9911796707
TMI Blog2025 (2) TMI 442X X X X Extracts X X X X X X X X Extracts X X X X ..... m to explain the same, based on the evidences, by personally putting up an appearance before the A.O. We, thus, in terms of our aforesaid observations restore the matter to the file of the A.O with a direction to re-adjudicate the same. A.O shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate his claim on the basis of fresh documentary evidence, if any. Thus, the Ground of appeal No.1 raised by the assessee is allowed for statistical purposes in terms of our aforesaid observations. Addition u/s. 2(22)(e) on deemed dividend - HELD THAT:- As the company viz. M/s. Atmastco Pvt. Ltd had advanced a loan aggregating not during the year under consideration but in the preceding year, therefore, in absence of any payment by the company during the subject year, there was no justification for the A.O to have held the amount so received by the assessee in the preceding year as "deemed dividend" in his hand during the subject year. Accordingly, the addition made by the A.O u/s. 2(22)(e) of the Act made/sustained by the lower authorities is vacated. Disallowance u/s. 14A r.w.Rule 8D - asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : S/shri Milind Bhusari, Advocate Madhav Vichore, CA For the Revenue : Shri S.L Anuragi, CIT-DR ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 31.01.2023, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income-tax Act, 1961 (in short 'the Act') dated 26.03.2015 for the assessment year 2012- 13. The assessee has assailed the impugned order on the following grounds of appeal before us: "1. In the facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming addition of Rs. 2,00,00,000/- made by the A.O, being the amount credited to capital a/c, treating it to be unexplained credit u/s. 68. The addition made by the A.O and sustained by the Ld. CIT(A) is arbitrary, illegal, baseless and not justified. 2. Ld. CIT(A) erred in confirming addition of Rs. 68,62,394/- made by the A.O on account of amount being offered by appellant during assessment proceedings while explaining credit of Rs. 2 crore in capital a/c. The addition represents double addition. The addition made by the A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (trading division). The A.O observed that a consolidated final accounts and audit report were filed by the assessee before him. The A.O further observed that the assessee had during the year credited an amount of Rs. 2 crore as additional capital with narration in the relevant part of "Balance sheet" as "Additional Capital (Transfer from Division)". On being queried, the assessee in his reply filed on 29.04.2014, inter alia, submitted that based on the requirement of the bank for infusion of art least 2 crores of funds, the sundry creditors/associates credit balances were reduced with a simultaneous increase that was projected as infusion of additional capital. Also, it was the assessee's claim that as the aforementioned aggregate amount of Rs. 2 crore (supra) which was received on different dates were accumulated under different accounts heads, therefore, the same were brought under one head as addition to capital. The A.O called upon the assessee to put forth an explanation as to why the aforementioned amount of Rs. 2 crore may not be added to his income as an unexplained cash credit in his capital account. As the reply filed by the assessee did not find favour with the A.O, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee had failed to place on record documentary evidence which would explain the nature of the said credits. Accordingly, the A.O held the said amount as an unexplained cash credit u/s. 68 of the Act. Accordingly, the total credits of Rs. 68,62,394/- appearing in the books of account of the assessee as agriculture income and other credits were added to his income u/s. 68 of the Act. 6. The A.O further observed that the assessee had shown an amount of Rs. 6,12,607/- as deemed sales tax under the head "Advances and other Deposits". The A.O, observing that the said amount as per the judgment of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. Vs. CIT, (1997) 228 ITR 253 (SC) was in the nature of a revenue receipt, therefore, made an addition of the same to the returned income of the assessee. 