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2024 (6) TMI 818 - AT - Income TaxUnexplained cash credit u/s 68 - Intercorporate deposits - AO disagreed with the contention of the assessee on the reasoning that all the companies from whom the assessee has received the fund either in the form of intercorporate deposits or as sales consideration are paper companies as evident from the documents found during search as well as the statements recorded of various persons as discussed above and therefore the impugned fund represents bogus in nature - Whether the sales consideration shown by the assessee can be subject to the addition under section 68? - HELD THAT - We note that the transaction of sale is possible when there is a purchase. The transaction of sale cannot be completed until corresponding purchases are there. However, what we find is this that the revenue has treated the sales as unexplained cash credit without disturbing purchases shown in the profit and loss account. In simple words, the assessee has already shown sales in the profit and loss account, meaning thereby such sale has been offered to tax. Now, the Revenue without reducing the corresponding sales from the profit and loss account, has treated the sales of ₹ 4,76,00,000 as unexplained cash credit under section 68 of the Act. Thus such an act of the Revenue leads to the double addition of the same receipt shown by the assessee which is not desirable under the provisions of law until and unless the provisions warrant so. Thus, we are of the view that the Revenue has taken contradictory stand while framing the assessment which has been upheld subsequently by the learned CIT-A erroneously. Thus, we set aside the finding of the learned CIT-A and direct the AO to delete the addition made by him. Whether the intercorporate deposits accepted by the assessee which were claimed to have been repaid can be made subject to the addition under section 68? - We note that the Revenue has not challenged the submission of the assessee that such borrowing has been repaid to the companies. In this respect, we find support and guidance from the judgment of Rohini builders 2001 (3) TMI 9 - GUJARAT HIGH COURT wherein as held genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques. Thus we hold that the genuineness of the transaction in the present case was proved by the fact that the loan amount was received through banking channel and repaid during the year through banking channel - no addition is warranted with respect to the loan under section 68 of the Act once the same has been repaid through the banking channel. Hence ground of appeal of the assessee is hereby allowed. Disallowing of the loss on account of trading of shares - HELD THAT - Tribunal in the group case of the assessee i.e. Vicky Rajesh Jhaveri 2024 (6) TMI 698 - ITAT AHMEDABAD held in absence of any finding specifically against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated as far as trading loss claimed by the assessee in the scripts - We set aside the finding of the land CIT-A and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is hereby allowed. Disallowing the loss on account of client code modification - assessment proceedings found that the code of the assessee was modified 3239 times while carrying out the share trading transactions - HELD THAT - Admittedly, the genuineness of the loss was not doubted by the authorities below, but such loss was rejected on the apprehension that the same belongs to other parties but shifted to the assessee on account of client code modification. As per the revenue, there was the possibility of claiming such loss by the other party too. To our understanding, the apprehension of the revenue is correct but the same can be addressed until necessary verification is carried out at the level of the AO to find out whether such loss was claimed by the other parties whose code was modified with the code of the assessee. If such loss has not been claimed by the other party, then we can presume that such loss belongs to the assessee and therefore the same should be allowed to the assessee. Accordingly, we set aside the issue to the file of the AO for fresh adjudication in the light of the above stated discussion and as per the provisions of law. Hence, the ground of appeal of the assessee is allowed for the statistical purposes. Disallowance on account of bad debts - AR submitted that the assessee has offered the income in the earlier year and therefore the same should be allowed as deduction under the provisions of section 36(1)(vii) of the Act - whether the amount written off by the assessee on account of bad debts, is an allowable deduction under the provisions of section 36(1)(vii)? - HELD THAT - There was a sale made by the assessee dated 24 October 2011 amounting to ₹ 3,24,00,000 only. Against such sales the assessee has received amount to the tune of ₹ 1,74,99,800.00 with the outstanding balance of ₹ 1,49,00,200 which was written off by the assessee. From the copy of the ledger there remains no ambiguity that the assessee has offered the amount of bad debts as income in the earlier year and therefore the same should be allowed as deduction in view of the judgement of TRF Ltd 2010 (2) TMI 211 - SUPREME COURT wherein it was observed that it is not necessary to establish that bad debts has become irrecoverable. For claiming deduction under section 36(1)(vii) of the Act, it is enough if such bad debts are written off in the books of accounts. Hence, we set aside the finding of the ld. CIT-A and direct the AO to delete the addition made by him. Thus, the ground of appeal of the assessee is hereby allowed.
