Income Tax Appellate Tribunal - Mumbai
Shree Laxmi Estate P. Ltd, Mumbai vs Ito Wd 15(3)(3), Mumbai on 29 December, 2017
1
M/s Shree Laxmi Developers
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "E", MUMBAI
Before Shri Mahavir Singh (JUDICIAL MEMBER)
AND
Shri G Manjunatha (ACCOUNTANT MEMBER)
I.T.A No.5954/Mum/2016)
(Assessment year: 2012-13)
M/s Shree Laxmi Estate Pvt vs ITO, Wd.15(3)(3), Mumbai
Ltd, 407, Gateway Plaza
Hiranandani Gardens,
Powai\Mumbai-400 076
PAN : AAFCS5707A
APPELLANT RESPONDEDNT
I.T.A No.2562/Mum/2017
(Assessment year: 2012-13)
M/s Shree Laxmi Developers, vs ITO, Wd.26(3)(2), Mumbai
407, Gateway Plaza,
Hiranandani Gardens,
Powai\Mumbai-400 076
PAN : ABEFS7370
APPELLANT RESPONDEDNT
Appellant by Shri Neelkanth Khandelwal
Respondent by Shri Ram Tiwari
Date of hearing 10-11-2017
Date of pronouncement 29-12-2017
ORDER
Per G Manjunatha, AM :
These two appeals filed by separate assessees are directed against separate orders of the CIT(A)-38, Mumbai & CIT(A)-24, Mumbai dt 13-04-2015 and 28-07-2016 and they pertain to AY 2012-13. Since common facts and issues 2 M/s Shree Laxmi Developers are involved, these appeals were heard together and are disposed of by this common order.
2. The brief facts of the case extracted from ITA No.2562/Mum/2017 are that the assessee firm engaged in the business of builders and developers, filed its return of income for the assessment year 2012-13 on 29-09-2012 declaring total income at Rs.21,572. The case has been selected for scrutiny under CASS and notices u/s 143(2) and 142(1) of the Act alongwith questionnaire were issued. In response to notices, the authorized representative of the assessee appeared from time to time and submitted the details, as called for. During the course of assessment proceedings, the AO noticed that information received from office of Director of Income-tax (Inv), Mumbai in the case of beneficiaries of accommodation entries obtained from Pravinkumar Jain. On going through the list furnished by the Investigation Wing, it was seen that the assessee was one of the beneficiaries of accommodation entries of loan being taken from group companies of Pravinkumar Jain. Therefore, the AO called upon the assessee to furnish details of loans taken from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd alongwith confirmation letters and their financial statements. In response to show cause notice, the assessee has furnished details of unsecured loans taken from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd alongwith confirmation letters, bank statements and financial statements of the parties to prove identity, genuineness of transaction and creditworthiness of the parties. The AO, after considering relevant 3 M/s Shree Laxmi Developers submissions of the assessee and also taking into account information received from Investigation Wing, observed that the assessee is beneficiary of bogus accommodation entries provided by group companies of Shri Pravinkumar Jain which is evident from the fact that Shri Pravinkumar Jain was involved in the activity of providing accommodation entries. The AO further observed that ShriDinesh Choudhary a broker involved in arranging accommodation entries from group companies of Shri Pravinkumar Jain admitted in his statement that Shri Pravinkumar Jain was indulging in providing accommodation entries through his various concerns and not carrying out any genuine business activities. Therefore, based on the information received from Investigation Wing, the AO opined that though the assessee has furnished various details to prove identity, the loan transactions are not genuine and accordingly made addition u/s 68 of the Income-tax Act, 1961. Besides, the AO also disallowed interest paid against the said bogus loans. The AO also made additions towards estimation of net profit from business activity of construction of Zoom Plaza and Aurm Park. Besides, the AO made addition towards disallowance of MVAT u/s 43B and disallowance of cash payment u/s 40A(3) of the Income-tax Act, 1961.
