Income Tax Appellate Tribunal - Hyderabad
Impact Metals Ltd.,, Hyderabad vs Assessee on 9 October, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA Nos. 627, 628 & 831/HYD/2006
Assessment Years: 1999-2000, 2001-02 & 2002-03
Impact Metals Ltd., ... Appellant
Hyderabad.
(PAN/GIR No. - AAAC14546A/1-005)
Vs.
Income-tax Officer, Ward-1, ...Respondent
Karimnagar.
Appellant by : Shri V. Shiv Kumar
Respondent by : Shri M.H. Naik
Date of Hearing : 09/10/2012
Date of Pronouncement : 26/12/2012
ORDER
PER ASHA VIJAYARAGHAVAN, J.M.:
These appeals filed by the assessee are directed against the respective orders of CIT(A)-III, Hyderabad, for the assessment years 1999-2000, 2001-02 and 2002-03. Since identical issues are involved in these appeals, they were heard together and, therefore, we find it convenient to dispose of these appeals by way of this consolidated order.
ITA NO. 627/Hyd/2006 - for the AY 1999-2000
2. Ground No. 1 is general in nature and the same not required to be adjudicated by us.
2ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
3. Ground No. 2.a) & b) are directed against the action of the CIT(A) in sustaining the addition of Rs. 17,25,000/- out of share capital as unexplained credits u/s 68 of the Act.
4. The amount invested in the form of share application money in the names of ten persons aggregating to Rs. 30 lakhs was examined by the AO, who asked the assessee to furnish the list of share applicants, their addresses, confirmatory letters and details of sources of investment in assessment proceedings. The names of the 10 persons are as under:
1. G. Venkat Rao Rs. 10,00,000/-
2. G. Lakshman Rao Rs. 3,00,000/-
3. Bh. S.R. Anjaneyulu Rs. 3,00,000/-
4. G. Gandhi Rs. 3,00,000/-
5. Bh. Prasada Rao Rs. 3,00,000/-
6. Bh. Varalakshmi Rs. 1,00,000/-
7. G. Seetharama Chandra Rao Rs. 1,25,000/-
8. G. Satyanarayana Rs. 1,75,000/-
9. G. Bhagyalakshmi Rs. 3,00,000/-
10. G. Narayanamma Rs. 1,00,000/-
5. The AO observed from the information furnished by the assessee that the confirmations were stereotyped and source of investment in most of the confirmations was mentioned as agriculture. Thereafter, the AO wrote separate letters to the share applicants requesting them to furnish the complete details regarding the investment made in the assessee company and information on various points mentioned in the letter. But there was no response to the letters issued by the AO. However, the assessee filed a letter on 28/02/2005 enclosing the relevant information received from the individuals. The AO noted that the share applicants did not respond to the letters issued by him but sent all the details and required information to the assessee instead of submitting the same to the Department. From this, the 3 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
AO concluded that the basic details as well as the creditworthiness of the share applicants was not substantiated with proper evidence, and these persons were only name lenders selected by the promoters of the company to channelize their unaccounted moneys through these persons. The AO held that most of the investors had bank account but did not invest by way of cheques and even did not furnish the share application forms nor had obtained any receipt for the money invested by them. The AO relied upon several case laws on the provisions of section 68 of the Act, and held that the entire amount of Rs. 30 lakhs had to be treated as unexplained cash credit u/s 68 of the Act, assessable as 'income from other sources'.
6. Aggrieved by the order of the AO, the assessee carried the matter in appeal before the CIT(A).
7. Before the CIT(A), the AR of the assessee filed confirmations from various persons along with copies of bank statements, Pattedar pass book etc., in support of claim of genuineness of the investments in the name of these persons. The CIT(A) forwarded the said material to the AO for examination and the AO had examined some of these persons and evidences filed, and sent a report dated 30/01/2006 in which he had given his comments regarding the investment claimed in the name of these persons. In response to the AO's final report, the AR of the assessee had made his final submissions dated 29/03/2006 in which he had explained, in detail, the assessee's claim with the help of various evidences filed during the assessment and appellate proceedings.
8. The CIT(A) after discussing the legal issue whether unexplained investment in the share capital can be assessed in 4 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
the hands of the company u/s 68 of the IT Act, referred to the decision of the Hon'ble Supreme Court in the case of CIT Vs. Stellar Investment Ltd., 251 ITR 263, decision of the Calcutta High Court in the case of CIT Vs. Ruby Traders and Exporters Ltd., 263 ITR 300 and on review in 270 ITR 526 and in the case of Bhola Shanker Cold Storage Pvt. Ltd. Vs. JCIT, 270 ITR 487. The CIT(A) also reproduced the Hon'ble Delhi ITAT decision in the case of Napar Drugs Pvt. Ltd. Vs. DCIT, 98 ITD 285. The CIT(A) observed that a similar view has been taken by the ITAT, Hyderabad in an order dated 09/07/2003 in the case of VBC Fertilizers Pvt. Ltd. Vs. DCIT in ITA No. 451/Hyd/97. The CIT(A) discussed the additions made by the Assessing Officer u/s 68 of the Act, regarding share application money invested in the name of various persons applying ratio of the decisions in the cases cited supra.
9. As regards G. Venkata Rao, the CIT(A) directed the AO to delete the said amount, hence, the assessee is not in appeal before us in this case.
