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TMI Blog2020 (8) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... view that the Ld.CIT(A) was right in deleting the additions made towards share capital and hence, we are inclined to uphold the finding of Ld.CIT(A) and reject ground taken by the revenue. Disallowances of bogus depreciation and bogus expenses - HELD THAT:- As regards, claim of depreciation, CIT(A) had recorded categorical finding that claim of depreciation was made on office equipments, furniture and fixtures etc., which were evidently put to use, but not on plant and machinery as claimed by the AO. Accordingly, he has directed the Ld. AO to verify the claim of the assessee, in light of various evidences and allow the depreciation, if the claim of the assessee is correct. Therefore when the issue has been set aside to the Ld. AO for verification of facts, there is no grievance for revenue to agitate such findings and hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject arguments of the revenue. Disallowances of expenditure - CIT(A) has recorded categorical finding to the effect that major part of expenses for different assessment years were incurred through cheque and no adverse findings is borne from the records that the expenses were otherwise b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 994-95 and belongs to the Revati group of Companies. The main promoters and persons controlling the affairs of various companies were its two directors namely, Shri. Girish Shah and Shri Manish Shah, the later is being the son of the former. A search and seizure action u/s 132 of the I.T.Act, 1961 was conducted on 28/04/1998 on the residential and business premises of Shri. Girish Shah and Shri. Manish Shah. During the course of search, it was alleged that the group had utilized their unaccounted income to bring into the books of accounts of the group companies by public issue of shares. Consequent to search, the cases were taken up for assessment and during the course of assessment proceedings, the cases were referred for special audit u/s 142(2A) of the I.T.Act, 1961. The special auditors submitted their report on 28/01/2003 with certain observations. The assessment has been completed u/s 143(3) r.w.s. 158BD r.w.s. 158BC of the I.T.Act, 1961 on 29/07/2003 and determined total income at ₹ 6,23,38,339/-, after making additions towards share capital of ₹ 5,53,46,000/- u/s 68 of the I.T.Act, 1961 and disallowances of various expenses and bogus depreciation of ₹ 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 1) identity of the share holder 2) Credit worthiness of the share holder 3) Genuineness of the transactions. In the special audit report dt. 21/1/2003 received on 28/1/2003, the auditors have observed as under :- Financial Year 1994-95 Sr.No. List of Books Remarks 1. Cash Book No vouchers available 2. Bank Book Vouchers available partly without supportings 3. Journal Register Vouchers available without supportings and narration 4. General Ledger Financial Year 1995-96 1. Cash Book Vouchers available without supportings 2. Bank Book Vouchers available with few having proper supporting 3. Journal Register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1996-97(A.Y. 1997-98) ₹ 12,00,000/- on account of unexplained share capital F.Y. 1997-98 (A.Y. 1998-99) ₹ 2154000/- on account unexplained share application money. The assessee has not furnished any details as to whether this amount includes the share application money received in the previous FY i.e FY 96-97. To summarise the above, figures are tabulated as under:- Sr.No A. Year Unexplained Share Capital /Share application money 1 1995-96 45,000,000 2 1996-97 6,992,000 3 1997-98 1,200,000 4 1998-99 2,154,000 Total 55,346,000 7. Income through stock invest (Relevant for AY 97-98) During the discussion with the AR, it was admitted that since the company had failed to start the project, it decided to deploy its funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and no further addition is called for under these heads beyond what has been disclosed. Therefore, figures disclosed by the assessee have been considered while computing the total undisclosed income for AY 97- 98. 8. Expenses It is seen from the records and the submissions that the assessee company had not carried out any manufacturing activity during the block period. It had earned income through interest, bill discounting (which has been disclosed in the regular returns) and the use of stock invest instrument for deriving income as discussed above. Interestingly, although there was no manufacturing activity, yet the assessee has shown huge sums as capital work-in-progress. This bogus capital work-in-progress was nothing but a camouflage. In fact, the assessee had, in fact, advanced loans to various parties for carrying out financial transactions and those loans in the balance sheet appear under head capital work-in-progress . Further, no bills of additions to the fixed assets or items of capital work-in-progress were furnished either before the special auditors or during the course of block assessment. This only suggest that there was no capital expenditure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 538,417 5,800,077 6,338,494 4. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee has made voluminous submission in support of its ground of appeal, including challenging additions made by the Ld. AO towards share capital and alleged bogus expenses without any reference to incriminating material found as a result of search. During the appellate proceedings, the Ld.CIT(A) vide letter dated 04/06/2004 forwarded submissions of the assessee to the Ld. AO for remand report, and the Ld. AO vide letter dated 16/01/2006 submitted his remand report and commented upon admissibility of additional evidences filed by the assessee. Finally, a remand report dated 23/10/2007 has been furnished, where the Ld. AO has reiterated his observations made in assessment proceedings regarding additions made towards share capital and alleged bogus expenses. 6. The Ld. CIT(A) after considering relevant submissions of the assessee, remand report of the Ld. AO and by following certain judicial precedents, including the decision of Hon ble Bombay High court, in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition could not be justified in the light of the provisions of section 158B(b) also as no evidence seems to have been unearthed to show that the appellant earned undisclosed income. In this connection, reference could be made of decisions of various courts of law where existence of incriminating evidence was considered as sin qua non for the purposes of block assessment. In a recent case of CIT vs Balaji Wire P.Ltd(2007) 212 CTR 35(Del), it was held that in a block assessment, undisclosed income is required to be computed on the basis of evidence gathered during search. In this case, nothing incriminating was found and the addition was made on the statement of the Vice President and that too after the search and behind the back of the assessee. The VP also retracted his statement subsequently and made a different statement. The action of the tribunal in deleting the addition was affirmed. Relied on CIT vs Ravi Kant Jain 250 ITR 141(Del),CIT vs Elegant Hones P.Ltd 259 ITR 232(Raj) and Jupiter Builders P.Ltd 287 ITR 287(Del). In another case of ACIT vs K.L.Jolly and sons 18 SOT 501(Del), it was decided that once the income or the transaction(in this case gifts) were already d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards disallowances of expenses. Aggrieved by the Ld.CIT(A) order, the revenue is in appeal before us and assessee has filed cross objection. 8. The first issue that came up for our consideration from ground No.1 of revenue s appeal is additions towards alleged bogus share capital of ₹ 5,56,42,000/-. The facts borne out from the records indicate that the assessee company was incorporated in the FY 1994-95 with a share capital of ₹ 4.5 crores, which was increased to ₹ 5,56,42,000/- in FY 1995-96. The company had received share application money of ₹ 12 Lacs in FY 1996-97 and ₹ 21,54,000/- in FY 1997-98. During the course of assessment proceedings, the Ld. AO made additions towards share capital, on the ground that the assessee has failed to establish the identity of the shareholders, their creditworthiness and also, the genuineness of the transactions. The Ld. AO had also taken into consideration contents of the report of the special auditors, who had observed that investments were not made in cash, but by way of cheque, share application money received from the promoters was not ascertainable in the absence of relevant vouchers and there was no do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized by the Ld. AO in the scrutiny assessment proceedings passed u/s 143(3) of the Act. We, therefore are of the considered view that there is no error in the findings recorded by the Ld. CIT(A), while deleting additions made towards share capital u/s 68 of the Act. Further, even otherwise the assessee has filed various evidences to prove identity, genuineness of transactions and creditworthiness of the shareholders. Therefore, on this count also, the additions made by the Ld. AO cannot survive. Hence, we are of the considered view that the Ld.CIT(A) was right in deleting the additions made towards share capital and hence, we are inclined to uphold the finding of Ld.CIT(A) and reject ground taken by the revenue. 13. The next issue that came up for our consideration from ground No.2 of revenue appeal is disallowances of bogus depreciation of ₹ 5,38,417/- and bogus expenses of ₹ 58,00,077/-. During the assessment years 1997-98, 1998-99 1999-2000, the assessee had incurred various expenditures for the purpose of running business carried on by it. The said expenses were verified in the scrutiny assessment for respective previous years and part of the expenses was di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r verification of facts, there is no grievance for revenue to agitate such findings and hence, we are inclined to uphold the findings of the Ld.CIT(A) and reject arguments of the revenue. Insofar as, disallowances of expenditure, the Ld.CIT(A) has recorded categorical finding to the effect that major part of expenses for different assessment years were incurred through cheque and no adverse findings is borne from the records that the expenses were otherwise bogus, non genuine or inflated. Further, primary details having been furnished and no discrepancy was noticed or pointed out by the ld. AO. We, further, noted that all expenses were recorded in regular books of accounts and were subject to verification from the Ld. AO during regular assessment proceedings. Further, the assessee itself has disallowed major part of cash expenses as unaccounted. Under these circumstances, there would be no justification for making further addition, which evidently would lead to double taxation. We find that the revenue has failed to controvert the findings recorded by the Ld.CIT(A) with any evidences. We, therefore are of the considered opinion that there is no error in the findings recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X
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