3 Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before CIT(A), assessee filed elaborate written submissions to argue that the AO was not justified in making additions in respect of loans received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd 4 M/s Shree Laxmi Developers despite furnishing confirmation letters alongwith the financial statements of the parties to prove identity, genuineness of transactions and creditworthiness of the parties. The assessee further submitted that in response to notice issued u/s 133(6), the above parties filed their replies alongwith required documents before the AO, therefore, the AO was totally incorrect in coming to the conclusion that the loan transactions are bogus accommodation entries only on the basis of information received from Investigation Wing. As regards addition made by the AO towards estimation of net profit from business activity of construction of Aurm Park and Zoom Plaza, the assessee submitted that it is following project completion method for Zoom Plaza and profit method for Aurm Park and maintained separate books of account for both projects. The AO, ignoring above fact has estimated net profit at 10% on expenditure incurred for both the projects. Insofar as addition towards cash expenditure u/s 40A(3), the assessee submitted that it has made purchase at construction site on urgent basis, therefore, the AO was erred in disallowing the same without considering the nature of business of assessee. As regards disallowance of MVAT u/s 43B, assessee submitted that it is following project completion method and said MVAT has been considered in AY 2014-15, therefore, the AO was erred in disallowing MVAT u/s 43B of the Act. The CIT(A), after considering relevant submissions of the assessee and also relying upon plethora of judgements confirmed additions made by the AO towards unsecured loan from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd. The CIT(A) also confirmed 5 M/s Shree Laxmi Developers addition made by the AO towards estimation of net profit from Zoom Plaza and Aurm Park and also addition made towards cash purchases u/s 40A(3) of the Act; however, deleted addition made by the AO towards MVAT u/s 43B of the Act. Aggrieved by the order of CIT(A), the assessee is in appeal before us.
4. The first issue that came up for our consideration is addition made by the AO towards unsecured loan u/s 68 of the Act. The AO made addition towards unsecured loans alongwith interest thereon received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd on the ground that these are bogus accommodation entries received from group companies of Shri Pravinkumar Jain. According to the AO, the assessee is the beneficiary of accommodation entries provided by Shri Pravinkumar Jain from his bogus companies. The AO further observed that though the assessee has furnished details of identity, failed to prove genuineness of transactions and creditworthiness of the parties in the backdrop of clear findings of Investigation Wing that Shri Pravinkumar Jain has admitted that he was indulging in providing accommodation entries. This fact has been further confirmed by Shri Dinesh Choudhary, broker involved in arranging accommodation entries with Shri Pravinkumar Jain, who stated that Shri Pravinkumar Jain is indulging in providing accommodation entries, therefore, the AO opined that unsecured loans stated to be received from those companies are unexplained credit and hence made addition u/s 68 of the Act. It is the contention of the assessee that loans received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt 6 M/s Shree Laxmi Developers Ltd are supported by valid documents. The assessee further submitted that it has furnished confirmation letters alongwith copies of their bank statement and acknowledgement of IT returns showing the above transactions. The assessee further contended that in response to notices u/s 133(6) issued by AO, the above parties replied alongwith documents mentioned in the notice, therefore, there is no reason for the AO to doubt the transactions only on the basis of information received from Investigation Wing that too, without providing any opportunity of cross examination of the parties. In this regard, he relied upon plethora of judgements including the judgement of Hon'ble Bombay High Court in the case of CIT vs Gagandeep Infrastructure Pvt Ltd 349 ITR 680 (Bom) and Hon'ble Supreme Court in the case of Lovely Exports Pvt Ltd vs CIT 216 CTR 295(SC).
5. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The AO made addition towards unsecured loans received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd on the basis of information received from Investigation Wing which revealed that the assessee is the beneficiary of bogus accommodation entries provided by Shri Praveenkumar Jain through his bogus companies. The AO has made additions u/s 68 of the Income-tax Act, 1961 on the ground that though the assessee has furnished necessary evidences to prove identity of the parties, but failed to establish genuineness of transactions and creditworthiness of parties in the backdrop of clear findings of Investigation Wing that those companies are hawala companies involved in providing 7 M/s Shree Laxmi Developers accommodation entries. The AO has brought out facts in the light of statement of Shri Pravinkumar Jain deposed before the Investigation Wing to make addition. Except this, there is no contrary evidence in the possession of the AO to disprove the loan transactions from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd. On the other hand, the assessee has furished various details including confirmation letters from the parties, their bank statements alongwith their financial statements to prove identity, genuineness of transactions and creditworthiness of the parties. The assessee also furnished evidences to prove that the parties have responded to the notices issued u/s 133(6) by AO by filing various details. The assessee also filed bank statements to prove that the said unsecured loans have been repaid in the subsequent financial years. Therefore, we are of the view that there is no reason for the AO to doubt the genuineness of transactions despite furnishing necessary evidences including their financial statements, bank statements and IT returns.