7. On a perusal of the records, the A.O furthrer observed that the assessee had during the subject year made an investment in the equity share capitals of six companies and in agricultural assets aggregating to Rs. 1,61,53,680/-. As the assessee had not disclosed on a suo-motto basis any disallowance u/s. 14A r.w.r. 8D, therefore, the A.O worked out the disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has two divisions as Apex Industries Unit-1 and Trading Division, but consolidated final accounts and audit report were filed. During the year appellant had credited an amount of Rs. 2,00,00,000/- as additional capital with narration in relevant part of Balance Sheet as "Additional Capital (Transfer from Division)". The appellant is Director of a company named Atmastco (P) Ltd, Bhilai (for short APLB) and in order to justify the credits he filed copies of three ledger accounts of the said company one with narration "Atmastco (P) Ltd, Bhilai (Branch/Division)" and other two with narration "Atmastco (P) Ltd, Bhilai (Sundry Creditors)". The first ledger account of APLB relate to FY 2010-11 in the books of Apex Industries Unit-1. The other two ledger accounts of APLB relate to FY's 2010-11 and 2011-12 in the books of Apex Industries Trading Division and it is marked as "Atmastco (P) Ltd, Bhilai (Sundry Creditors)". Copies of these ledger accounts have been enclosed as Annexure-1 (collectively) and form part of the assessment order. The closing balance in these accounts are carried over to the respective balance sheets. The AO has observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 3,25,00,000/-. The above adjustments were made to reduce the credit balance of creditors and to increase the capital of proprietor, for meeting the requirements of bank. With this entry, the capital account of appellant should have increased by Rs. 3,25,00,000/- in AY 2012-13. However, in Schedule-1 to the balance sheet of AY 2012-13, the increase in balance of capital is Rs. 2,00,00,000/- only, against the transfer entry of Rs. 3,25,00,000/-. This is for the reason that in the books, transfer entries of Rs. 3,25,00,000/- were passed in AY 2012- 13 while in AY 2011-12, capital of appellant was already increased by Rs. 1,25,00,000/-, but only in the balance sheet and not in the books. The amount of capital brought forward as opening capital of AY 2012-13 included the inreased amount of Rs. 1,25,00,000/-, which was effected outside the books, only in the balance sheet. According to the appellant, considering the effect in both the years, the entries in books are to the effect of reducing the creditors/credit balances by Rs. 3,25,00,000/- and increasing the balance in capital account of appellant by Rs. 3,25,00,000/- and the appellant has stated that the credit entry of Rs. 2,00,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of appeal, statement of facts, submissions of the appellant, remand report, rejoinder of the appellant and the assessment order are considered. In the rejoinder, the appellant has submitted that the appellant may be allowed opportunity of explaining the evidences personally to the AO. It is seen that sufficient opportunities have been given to the appellant during assessment and appellate proceedings and therefore, the issue is being decided based on all the material and submissions of the appellant already filed. The AO has observed that a sum of Rs. 2 crore was credited in the capital account of appellant with M/s Apex Industries, wherein the appellant is proprietor. To justify capital introduction, it was explained by the appellant that there were credit balance in the account of Atmastco (P) Ltd., Bhilai in the books of proprietorship concern of appellant i.e. Apex Industries (Manufacturing Division) and Apex Industries (Trading Division). Out of these credit balances, a sum of Rs. 2.00 crore was transferred by journal entry to the capital account of appellant in the instant year. The appellant has stated that he was enjoying credit facility in the form of CC limit from State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim that there was shortfall in the agricultural income amounting to Rs. 27,10,790/- in three years as not acceptable and held that the appellant was only covering up the credits in capital account/balance sheet. Therefore, total credits amounting Rs. 68,62,394/-appearing in the books of accounts under the head Agricultural income and other credits are added to the total income of the appellant u/s 68 of I.T. Act, 1961. 6.2. The appellant has stated that the amount of Rs. 68,62,94/- comprised of following: A.Y. Particulars Amount (Rs.) 2011-12 "Other credits" appearing in the personal balance sheet of appellant of 31.03.2011 41,51,604/- 2011-12 Agricultural income disclosed less in the return filed 15,31,960/- 2012-13 Agricultural income disclosed less in the return filed 11,78,830/- Total 68,62,394/- 6.3. All the details have been perused. The appellant has argued that the amount of Rs. 68,62,394/- was offered for tax only while explaining the credit entries of Rs. 2.00 crore. The credit entry of Rs. 2.00 crore has been separately added by the AO. Therefore, to the extent of Rs. 68,62,394/-, 'here is double addition, which is not justified. The appellant has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,930/- against which the AO has taken the figure of Rs. 8,82,00,165/-. Secondly, while wrongly taking the figure of all the assets in place of figure of investments yielding exempt income, it appears that from the total of all the assets as on 31.03.2012 (Rs. 10,95,20,585/-), the AO has deducted two figures (i) investment in Apex Steel Technology Pvt. Ltd.