10. As regards G. Laxmana Rao, the CIT(A) held that on careful consideration of the arguments on both the sides and the evidence placed on record, even though this person was having agricultural land in his possession as well as bank accounts, the investment had not come out of the bank account, but had been made by way of demand draft. It was held that a perusal of the bank accounts, copies of which had been filed by the learned AR of the assessee, indicates that while there are regular deposits and withdrawals of smaller amounts, the amount of Rs. 3 lakhs had been deposited on 23/02/1999 and withdrawn immediately thereafter on the next day from the bank account. The CIT(A) 5 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
further held that during the examination by the AO also, this person had not been able to give satisfactory explanation about the sources of the investment and this only shows that the investment had been made in his name by some Director of the company and is not a genuine investment in share capital by this person. Therefore, the CIT(A) confirmed the action of the AO in treating the investment of Rs. 3.00 lakhs as 'income from other sources' in the hands of the company u/s 68 of the Act.
11. As regards Bh.S.R. Anjaneyulu, the CIT(A) held that the after considering the report of the AO given after examination and the reply of the assessee filed with reference to the AO's report, even though, a bank account was maintained by Shri Bh. S.R. Anjaneyulu in Vijaya Bank, in which regular deposits and withdrawals were made, the investment of Rs. 3 lakhs made in the name of Shri Bh.S.R. Anjaneyulu does not come out of regular deposits made in the account. He, therefore, held that investment of Rs. 3 lakhs made by B.S.R. Anjaneyulu also remains unexplained. However, the CIT(A) held that benefit of doubt could be given in the case of investment shown in the name of Smt. Bh. Narayanamma, which is actually investment made by her husband Sri Bh.S.R. Anjaneyulu, since the investment has come out of the regular deposits made in the bank account at Vijaya Bank, Buttayagudem. Therefore, out of the total investment of Rs. 4 lakhs shown in the name above two persons, the CIT(A) treated the investment to the extent of Rs. 1.00 lakh as explained and the balance addition of Rs. 3 lakhs made by the AO is confirmed u/s 68 of the Act.
12. As regards Shri G. Gandhi and Smt. G. Bhagyalakshmi, the CIT(A) held that the investment in neither case could be said to 6 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
be explained. The investment of Rs. 3 lakhs in the name of Shri G. Gandhi does not come out of the regular deposits in the bank account and the receipts from Tobacco Board, details of which had been filed in the proceedings, show that the total receipts in FY 1998-99 were hardly Rs. 60,000/-. As far as the income certificate issued by the MRO is concerned, the CIT(A) held that these certificates are being issued by the MROs in a routine manner without any real verification and enquiry. As far as Smt. G. Bhagyalakshmi is concerned, the CIT(A) held that she had no significant source of income and even the income certificate issued by the MRO mentioned an annual income of Rs. 35,000/-, which is meager. The CIT(A), therefore, held that the investments shown in the name of above two persons amounting to Rs. 6 lakhs were treated treating as unexplained credits u/s 68 of the Act, and confirmed the action of the AO on this count.
13. As regards Bh. Prasada Rao and Varalakshmi, the CIT(A) observed that the investments in the name of these two persons, husband and wife, are also made on the same day i.e. 24/02/1999, and similar certificates from MRO etc. had been filed. The CIT(A) further observed that the AO had mentioned in his report that the amount of Rs. 3 lakhs was deposited on 23/02/99 in the account of Sri Bh. Prasada Rao and withdrawn on the immediate next date i.e. 24/02/99, which only showed that this person did not have regular source for investment. Regarding Smt. Varalakshmi, the income certificate showed the annual agricultural income of about Rs. 35,000/- per year and the source of investment remained un-explained. The CIT(A) was of the view that the investment shown in these names remained unexplained, since the same had not come out of regular deposits in bank accounts. He, therefore, confirmed the action of the AO in making 7 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
the addition of Rs. 4.00 lakhs u/s 68 in respect of the said two parties.
14. As regards G. Seetharamachandra Rao, the CIT(A) held that the investment of Rs. 1.00 lakh made by this person is not reflected in any of the bank accounts, copies of which have been filed in the proceedings and the MRO certificate showing the annual income of Rs. 35,000/- per acre issued in the name of this person is not corroborated by the deposits in his bank account during the above period in which the total deposits in the bank accounts as well as withdrawals are about Rs. 65,000/- only. The CIT(A) therefore held that the MRO certificate could not be given any credence and the investment remains unexplained. Accordingly, he confirmed the action of the AO on this account.
15. As regards G. Satyanarayana, the CIT(A) directed the AO to delete the addition of Rs. 1.75 lakh made regarding investment of this person as share application money in the assessee company, hence, the assessee is not in appeal before us.
Aggrieved, the assessee is in appeal before us.
16. Before us, the learned counsel for the assessee Shri V. Shiva Kumar submitted that in the case of G. Lakshmana Rao, the CIT(A) had acknowledged that the copies of bank account and MRO certificate have been filed and that the investor possessed agricultural lands and maintained a bank account. He pointed out that the investment has been made by way of DD and the deposit for taking out the DD was made on 23/12/1999, i.e., a day earlier. The learned Counsel contended that the CIT(A) confirmed the addition on the surmise that if this person was having regular 8 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
source of income, the share capital investment should have come out of regular deposits in his bank account. In this connection, the learned counsel invited our attention to pages 1 to 3 of the paper book for AY 1999-00 containing affidavit by the investor and copy of land owners rights pass book showing ownership of Ac. 23.86 cents of fertile agricultural land to submit that the identity is established, investment was made trough DD evidencing actual passing of money from the investor to the assessee. He further submitted that the amount invested has subsequently been returned to the investor. He, therefore, submitted that the investment made by the investor ought to have been accepted as genuine.