6. The AO has made addition u/s 68 of the Act, on the ground that the unsecured loans are bogus accommodation entries provided by Shri Pravinkumar Jain through his hawala companies. The provisions of section 68 deal with cases where any sum found credited in the books of account of the assessee in any financial year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the AO, satisfactory, then sum so credited may be charged to income-tax as the income of the assessee of that previous year. A plain reading 8 M/s Shree Laxmi Developers of section 68 makes it clear that the initial burden of proof lies on the assessee. It is well settled legal position that the assessee has to discharge 3 main ingredients in order to discharge the initial burden of proof, i.e. the identity of the creditor, the genuineness of transaction and creditworthiness of the creditors. Once the assessee discharges initial burden placed upon him, then the burden todis prove the said claim shifts upon the AO. In this case, the assessee has discharged his onus cast u/s 68 by filing identity of the creditors, genuineness of transactions and creditworthiness of the parties which is evident from the fact that the assessee has furnished financial statements of the creditors wherein the said transaction has been disclosed in the relevant financial years. We further notice that the assessee also filed financial statements of the creditors which are enclosed in paper book filed. On perusal of the financial statements filed by the assessee, we find that both the companies are active in the website of Ministry of Corporate Affairs. This fact has been further supported by the letter of AO wherein the AO has accepted that both companies, viz. Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd are active in MCA website. We further notice that both the companies have filed financial statements for the year ending 31-03-2006. Therefore, we are of the considered view that the assessee has discharged its initial burden cast u/s 68 by filing identity, genuineness of transaction and creditworthiness of the parties. Once, the assessee has discharged its initial burden, the burden shifts to the AO to prove otherwise. In this case, the AO made addition only on the basis 9 M/s Shree Laxmi Developers of information received from Investigation Wing, but not based on any evidence to disprove the loan transaction from above companies are ingenuine. Therefore, we are of the view that there is no reason for the AO to treat loans from above 2 companies as unexplained credits u/s 68 of the Act.
7. Coming to the case laws relied upon by the assessee, the assessee has relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs Gagandeep Infrastructure Pvt Ltd (2017) 394 ITR 680 (Bom). We have gone through the case laws relied upon by the assessee in the light of the facts of the present case and find that the Hon'ble High Court categorically observed that the Proviso to section 68 has been inserted by the Finance Act, 2012 wef 01-04- 2013 is applicable from AY 2013-14 onwards. The Court further observed that the Parliament did not introduce the proviso to section 68 with retrospective effect nor does the Proviso introduced states that it was introduced for removal of doubts. Therefore, it is not open to give retrospective effect. The relevant portion of the order of High Court is extracted below:-
"The proviso to section 68 has been introduced by the Finance Act, 2012 with effect from 1-4-2013. Thus, it would be effective only from the assessment year 2013-14 onwards and not for the subject assessment year. In fact, before the Tribunal, it was not even the case of the Revenue that section 68 as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1-42013 was its normal meaning. The Parliament did not introduced to proviso of section 68, with retrospective effect nor does the proviso to introduced states that it was introduced 'for removal of doubts' or that it is 'declaratory'. Therefore, it is not open to give it retrospective effect, by proceeding the basis that the addition of the proviso to section 68is 10 M/s Shree Laxmi Developers immaterial and does not change the interpretation of section 68 both before and after the adding of the proviso.