(Rs.12,75,000/-); (ii) Plot at Dhanora (Rs.25,96,500/-); (iii) loans and advances of Rs. 5,70,000/- and (iv) cash & bank balances of Rs. 4,92,601/- In the same way, the value of opening investment has been taken considering the total of all the assets as on 31.3.2011 (Rs.7,51,41,475/-) and deducting therefrom (i) cash and bank balances Rs. 27,57,628/- and (ii) loans and advances of Rs. 5,70,000/-. The AO has not mentioned as to how the figures of item "B" of the formula have been taken by him. If the corrected figures are replaced in the formula prescribed in Rule 8D(2)(ii), the result would be as under: - A x B C = Rs. 53,03,221/-x Rs. 1,42,17,930/- = Rs. 8,16,636/- Rs.9,23,31,014/- As a result of above mistake on the part of AO, the amount of disallowance computed under clause (iii) of Rule 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground No. 6, the appellant has challenged the Disallowance on account of Donation- Rs. 15,000/-. 10.1. The appellant had made donation of Rs. 72,157/- and debited the same to the Profit and Loss Account. However, in Computation of Income he offered only Rs. 57,157/- to tax and the difference of Rs. 15,000/- is left to be offered hence, the AO added the same to the total income. 10.2. The appellant has not furnished any explanation with regard to this addition, despite repeated opportunities. In view of the same, the appeal on Ground no. 6 is dismissed. 11. In the result, the appeal is partly allowed." 11. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us. 12. We have heard the Ld. Authorized Representatives of both the parties, perused the orders of lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions. 13. Shri Milind Bhusari, Ld. Authorized Representative (for short 'AR') for the assessee, at the threshold of hearing, submitted that as per instructions he is not pressing ground of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latter had failed to deal with the same. The Ld. AR to buttress his aforesaid claim had drawn our attention to the "Ground No.5" that was raised by the assessee before the CIT(Appeals), which revealed that the assessee had specifically stated that there was no payment made by the aforementioned company during the subject year. 16. Per contra, the Ld. Departmental Representative (for short "DR") relied on the orders of the lower authorities. 17. We have thoughtfully considered the contentions advanced by the Ld. Authorized Representatives of both the parties. Before proceeding any further, we deem it fit to cull out the provisions of Section 2(22)(e) of the Act, which reads as under: "2. In this Act, unless the context otherwise requires,- *** *** *** *** *** (22) "dividend" includes- *** *** *** *** *** (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the A.O to have made any disallowance u/s. 14A of the Act. The Ld. AR in support of his aforesaid contention had relied on the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Chettinad Logistics Pvt. Ltd. (2018) 257 Taxmann 2 (SC) and that of the Hon'ble High Court of Delhi in the case of Cheminvest Limited Vs. CIT, (2015) 378 ITR 33 (Delhi). The Ld. AR to buttress his claim submitted that the assessee had vide his "written submission" [filed before the CIT(Appeals)], submitted that as the assessee had not earned any exempt income during the year under consideration, therefore, the provisions of Section 14A of the Act could not have been invoked, Page 15 of CIT(Appeals)'s order. 23. Per contra, the Ld. Departmental Representative (for short "DR") relied on the orders of the lower authorities. 24. We have thoughtfully considered the contentions advanced by the Ld. Authorized Representatives of both the parties in the backdrop of the orders of the lower authorities. We are principally in agreement with the Ld. AR that in absence of any exempt income having been earned by the assessee during the subject year, the A.O as per the pre-amended Section 14A of the Act, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as debited by an amount of Rs. 6,12,607/- with a corresponding credit to the sales tax payable a/c. The Ld. AR submitted that as the sales tax was paid by the assessee on 14.04.2012 i.e. before the "due date" of filing the return of income, therefore, the same could not have been added to his income. 