17. In the case of Shri Bh.S.R. Anjaneyulu, the learned counsel for the assessee made similar submissions as in the case of G. Lakshmana Rao. He invited our attention to pages 4 and 6 to 7 as also pages 25 to 27 of the paper book containing affidavit by the investor confirming ownership of Ac.17.00 cents of fertile agrl. Land and copy of bank account as also order of spl. Dy collector, Tribal Welfare confirming ownership of agrl. Land. It is submitted that the shares have subsequently been allotted to the investor.
18. As regards G. Gandhi & G Bhagyalakshmi, the learned counsel for the assessee invited our attention to pages 10 to 13 and pages 33 to 35 and 36 to 38 of the paper book containing affidavit by the investor and copy of bank account and land owners rights pass book showing ownership of Ac. 8-46 cents of fertile agrl. Land as also order of Spl. Dy. Collector confirming ownership of agrl.lands in the names of Sri Gandhi and Smt. Bhagyalakshmi. It is submitted that the shares have subsequently been allotted to the investor. It is, therefore, submitted that the 9 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
identity is established, investment was made through DD evidencing actual passing of money from the investor to the assessee and the investor owns Ac.8.46 cents of agrl. Land, therefore, the investment ought to have been accepted as genuine.
19. AS regards Bh. Prasada Rao & Varalakshmi, the learned counsel for the assessee invited our attention to pages 14 to 16 of the paper book for AY 1999-00 containing two affidavits by Sri Bh. Prasada Rao confirming ownership of Ac. 10.5 cents of fertile agrl. Land and copy of bank account and shares have subsequently been allotted to the investor.
20. As regards G. Seetharamachandra Rao, the learned counsel for the assessee invited our attention to pages 17 to 20 of the paper book for AY 1999-2000 containing affidavit by the investor confirming ownership of Ac. 13-81 cents of fertile agricultural land. It is submitted that the shares have subsequently been allotted to the investor.
21. The learned counsel submitted that in the case of ACIT Vs. Anima Investment Ltd., 73 ITD 125 (TM), the Delhi Bench of the ITAT held that addition on account of share application money cannot be made if identity of shareholders is established, and no further enquiry has to be made. It was also held that in such a case burden of proving that shareholding did not exist would fall on the department.
22. The learned relied on the decision in the case of ACIT Vs. Raasi Growth Fund Co. Ltd., 125 Taxman 319,(Viz.) where shareholders genuinely existed were identifiable and confirmed 10 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
the investment made by them and indicated about their source of investment, share application money deposited was genuine and not liable to be assessed u/s 68 in the hands of the assessee.
23. On the other hand, the learned DR submitted that the amounts invested are not from the regular deposits of the assessee and cash deposits have been made just a day before making the investment.
24. We have heard the arguments of both the parties and perused the record. We find that the Hyderabad ITAT in the case of G. Venkatareddy & Co. Vs. DCIT, 73 TTJ 401 held that merely filing confirmatory letters to establish the identity of the creditors is not enough and it cannot be said that onus lying on the assessee had been discharged. Therefore, the AO was justified in not being satisfied by the explanation offered b the assessee in relation to the impugned cash credits because assessee had not proved capacity of such creditors to advance the money and he was justified in making additions of the cash credits under sec.
68.
25. In the case of Napar Drugs Pvt. Ltd. Vs. DCIT, 98 ITD 285 (Del.)(TM), the ITAT held as under:
66. On perusal of the above enumerated judgments in relation to the assessment of unexplained share capital of a company it is seen that the courts have held that the question is predominantly a question of fact. It should be borne in mind that in the case of CIT v. Stellar Investment Ltd. 192 ITR 287 (Del), the revenue's petition has been dismissed with the remark, "No question of law arises".
When the Hon'ble High Court themselves have observed that no question of law has arisen from the order of the Tribunal, it is hard to see as to how that judgment may be considered to have made a declaration of law on the subject. In the case of Sophia Finance Ltd. (supra), Hon'ble High Court have 11 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
held that it would be open to the Assessing Officer to go into the question as to whether the amount credited as share capital is indeed share capital of that company. The Hon'ble Delhi High Court have further held that it would be the duty of the Assessing Officer to enquire whether the alleged shareholders do in fact exist or not. If the alleged shareholders do not exist, then, in effect it would mean that there is no valid issuance of share capital. In the decision reported in 251 ITR 263 (S.C.) in the case of CIT v. Stellar Investment Ltd., Hon'ble Supreme Court reiterated, "Plainly, the Tribunal came to a conclusion on facts and no interference is called for." It is held by Hon'ble Delhi High Court in the case of Antarctica Investment P. Ltd. supra) also that a finding of the Tribunal as to whether share capital is genuine or not is a finding of fact. In the case of Lanco Industries Ltd. (supra) also Hon'ble Andhra Pradesh High Court held that no substantial question of law had arisen on that account. In the case of Makhni & Tyagi Pvt. Ltd. (supra), the Hon'ble High Court was pleased to dismiss the appeal filed by the revenue as, "No substantial question of law arises in this matter." The same is stated in the judgment of Hon'ble Delhi High Court: in the case of Achal Investment Ltd. (supra), "It is in view of this, the question framed need not be answered." In my opinion it would be quite unreasonable to hold that the Tribunal as well as Income-tax authorities are precluded from going into the question of genuineness of share-holding by any of the judgments enumerated by me in this behalf. While it may be that m the course of some of the judgments above enumerated, there are some observations that in the case of a company the share capital cannot be seen as representing income that may be assessed in the hands of the company itself, such observations have been made as a matter of appreciation of evidence and not as a proposition of law because in the ultimate analyses all the courts have only held that what the Tribunal decided is a question of fact and no question of law arises. It, therefore, appears to me that in every case where a dispute a rises about the genuineness of share capital, it would be necessary to examine the facts and circumstances of each case- whether the dispute is confined to the financial capacity of the share applicant or there is material/evidence to call in question the genuineness of the issuance of share capital itself. In a case where the public issue of sharers not in doubt, it cannot be conceived as to how any share capital contribution can be assessed as income of the company for reason only of some 12 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
share applicants not being able to explain the source of funds invested by them. At the same time in a case where the facts and circumstances justify the finding that what has been credited as share capital of the company is actually not so, the provisions of Section 68 clearly permit an IT. authority to make enquiries and if necessary to assess the same as representing the income of the company."