Issues Involved:
1. Addition under Section 68 for unexplained cash credit. 2. Disallowance of loss on account of trading of shares. 3. Validity of proceedings under Section 143(3) read with Section 147. 4. Disallowance of loss on account of client code modification. 5. Disallowance of bad debts. Issue-wise Detailed Analysis: 1. Addition under Section 68 for unexplained cash credit: The first issue raised by the assessee concerns the addition of Rs. 12,29,45,000 under Section 68 of the Income Tax Act, 1961, as unexplained cash credit. The assessee, a private limited company engaged in shares dealing/trading and investment, was implicated in a search and seizure operation involving Shri Chandrakant Shah (SCS) and his associates. The AO found incriminating documents indicating that the assessee received accommodation entries from SCS, amounting to Rs. 12,29,45,000. The AO treated this sum as unexplained cash credit. The CIT-A upheld the AO's decision, citing substantial evidence including statements from dummy directors and various documents. However, the ITAT found that the addition led to double taxation, as the same amount was already offered to tax as sales proceeds. Consequently, the ITAT directed the AO to delete the addition, citing principles from relevant judicial precedents. 2. Disallowance of loss on account of trading of shares: The second issue involves the disallowance of a trading loss of Rs. 9,73,389 in the shares of M/s Ganesh Spinners Ltd. The AO disallowed the loss, claiming the company was controlled by SCS and the transactions were bogus. The CIT-A confirmed the AO's decision. However, the ITAT referenced a similar case (Vicky Rajesh Jhaveri V/s ITO) and found that the transactions were genuine, conducted through registered stockbrokers, and reflected in the Demat account. The ITAT directed the AO to delete the disallowance, emphasizing that the assessee had no control over the brokers' activities and that there was no independent evidence of manipulation. 3. Validity of proceedings under Section 143(3) read with Section 147: For the AY 2010-11, the assessee challenged the validity of the proceedings initiated under Section 143(3) read with Section 147. The learned counsel for the assessee did not press this ground of appeal, leading to its dismissal as not pressed. 4. Disallowance of loss on account of client code modification: For the AY 2010-11, the AO disallowed a loss of Rs. 1,41,22,274 due to client code modification, suspecting the loss belonged to other parties. The ITAT agreed with the revenue's apprehension but directed the AO to verify if the loss was claimed by other parties. If not, the loss should be allowed to the assessee. 5. Disallowance of bad debts: For the AY 2014-15, the AO disallowed a bad debt of Rs. 1,49,00,200, stating it related to intercorporate deposits, not sales. The ITAT found that the assessee had offered the income in earlier years and allowed the deduction under Section 36(1)(vii), following the Supreme Court judgment in TRF Ltd vs. CIT. Separate Judgments: ITA No. 401/AHD/2023 for AY 2012-13: - The ITAT allowed the appeal, directing the AO to delete the addition under Section 68 and the disallowance of trading loss. ITA No. 399/AHD/2023 for AY 2010-11: - The appeal was partly allowed for statistical purposes, directing the AO to verify the client code modification loss. ITA No. 400/AHD/2023 for AY 2011-12: - The appeal was partly allowed, with similar findings as for AY 2012-13. ITA No. 402/AHD/2023 for AY 2013-14: - The appeal was allowed, with findings consistent with AY 2012-13. ITA No. 403/AHD/2023 for AY 2014-15: - The appeal was allowed, directing the AO to delete the disallowance of bad debts and trading loss. Combined Result: - Appeals in ITA No. 401 to 403/AHD/2023 were allowed. - ITA No. 399/AHD/2023 was partly allowed for statistical purposes. - ITA No. 400/AHD/2023 was partly allowed. Order Pronounced: - The order was pronounced on 13/06/2024 at Ahmedabad.
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