In view of the matter the three essential tests while confirming the section 68 laid down by the Court namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on fact it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders, i.e., they are bogus. The Apex Court in a case in this context to the pre- amended section 68 has held that where the revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income-tax Officer to proceed by reopening the assessment of such shareholder and assessing them to tax in accordance with law. It does not entitle the revenue to add the same to the assessee's income as unexplained cash credit." [Para 3]
8. The assessee has also relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs Archid Industries Pvt Ltd in ITA No1433/Mum/2014 dated 5th July, 2017. The Hon'ble Bombay High Court, after considering relevant facts and also by following judgement in the case of CIT vs Gagandeep Infrastructure Pvt Ltd (supra) held as under:_ 6] The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of share i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P) Ltd (supra) would 11 M/s Shree Laxmi Developers be applicable in the facts and circumstances of the present case."
9. The assessee has also relied upo the decision of Hon'ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd (2008) 216 CTR 195 (SC). The Hon'ble Apex Court while deleting the addition made u/s 68 observed that if the share application money is received by the assessee company from alleged bogus shareholders whose names are given to the AO, then the department is free to proceed to reopen their individual assessments in accordance with law, but this amount of share application money cannot be regarded as undisclosed income u/s 68 of the Income-tax Act, 1961.
10. Coming to the case laws relied upon by the Ld.DR. The Ld.DR relied upon the decision of Hon'ble Delhi High Court in the case of Principal CIT vs Bikram Singh in ITA No.55/Del/2017 dated 25-03-2017. We have gone through the case law relied by the Ld.DR in the light of facts of the present case and find that the facts of case before Hon'ble Delhi High Court are entirely different from facts of the present case. The Hon'ble Delhi High Court, has considered the fact that the individuals, who advanced loans had no financial strength to lend such huge sum of money to the assessee, that too, without any collateral security without interest and without a lender agreement. Under these facts, the Hon'ble Court held that mere establishing of their identity and the fact that the amounts have been transferred through cheque payment does not by itself mean that the transactions are genuine. In this case, the assessee has furnished all evidences and also the parties personally responded to the notices 12 M/s Shree Laxmi Developers issued by the AO u/s 133(6) by filing various details, therefore, case law relied upon by the Ld.DR cannot be applicable to the facts of the present case.
11. In this view of the matter and considering the ratio of the case laws discussed above, we are of the considered view that the assessee has discharged identity, genuineness of transactions and creditworthiness of the parties. Therefore, there is no reason for the AO to make addition towards loan u/s 68 of the Act. Hence, we direct the AO to delete addition made towards loans alongwith interest u/s 68 of the Act.
12. The next issue that came up for our consideration is estimation of net profit from Zoom Plaza and Aurm Park. The AO has estimated net profit from Zoom Plaza and Aurm Park on the ground that the assessee is following different methods of accounting for different projects. The AO further observed that the assessee is following project completion method for new project Aurm Park, whereas for the earlier project Zoom Plaza it has followed profit method. According to the AO assessee can follow only one method of accounting and not many methods of accounting for its convenience. The assessee has not maintained separate accounts for both projects. Accordingly, the AO worked out net profit of 10% on total expenditure incurred towards both the projects. It is the contention of the assessee that it is consistently following project completion method for Aurm Park as the same is its own project whereas it is following profit method for Zoom Plaza for several years. The assessee further contended that it is maintaining separate books of account for both the project 13 M/s Shree Laxmi Developers and the same has been furnished before the AO. The AO without assigning any reasons, estimated net profit of 10% on total expenditure incurred on both the projects.
13. Having heard both the sides and considered material available on record we find that the AO has estimated 10% net profit on both the projects without assigning any reasons for incorrectness in books of account maintained by the assessee for both the projects. We further notice that the AO is only on the point that the assessee can follow only one method of accounting for both the projects. We do not find any merit in the findings of the AO that when assessee is following different method of accounting for different projects, that too, consistently for many years, there is no reason for the AO to reject those books of account and estimate net profit. Therefore, we are of the view that the AO was erred in estimating net profit of 10% on both the projects. Hence, we direct the AO to adopt net profit as declared by the assessee for both the projects.
14. The next issue that came up for our consideration is disallowance of purchases u/s 40A(3). The AO disallowed purchases of Rs.57,705 u/s 40A(3) on the ground that the assessee has made cash purchases in contravention of provisions of section 40A(3) of the Act. It is the contention of the assessee that that cash purchases are made at construction site on an urgent basis. Therefore, the AO was incorrect in disallowing cash purchases without considering the nature of business of the assessee.