26. In the case of Oriental Wire Industries (P) Ltd. Vs. CIT, 131 ITR 688, the Hon'ble Calcutta High Court has held that it is necessary for the assessee to prove prima facie the transaction which results in a cash credit. Such proof includes proof of the identity of his creditor, the capacity of such creditor to advance the money and, lastly, the genuineness of the transaction. Only after the assessee had adduced evidence to establish prima facie the aforesaid evidences the onus shifts to the department. Where the assessee establishes only the identity of the creditor and nothing more, the cash credits can be treated as the income of the assessee.
27. In the case of CIT Vs. Kerala Road Lines Corporation [1986] 162 ITR 669, the Hon'ble Kerala High Court has held that the burden is on the assessee to support the entries made in his books of account, and the department has no onus to disprove until assessee has submitted satisfactory explanation for the credit entries. Further, it is to mention that, without prejudice to the above, the onus becomes important only where the material collected do not indicate a positive inference either way. The general proposition of law is that the law relating to burden of proof becomes relevant only where there is no evidence on either side or such evidence is available equally. However, where facts are fully investigated, the matter may not have to be decided on the basis of burden of proof but on established facts.
13ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
28. The following cases also support the case of revenue:
1. ITO Vs. Kumar Metal Industries, 36 ITD 261
2. A. Govindarajalu Mudaliar Vs. CIT, 34 ITR 807
3. Munnalal Biharilal Vs. CIT, 30 ITR 809 (Nag.)
4. Nanak Chandra Laxman Das Vs. CIT, 140 ITR 151
5. Gumani Ram Siri Ram Vs. CIT [1975] 98 ITR 337 (P&H)
6. Sat Prakash Ram Naranjan Vs. CIT [1975] [100 ITR 130](Pun.)
29. In the assessee's case it has been established beyond doubt along with documentary evidence that the above discussed amounts are nothing but unexplained income of the assessee. It is clear that all the amounts introduced by the assessee-company under the guise of share application money is nothing but income earned from the sources not disclosed to the department and the same were brought into the books by way of share application on different names. Accordingly, we uphold the order of the CIT(A) in sustaining the addition of Rs. 17,25,000/- out of share capital as unexplained credits u/s 68 of the Act. Accordingly, ground No.
2. a) & b) raised by the assessee is dismissed.
30. Ground No. 3. a) & b) is directed against the action of the CIT(A) in confirming the action of the AO in considering Rs. 84,850/- as income alleging that there is difference in job work charges/conversion charges credited to the P&L a/c and the amount furnished in the TDS certificate.
31. The AO considered the difference in job work charges credited to P&L A/c and the amount shown in TDS certificates as income of the assessee. In this connection, the assessee 14 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
submitted that the said difference represented amounts paid by the parties on account of transport charges which were credited to transport charges account, as could be seen from the account copies of the concerned parties and details of transport charges filed in the paper book.
32. On appeal, the CIT(A) obtained remand report from the AO wherein the AO had stated that the assessee has not filed any evidence by way of confirmation from the concerned parties regarding the explanation, hence, the difference amount of Rs. 84,850/- is correctly added to the total income in assessment.
33. The CIT(A) after considering the submissions of the assessee and remand report of the assessee, held that the assessee had not been able to produce satisfactory evidence in the matter explaining the difference in the amount of job work charges as per TDS certificates and the amount offered as receipts, therefore, he confirmed the addition made by the AO.
34. Aggrieved, the assessee is in appeal before us.
35. We have heard the arguments of both the parties, perused the record and gone through the orders of the authorities below. We find that at page 39 of the paper book, the assessee had produced the details of tax deducted at source with respect to job work charges and transport charges and the difference of Rs. 84,850/- represents the amounts paid by various parties on account of transport charges and has been credited to the account of transport charges. Therefore, the addition made by the Assessing Officer and confirmed by the CIT(A) on the ground that the assessee has not been able to produce satisfactory evidence 15 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
in the matter, explaining the difference in the amount of job work charges as per TDS certificate and the amount offered as receipts, is deleted.
36. Ground No. 4.a) & b) is directed against the action of the CIT(A) in not allowing contributions towards PF of Rs. 73,806/- and ESI of Rs. 21,470/- as deduction.
37. The AO had disallowed unpaid PF and ESI contributions of Rs. 73,806/- and Rs. 21,470/- respectively as per the provisions of section 43B of the Act.
