industrial Development Corporation Ltd. vs. CIT and Brooke Bond India Ltd. vs. CIT. Therefore, the Tribunal allowed the Revenue's ground.

2. Deletion of Addition on Account of Car Depreciation on Personal Car:
The AO disallowed car depreciation, noting the car was purchased on 31.03.2009 and could not have been used in the relevant financial year. The CIT(A) allowed the claim without verifying details. The Tribunal found no evidence of the car being used for business purposes and reversed the CIT(A)'s findings, allowing the Revenue's ground.

3. Deletion of Addition on Account of Disallowance Under Section 14A read with Rule 8D:
The AO disallowed ?79,317/- under Section 14A read with Rule 8D. The CIT(A) reduced this to ?25,000/- without basis. The Tribunal directed the AO to re-compute the disallowance per relevant legal precedents, allowing the Revenue's ground for statistical purposes.

4. Deletion of Addition on Account of Loss on Share Trading Termed as Speculation Loss:
The AO invoked Explanation to Section 73, treating share trading losses as speculation losses. The CIT(A) misinterpreted the provisions, treating the loss as non-speculative. The Tribunal clarified that Explanation to Section 73 applies irrespective of actual delivery, thus treating the loss as speculative, allowing the Revenue's ground.

5. Deletion of Addition on Account of Diminution of Value of Property:
The AO noted properties were shown as investments and converted to stock-in-trade, requiring capital gain/loss computation. The CIT(A) did not verify the past treatment of properties. The Tribunal directed the AO to verify details and consider the surrender made during survey proceedings, allowing the ground for statistical purposes.

6. Deletion of Addition on Account of Transactions Treated as Unaccounted Cash:
The AO added ?6.25 crores based on slip pads showing unaccounted cash transactions, rejecting the assessee's peak theory. The CIT(A) accepted the assessee's explanation without verification. The Tribunal found no evidence of cash generation and directed the AO to compute the peak of entries, allowing the Revenue's ground.

7. Deletion of Addition on Account of Annexure A-2:
The AO added ?10,82,900/- based on seized documents. The CIT(A) set off this amount against the surrendered income. The Tribunal noted the peak theory was rejected, and the set-off was incorrect, allowing the Revenue's ground.

8. Deletion of Addition on Account of Unexplained Expenditure:
The AO added ?61,65,000/- for unexplained expenditure. The CIT(A) accepted the assessee's contention without verification. The Tribunal directed the AO to investigate the matter with reference to the books of accounts, allowing the ground partly for statistical purposes.

9. Deletion of Addition on Account of Unexplained Cash Credit:
The AO added ?9,00,000/- based on seized documents. The CIT(A) set off this amount against the surrendered income. The Tribunal noted the set-off was incorrect, allowing the Revenue's ground.

10. Deletion of Addition on Account of Unexplained Cash Credit in Annexure A-3:
The AO added ?68,37,238/- based on seized documents. The CIT(A) set off this amount against the surrendered income. The Tribunal noted the set-off was incorrect, allowing the Revenue's ground.

11. Deletion of Addition on Account of Unexplained Cash Credit in Annexure A-1:
The AO added ?7,18,678/- based on seized documents. The CIT(A) set off this amount against the surrendered income. The Tribunal noted the set-off was incorrect, allowing the Revenue's ground.

12. General Assertion that the CIT(A)'s Order is Erroneous:
The Tribunal found the CIT(A)'s order lacked proper verification and basis, supporting the Revenue's assertion.

13. Grounds of Appeal are Without Prejudice to Each Other:
The Tribunal acknowledged the grounds of appeal are independent of each other.

14. Appellant's Right to Add, Alter, Amend, or Forgo any Grounds of Appeal:
The Tribunal noted the appellant's right to modify grounds of appeal.

Conclusion:
The appeal filed by the Revenue was allowed, with directions for re-computation and verification on several grounds. The order was pronounced in the open court on 24th July, 2018.