15. Having heard both the sides, we do not find any merit in the arguments of 14 M/s Shree Laxmi Developers the assessee for the reason that the assessee has not assigned any reasons for cash payments for purchases in contravention of section 40A(3) of the Act. Though the assessee claims to have made purchases at construction site on urgent basis, the reasons given by the assessee are not coming within the exclusion provided under Rule 6DD of I.T. Rules, 1962. Therefore, we are of the considered view that the AO was right in disallowing cash purchases u/s 40A(3) of the Act; hence, we uphold the addition made by the AO and reject ground raised by the assessee.
16. In the result, appeal filed by the assessee is partly allowed. ITA 5954/Mum/2016
17. The first issue that came up for our consideration from grounds 1 & 2 is addition towards unsecured loan received from Atharva Business Pvt Ltd & Josh Trading Co. Pvt Ltd. The facts relating to the impugned addition are similar to the facts discussed in preceding paragraphs in ITA No.2562/Mum/2017. In this case, the assessee has received loans from Atharva Business Pvt Ltd and Josh Trading Co. Pvt Ltd. The AO made addition only on the basis of information received from Investigation Wing by stating that these companies are hawala companies of Shri Pravinkumar Jain, who is indulging in providing accommodation bills. On the other hand, the assessee has furnished all the details to prove identity, genuineness of transactions, creditworthiness of the parties. Therefore, we are of the considered view that the reasons given by us in the preceding paragraphs, while dealing with similar addition in ITA 15 M/s Shree Laxmi Developers No.2562/Mum/2017 shall mutatis mutandis apply in this case. Therefore, we are of the considered view that the AO was erred in making addition towards unsecured loans u/s 68 of the Act. Hence, we delete the addition made by the AO towards unsecured loans u/s 68 of the Act.
18. The next issue that came up for our consideration is disallowance of interest of Rs.4,27,649 u/s 40(a)(ia) of the Act. The AO disallowed interest paid to financial institutions u/s 40(a)(ia) for failure to deduct tax u/s 194A of the Act. It is the contention of the assessee that the assessee has paid interest to financial institutions by way of post dated cheques in advance based on the instalments granted by them and hence, there is no occasion for the assessee to withhold tax u/s 194A of the Act. The AO, without appreciating the fact has disallowed interest u/s 40(a)(ia) which is incorrect.
19. Having heard both the sides and considered material on record, we find that the assessee has failed to deduct tax at source u/s 194A in respect of interest payment to financial institution though it requires to deduct tax at source as per the provisions of section 194A of the Act. The reasons given by the assessee that it has paid interest through post dated cheques in advance based on the instalments granted by the banks cannot absolve the assessee of his responsibility of deducting tax at source as per the provisions of the Act. Since the assessee has failed to deduct tax at source on interest payment, the AO has rightly disallowed interest u/s 40(a)(ia) of the Act. The CIT(A), after considering relevant facts has rightly upheld the addition made by the AO. We 16 M/s Shree Laxmi Developers do not find any error in the order of the CIT(A); hence, we are inclined to uphold the findings of the CIT(A) and reject ground raised by the assessee.
20. In the result, appeal filed by the assessee is partly allowed.
21. As a result, both the appeals filed by the assessee are partly allowed. Order pronounced in the open court on 29th December, 2017.
Sd/- sd/-
(Mahavir Singh) (G Manjunatha)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dt : 29th December, 2017
Pk/-
Copy to :
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
/True copy/ By order
Asstt. Registrar, ITAT, Mumbai
17
M/s Shree Laxmi Developers
Date Initial
1. Draft dictated on 07.12 Sr.PS
2. Draft placed before author 26.12 Sr.PS
3. Draft proposed & placed before the
second member
4. Draft discussed/approved by Second
Member.
5. Approved Draft comes to the
Sr.PS/PS
6. Kept for pronouncement on
7. File sent to the Bench Clerk
8. Date on which file goes to the AR
9. Date on which file goes to the Head
Clerk.
10. Date of dispatch of Order.
11. Draft dictation sheets are attached Sr.PS