38. Before the CIT(A), the assessee had contested the disallowance made by the AO stating that the second proviso to section 43B was amended by the Finance Act, 2003 w.e.f. 01/04/2004 and accordingly, the due date of payment of even GPF and ESI would be the last date for furnishing return of income for the relevant assessment year. The CIT(A) following the decision of ITAT, Delhi in the case of Swarup Vegetable Products Industries Ltd., 278 ITR (AT) 206 and other jurisdictional ITAT, confirmed the action of the AO.
39. Aggrieved, the assessee is in appeal before us.
40. We have heard the arguments of both the parties, perused the record and gone through the orders of the authorities below. We find that the issue under consideration is squarely covered by the decision of the Hon'ble Supreme Court in the case of Allied Motors P. Ltd. Vs. CIT [1999] 224 ITR 677 wherein the Hon'ble Supreme Court held as under:
16ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
"Sec. 43B was clearly aimed at curbing the activities of those taxpayers who did not discharge their statutory liability of payment of excise duty, employer's contribution to provident fund etc. for long periods of time but claimed deductions in that regard from their income on the ground that the liability to pay these amounts had been incurred by them in the relevant previous year. It was to stop this mischief that s. 43B was inserted. It was clearly not realized that the language in which s. 43B was worded would cause hardship to those taxpayers who had paid sales-tax within the statutory period prescribed for this payment, although the amount so made by them did not fall in the relevant previous year. This was because the sales-tax collected pertained to the last quarter of the relevant accounting year. It could be paid only in the next quarter which fell in the next accounting year. Therefore, even when the sales- tax had in fact been paid by the assessees within the statutory period prescribed for its payment and prior to the filing of the income-tax return, these assessees were unwittingly prevented from claiming a legitimate deduction in respect of the tax paid by them. This was not intended by s. 43B. Hence, the first proviso was inserted in sec. 43B. The amendment which was made by the Finance Act of 1987 in sec. 43B by inserting, inter alia, the first proviso, was remedial in nature, designed to eliminate unintended consequences which may cause undue hardship to the assessee and which made the provision unworkable or unjust in a specific situation. Expln. 2 was added to section 43B by the Finance Act of 1989 with retrospective effect from 1 st April, 1984. The memorandum of reasons takes note of the combined effect of s. 43B and the first proviso inserted by the Finance Act, 1987. After referring to the fact that the first proviso now removes the hardship caused to such taxpayers it explains the insertion of Explanation 2 as being for the purpose of removing any ambiguity about the term 'any sum payable' under cl. (a) of s. 43B. This explanation is made retrospective. The Memorandum seems to proceed on the basis that s. 43B read with proviso takes care of the hardship situation and hence Expln. 2 can be inserted with retrospective effect to make clear the ambit of s. 43B(a). Therefore, s.43B(a), the first proviso to s. 43B and Expln. 2 have to be read together as giving effect to the true intention of s. 43B. If Expln. 2 is retrospective, the first proviso will have to be so construed. Read in this light also, the proviso has to be read into s. 43B from its inception along with Expln. 2. This position is reinforced by a 17 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
Departmental Circular No. 550 dt. 1 st Jan, 1990. The Departmental understanding also appears to be that s. 43B, the proviso and Expln. 2 have to be read together as expressing the true intention of s. 43B. Expln. 2 has been expressly made retrospective. The first proviso, however, cannot be isolated from Expln. 2 and the main body of s. 43B. Wihtout the fist proviso, Expln. 2 would not obviate the hardship of the unintended consequences of s. 43B. The proviso supplies an obvious omission. But for this proviso the ambit of s. 43B becomes unduly wide bringing within its scope those payments which were not intended to be prohibited from the category of permissible deductions. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. On the facts and in the circumstances of the case, the sales-tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales-tax law could not be disallowed u/s 43B."
In view of the decision, the deduction of payment of employees' contribution towards provident fund and ESI cannot be disallowed under section 43B, if paid before the due date of filing the return. In view of this fact, we set aside the order of the CIT(A) and restore the issue to the file of the AO with a direction to allow this ground of appeal of the assessee, if the payments of PF & ESI are made before the due date of filing of the return in the light of the decision of the Hon'ble Supreme Court in the case of Allied Motors Pvt. Ltd. (supra)
41. Ground No. 5.a) & b) is directed against the action of the CIT(A) in confirming the action of the AO in reducing 90% of the job work charges of Rs. 7,34, 685/- and excise duty of Rs. 65,06,490/- from profits of business applying clause (baa) of Explanation to section 80 HHC of the Act.
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42. The issues involved in the computation of deduction u/s 80 HHC of the Act by the AO are reduction of 90% of job work charges and excise duty from profits of the business by applying clause (baa) of explanation to section 80HHC of the Act, after which the adjusted profits had been reduced to a negative figure, and no deduction u/s 80 HHC had been allowed.
43. On appeal before the CIT(A), the learned AR of the assessee had relied upon the decision of Hon'ble Bombay High Court in the case of CIT Vs. Bangalore Clothing Company, 263 ITR 371 and Hon'ble Hyd decision in the case of Samrakshmana Electricals Ltd. to contend that job work charges are not liable to be deducted from business profits in computing the deduction u/s 80 HHC of the Act.