27. At the threshold, we may herein observe that the judgment of the Hon'ble Apex Court in the case of Sahney Steel & Press Works Ltd. Vs. CIT (supra) pertained to the issue of refund of sales tax, subsidy etc., i.e. as to whether or not the same were in the nature of production incentives, operational subsidies and not capital subsidies. The Ld. AR had placed on record the copy of the sales tax payable a/c., Page 33 & 34 of APB for F.Y.2011-12 & 2012-13 (as appearing in the books of M/s. Apex Industries Pvt. Ltd., Unit-1). The Ld. AR by referring to the aforesaid sales tax payable account, submitted that as the deemed sales tax of Rs. 6,12,607/- had been paid by the assessee on 14.04.2012 i.e. prior to the "due date" of filing return of income under sub-section (1) of Section 139 of the Act, therefore, no disallowance of the said amount was called for in his hands. 28. Per contra, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate credit balances pertaining to the preceding year which were taken over by him in his individual/personal capacity, but the same did not find favour with the A.O. Although the A.O while framing the assessment had observed that the copies of the accounts of the aforementioned parties that were filed by the assessee to explain the source of the source of the addition in his capital a/c. of Rs. 2 crore (supra) related to the preceding financial year, except for, one entry dated 13.06.2011 which pertained to the subject year, but in absence of documentary evidence which would irrefutably support the said claim had rejected the same. 31. Shri Milind Bhusari, Ld. AR submitted that the capital addition of Rs. 2 crore (supra) during the subject year was not in the nature of any fresh addition and no movement of funds was involved, but had occasioned pursuant to the outstanding liabilities of M/s Atmastco Pvt. Ltd. (supra) being taken over by the assessee in his personal/individual capacity. Elaborating further on his contention, the Ld. AR submitted that the addition in the "capital a/c" of Rs. 2 crore (supra) was sourced out of, viz. (i) transfer out of the "opening balance" of Rs. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of APB. Also, the Ld. AR had taken us through the copy of account of M/s. Atmastco Pvt. Ltd., Bhilai (as appearing in the books of M/s. Apex Industries, Unit-1) for the subject year i.e. A.Y.2012-13, which revealed that an amount of Rs. 1.05 crore was transferred on 31.03.2012 vide a journal entry to the assessee's "capital a/c" with the said proprietary concern/division, Page 4 of APB. Also, the Ld. AR had drawn our attention to the copy of account of M/s. Atmastco Pvt. Ltd., Bhilai appearing in the books of account of M/s. Apex Industries (trading division) for F.Y.2011-12 i.e. A.Y.2012-13, Page 5 & 6 of APB, which revealed that an amount of Rs. 7.50 lacs was vide an inter division adjustment transferred to the "capital a/c" of the assessee with M/s. Apex Industries, Unit-1, Page 8 of APB. 33. The Ld. AR based on his aforesaid contentions supported by the aforementioned documentary evidence, submitted that as the assessee in the course of the proceedings before the lower authorities had duly substantiated his claim that the addition of Rs. 2 crore (supra) in his "capital a/c" with M/s. Apex Industries, Unit-1 during the year under consideration i.e. A.Y.2012-13 was sourced out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the face of balance sheet". The CIT(Appeals) had fortified his aforesaid observation based on the fact that in the books of account of M/s. Atmastco P. Ltd. the total outstanding "credit balance" was the same amount which was reflected in "Schedule-6" of the balance sheet, i.e. before adjustment of Rs. 1.25 crore (supra). Further, the CIT(Appeals) observed that the closing balance of the "capital a/c" (before adjustment of Rs. 1.25 crore) was, thereafter, carried forward as the "opening balance" to the next year i.e. the year under consideration. In other words, the CIT(Appeals) had observed that though the balance of "branch/division" was reduced by an amount of Rs. 1.25 crore and the balance in the "capital account" was correspondingly increased by the same amount but the said adjustment was not routed through the books of account but was made only in the financial statement/Schedule/on the face of the balance sheet. Elaborating further, the CIT(Appeals), had observed, that the assessee during the year under consideration i.e. A.Y.2012-13, had though credited his "capital a/c" with an amount of Rs. 3.25 crore, which adjustment was made to reduce the credit balance of the credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit balance. Alternatively, it was stated by the assessee that even if observation of the A.O that the transfers/adjustments were not made through