44. The CIT(A) obtained remand report from the AO wherein the AO had mentioned that 90% of the sums referred to in clauses (iiia), (iiib) and (iiic) of section 28 had to be excluded while working out adjusted profit for the purpose of section 80HHC. The assessee was following separate excise account for the excise duty wherein the claims made to the respective authorities were credited. In the tax audit report, it was mentioned that the excise duty after set-off of MODVAT credits was taken as income to the P&L a/c. The AO had stated that this excess is on account of duty received as incentive against exports made, and hence 90% of the same had to be excluded from the profits of the business by invoking the explanation (baa) to section 80 HHC. The CIT(A), therefore, held that as far as deduction of 90% of excise duty is concerned, the AO was right because 90% of such amounts have to be deducted as per clause (i) of Explanation (baa) to section 19 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
80 HHC of the Act. In respect of job work charges also, the CIT(A) upheld the action of the AO in excluding 90% of job work receipts from the adjusted profits of the business for the purpose of computing deduction u/s 80 HHC of the Act.
45. Aggrieved, the assessee is in appeal before us.
46. We have heard both the sides and perused the records. As far as excise duty is concerned it is refund of excise duty paid on exports. This issue came up for consideration before the Hon'ble Apex Court in the case of CIT Vs. Lakshmi Machine Works, [2007] 290 ITR 667. In view of this, we hold that the excise duty refund is not includible in the total turnover for the purpose of computing deduction u/s 80 HHC of the Act. Accordingly, the AO is directed to compute deduction u/s 80HHC after considering the judgment of the Hon'ble Supreme Court in the case of Laxmi Machine Works (supra).
47. As regards the job work charges of Rs.7,34,685/-, we find that the same is covered by the decision of the Apex Court in the case of Ravindranthan Nair (reported in 295 ITR 228) wherein the Hon'ble Apex Court held that "processing charges, which are part of gross total income, form an item of independent income like rent, commission, brokerage, etc., and, therefore, 90 per cent of the processing charges has also to be reduced from the gross total income to arrive at the business profits and, therefore, it has also to be included in the total turnover in the formula for arriving at the business profits in terms of clause (baa) of the Explanation to section 80HHC(3) of the Act." Accordingly, the AO is directed to recompute the deduction u/s 80HHC(3) of the Act, 20 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
following the decision of the Apex Court in the case of Ravindranathan Nair (supra).
48. Ground No. 6 is directed against the action of the CIT(A) in sustaining the addition of Rs. 1,61,050/- representing agricultural income as income from other sources.
49. The AO had disallowed expenses of Rs. 64,060/- towards cultivation on the ground that they were not incurred in connection with running of business and he had also treated the agricultural receipts of Rs. 1,61,050/- as 'income from other sources' on the ground that there is no evidence of agricultural operations and earning of agricultural income.
50. Before the CIT(A), the learned AR of the assessee had stated that evidence for sale of agricultural produce could not be filed in view of the fact that it was sold to individuals who did not give any invoices. Without prejudice to this, the learned AR had submitted that the AO was not justified in considering the entire agricultural income as 'income from other sources' as well as disallowing the agricultural expenses. He contended that the AO could have considered the net agricultural income of Rs. 96,990/- only as income from other sources instead of disallowing expenses of Rs. 64,060/- and considering the agricultural income of Rs. 1,61,050/- as 'income from other sources'.
51. After considering the submissions of the assessee, the CIT(A) agreed with the submissions of the assessee that net agricultural income can be treated as 'income from other sources' and he restricted to Rs. 1,61,050/- under the head 'income from other sources'.
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52. Aggrieved, the assessee is in appeal before us.
53. We have heard the arguments of both the parties and perused the record as well as gone through the orders of the authorities below. It is observed that the assessee itself agreed before the CIT(A) that the net agricultural income can be treated as 'income from other sources', therefore, we uphold the order of the CIT(A) in sustaining the addition of Rs. 1,61,050/- on this issue. Thus, this ground of appeal of the assessee dismissed.
54. In the result, the appeal of the assessee is partly allowed for statistical purposes.
ITA NO. 628/HYD/2006 for AY 2001-02.
55. Ground No. 1 is general in nature.
56. Ground No. 2.a) & b) are directed against the order of CIT(A) in sustaining the addition of Rs. 3,75,000/- out of share capital as unexplained credits u/s 68 of the Act.
57. The assessee claimed investment in the name of nine persons aggregating Rs. 13,25,000/- by way of share application money during the FY 2000-01, which was not accepted by the AO on the ground that the confirmations were stereo-typed and the sources of investment were not explained properly.
58. On appeal, the CIT(A) held that the sequence of events in the appeal proceedings as well as the legal aspects of addition u/s 68 in the case of investment by way of share application money in a company had been discussed in earlier year for assessment year 22 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
1999-2000 (supra) and after considering the reports of the AO, the submissions made by the ld. AR of the assessee on various dates and the material available on record, the issue regarding genuineness of investment in share capital/loans by various persons discussed and decided as under:
59. In case of Sri G. Venkata Rao, the CIT(A) directed the AO to delete the addition made in this regard and the assessee is not in appeal before us.
60. In case of Sri Bh. Seeta Ramanjaneyulu, the CIT(A) observed that a total investment of Rs. 50,000/- in the name of this person was shown on 15/06/2000, which had been claimed as out of agricultural income and the AO noted that he had not filed any proof of earning agricultural income except for MRO certificate for holding the lands in his name. The CIT(A) held that the amount stated to be invested by this person is not out of withdrawal from the bank account and even the agricultural income, for which receipts are mentioned are not so much that after deducting expenses, the remaining amount would be sufficient for investment of Rs. 50,000/- in shares. He, therefore, confirmed the action of the AO in treating the amount as unexplained u/s 68 in this case.
61. The learned counsel for the assessee submitted before us that the investors are holding substantial agricultural lands and hence taking into account the smallness of the amount invested, the CIT(A) ought to have deleted the addition.
62. In case of Sri Gadde Gandhi & Smt. Bhagyalakshmi, the CIT(A) held that no receipts pertaining to FY 2000-01 during 23 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
which the investment was made, regarding agricultural income had been submitted and even a perusal of bank account of the relevant period did not show withdrawals for the amounts claimed to have been invested in the company near those day. He, therefore, held that investment shown in the name of these persons amounts to Rs. 1 lakh had to be treated as unexplained credit u/s 68 of the Act.
63. The learned counsel for the assessee submitted before us that a small investment of Rs. 50,000/- has been made each of these persons. The CIT(A) confirmed the addition on the ground that receipt of agricultural has not been proved and there are no withdrawals from bank account for investment.
64. The learned counsel produced at pages 2 & 3 of the paper book for the AY 2001-02, affidavits by both the investors and copy of the share certificates showing that the shares have been subsequently allotted to these investors. Further, the CIT(A) has accepted that the investors are having 54233 shares in the company having face value of Rs. 5,42,330/-.
65. In the cases of Shri Bh. Seeta Ramanjaneyulu, Sri Gadde Gandhi & Smt. Bhagyalakshmi, we are in agreement with the CIT(A) as he has pointed out that there is no withdrawal from bank account for investment.
66. In case of Sri Bh. Prasada Rao & Smt. G. Varalakshmi, the CIT(A) observed that the investment claimed in the name these persons is Rs. 50,000/- on 15/06/2000 and Rs. 75,000/- on 23/11/2000. It was further observed that the AO had mentioned in his final report that these persons had not filed any evidence 24 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
except the copy of MRO certificate for holding land in their name and in his reply filed on this issue, the assessee had stated that these persons had shown their pattedar pass books to the AO and submitted copies of bank accounts containing deposits on account of agriculture. After considering the submissions of assessee and contents in remand report submitted by the AO, the CIT(A) held that there is no evidence for earning of agricultural income by these persons and even a perusal of the bank statements did not reveal any withdrawals of the corresponding amounts near the date of investment or near about period. Hence, the CIT(A) confirmed the action of the AO in treating the said amounts as unexplained credits u/s 68 of the Act.
67. The learned counsel submitted investment of Rs. 50,000/- by Shri Bh. Prasada Rao and Rs. 75,000/- by Smt. Bh. Varalakshmi has been made from agricultural income as the investors own 10 acres and 45 cents of fertile agricultural land. The learned counsel also filed affidavits at page 5&6 of the paper book by both the investors and stated that the shares have been subsequently allotted to these investors.
68. We find that n cases of Sri Bh. Prasada Rao & Smt. G. Varalakshmi, the CIT(A) held that there is no evidence for earning of agricultural income by these persons and even a perusal of the bank statements did not reveal any withdrawals of the corresponding amounts near the date of investment or near about period. Therefore, we confirm the order of CIT(A) on these counts.
69. In case of Bh. Narasimha Murthy, the CIT(A) held that this person had not shown any receipts from Tobacco Board or any 25 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
other person during the FY 2000-01, nor there is appropriate deposit in his bank account during the period. He, therefore confirmed the action of the AO in treating the said amount as unexplained investment u/s 68 of the Act.
70. The learned counsel drew our attention to page 6 of the paper book containing affidavit by the investor confirming the ownership of 10 acre and 45 cents of fertile agricultural land. It was pointed out that the shares have been subsequently allotted to the investor.
71. We are of the opinion that since the CIT(A) pointed out that there is no appropriate bank deposit in his bank account during the period, we confirm the action of the CIT(A) in confirming the addition in respect of Bh. Narasimha Murthy.
72. In case of P. Venkata Rao and Smt. P. Bharathi, the CIT(A) observed that the investment of Rs. 50,000/- each is shown in the name of these persons, who are husband and wife on 12/08/2000 and the AO had given similar comments regarding investment by these persons and also mentioned that it is not known as to why Sri Venkatya Rao has invested Rs. 50,000/- in the company by way of cash when he was having a bank account. Regarding Smt. P. Bharathi, it had been stated that no proof regarding ownership of agricultural lands or earning of agricultural income was filed regarding her investment. After considering the arguments on both the sides, the CIT(A) held that the bank account did not reflect investments made by the these persons, except for the withdrawal of Rs. 60,000/- on 07/08/2000, and could not explain the total claim of investment of Rs. 1,00,000/-. He further held that even a perusal of the 26 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
receipts from Tobacco Board did not indicate earning of so much of income by Sri P. Venkata Rao leading to substantial investment of Rs. 1 lakh in the FY 2000-01. He, therefore, held that even if a liberal view is taken, at best the investment of Rs. 50,000/- made in the name of Sri P. Venkata Rao could be considered as explained. As far as the investment in the name of Smt. P. Bharathi is concerned, the CIT(A) held that there is no evidence of holding any agricultural land or any bank account in her name from which the investment could be explained. He, therefore, treated the investment shown against her name as unexplained u/s 68 and confirmed the addition made by the AO in this regard and the investment made in the name of Sri P. Venkata Rao is treated as explained and directed the AO to delete the same.
73. The learned counsel for the assessee invited our attention to 7 to 10 pages of the paper book containing affidavit of Shri P. Venkata Rao and copy of land owners rights pass book confirming ownership of 20 acres and 33 cents of fertile agricultural land. The CIT(A) was also of the view that investment in the name of Bharathi, i.e. wife of P. Venkata Rao has been made without Bharathi having owned agricultural land individually and without any bank account in her name and hence cannot be held as genuine.