passing of entries in the relevant books of account, i.e the assessee had transferred the amounts from the sundry creditors/associate credit balances to his "capital account" without making any entry in the books of account was to be accepted, still no income would arise. Apart from that, the assessee had stated that if the A.Os version that the aforesaid entries, i.e. increase in the "capital a/c" by an amount of Rs. 2 crore (supra) with a corresponding decrease in the outstanding amount of the sundry creditors/associate credit balances were not routed through the books of account, then on the said count itself the applicability of the provisions of Section 68 of the Act would fail. It was, thus, the claim of the assessee that as Section 68 of the Act pre-supposes that sum of money is received/credited in the books of the assessee, therefore, based on the aforesaid observation of the A.O that the relevant entries were not routed through the books of account would in itself render the provisions of Section 68 of the Act as unworkable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ives of both the parties. At the threshold, we may herein observe, that the observation of the CIT(Appeals) that the transfers/adjustments i.e. debiting the account of M/s. Atmastco P. Ltd., Bhilai in the books of the proprietorship concerns/divisions of the assessee, viz. (i) M/s. Apex Industries (manufacturing division); and (ii) M/s. Apex Industries (trading division) were not made through passing of entries in the relevant books of account of the said concerns/divisions, apparently is not found to be in conformity with the material that has been placed on record by the assessee appellant. As observed by us hereinabove, the assessee had for the subject year filed before us copy of the ledger account of M/s. Atmasco Pvt. Ltd., Bhilai in the books of account of M/s. Apex Industries, Unit-1, which reveals that the amount of Rs. 1.05 crore (supra) was debited in the account of the aforementioned company on 31.03.2012, Page 4 of APB. On a similar footing, the assessee had during the subject year filed before us copy of the account of M/s. Atmastco Pvt. Ltd., Bhilai in the books of account of M/s. Apex Industries (trading division), wherein an amount of Rs. 87.50 lacs (supra) and Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortunity to him to explain the same, based on the evidences, by personally putting up an appearance before the A.O. We, thus, in terms of our aforesaid observations restore the matter to the file of the A.O with a direction to re-adjudicate the same. Needless to say, the A.O shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate his claim on the basis of fresh documentary evidence, if any. Thus, the Ground of appeal No.1 raised by the assessee is allowed for statistical purposes in terms of our aforesaid observations. (E). Re: Addition u/s. 68 of the Act: Rs. 68,62,394/- 46. Apropos the addition of Rs. 68,62,394/- made by the A.O u/s. 68 of the Act, we find that the assessee had disclosed agricultural income of Rs. 2 lacs in his return of income for the subject year. On being queried, the assessee claimed that he owned 14.95 acres of agricultural lands at Village :Mahamara and Village: Ahivara and was engaged in agricultural activities, from which, he had derived income @ Rs. 92,000/- per acre. However, the A.O did not find favour with the aforesaid claim of the assessee. 47. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh credit u/s. 68 of the Act. Alternatively, the Ld. AR submitted that as there was no movement of funds in the books of account of Rs. 68,62,394/-, therefore, there was no justification for the A.O to have held the same as unexplained cash credit u/s. 68 of the Act. Also, the Ld. AR submitted that in case the credit balances were to be held as ingenuine, then the addition of the same was liable to made in the respective years to which the same pertained. 50. Per contra, the Ld. Departmental Representative (for short "DR") relied on the orders of the lower authorities. 51. We have considered the aforesaid issue and are unable to persuade ourselves to concur with the Ld. AR's claim. At this stage, we may herein observe, that the assessee initially in the absence of any plausible explanation as regards the "nature" and "source" of the credits in his books of account (compiled in the form of "statement of affairs" that was filed before the A.O), had vide his reply dated 18.09.2014 filed in the course of the assessment proceedings offered an additional income of Rs. 54,15,250/-, viz. (i). the total of short fall of agriculture income: Rs. 27,10,790/-; and (ii). Other credits: Rs. 27, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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