74. We are in confirmity with the reasoning given by the CIT(A) since there is no evidence in respect of Smt. P. Bharathi holding of any agricultural land or any bank account in her name from which the investment could be explained.
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75. Ground No. 3.a) & b) are directed against the action of the CIT(A) in sustaining the addition of Rs. 7,95,000/- representing unsecured loans as unexplained credits u/s 68 of the Act.
76. During the year under consideration, the assessee had shown public deposits/other loans amounting to Rs. 1,08,49,597/- under the head 'unsecured loans'. During the scrutiny assessment proceedings on 18/08/2004, the assessee company was asked to furnish the complete list of unsecured loans, their addresses, confirmation letters and the details of sources thereof. After discussing the issue elaborately with case laws, the AO came to the conclusion that the amounts introduced by the assessee- company under the guise of public deposits/other loans is nothing but income earned from the sources not disclosed to the Department and the same were brought into the books by way of unsecured loans on different names. Therefore, the above amounts of Rs. 1,01,58,267 and Rs. 7,74,363/-, which was received as share application money later on converted into the deposit/loans, totaling to Rs. 1,09,32,630/- was treated as unexplained cash credits u/s 68 of the Act by the AO.
77. Aggrieved, the assessee carried the matter in appeal before the CIT(A).
78. In case of Sri M. Satyanarayana, the CIT(A) observed that the regular deposit entries in the account of Sri M. Satyanarayana, copies of which had been filed in the proceedings, show that the regular deposits as well as withdrawals are of the amounts smaller than Rs. 10,000/- on every occasion. Only on 22/03/2000, a deposit of Rs. 14,000/- was made and immediately thereafter withdrawn in April. Further, an amount of Rs. 18,000/-
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had been shown withdrawn on 22/04/2000, out of which the assessee had tried to explain the investment of Rs. 40,000/-. The withdrawal of Rs. 5,000/- cannot be said to be towards share capital investment because every person, particularly a salaried person will withdraw some amount for house hold expenditure every month and, thus, an amount of Rs. 5,000/- has been considered towards that only. The CIT(A) held that the balance of Rs. 18,000/- withdrawn on 22/04/2000 did not explain the total investment of Rs. 40,000/-, therefore, he confirmed the action of the AO in making the addition u/s 68 treating as unexplained investment by the said person.
79. The learned counsel for the assessee filed paper book and invited our attention to page 21 wherein the creditor has confirmed that loan of Rs. 40,000/- was given by way of DD No. 304947 dated. 24/04/2000. Further, it is confirmed that he is a salaried employee and he owns agricultural land of 4 acres and that he has given the land on lease and derives net income of Rs. 30,000/- and also earns salary of Rs. 4000/- per month.
80. In case of Smt. Satyavathi, the CIT(A) observed that the normal deposits in the joint bank account of this person had rarely exceeded Rs. 10,000/- on a single occasion, and the withdrawals were also similar and it is only on two occasions that substantial amounts had been deposited and immediately withdrawn from this amount. He further observed that a person who has a saving bank account will keep money normally in bank, except for small amount of cash to be kept at residence. He, therefore, confirmed the action of the AO in making the addition u/s 68 as unexplained investment on the ground that the said person having no ostensible sources of income.
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81. The learned counsel submitted that the loan was given by way of DD by utilizing the joint account of the creditor and her husband and the investment of only Rs. 30,000/-.
82. In case of Smt. K. Subba Laxmi and K. Ramesh, the CIT(A) observed that a loan of Rs. 50,000/- each in the name of these two persons is shown as on 22/11/2000 and had filed copies of MRO certificate for holding the lands in their names and the AO had stated that Mr. Ramesh was only a student who could not file any explanation for the credits in the bank pass book. The CIT(A) held that on perusal of the bank account, copies of which had been filed before the AO, found that there are no withdrawals in the bank account during or near about that period of November, 2000, in which period the investment had been claimed by these persons in the company and the normal deposits and withdrawals in the bank accounts are of smaller amounts which did not explain substantial amount invested by them in the company in November 2000 in any manner. He confirmed the action of the AO in these cases also.
83. The learned counsel drew our attention to pages 22 to 28 of the paper book to submit that the creditor Smt. Subbalakshmi confirmed by way of affidavit that she owns 6 acres of agricultural land in Sy.No. 445/2 in Nachugunta village, Vungutur Mandal, WG Dist. And she has filed copy of pattadar pass book in support of the land holding. He further submitted that she has confirmed that she loaned Rs. 50,000/- and also gave a loan of Rs. 25,000/- in the name of her son and her son K. Ramesh has confirmed that loan of Rs. 25,000/- was given by his mother and laos that another of Rs. 25,000/- was given in his name by his grant father 30 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
Sri E.V. Durgam. Shri E.V. Durgam has also filed affidavit confirming that he had loaned Rs. 25,000/- in the name of his grand son. He has also filed copy of Pattadar pass book confirming ownership of 8 acres and 60 ½ cents of agricultural land in Nachugunta village.
84. In case of E.V. Durgam, the CIT(A) observed that an investment of Rs. 50,000/- is shown as loan on 22/11/2000 out of agricultural income, against this name and the AO had stated that a perusal of bank account shows that there was no balance in his bank account from 09/102/000 to 09/03/2001 and the investment of Rs. 50,000/- on 20/11/2000 could not be said to be explained. The CIT(A) held that this person also had not able to explain the source of investment in the company properly and the AO observed that there was no balance in his account from October 2000 to March 2001 is found correct on perusal of the copies of the bank account No. 377 in Union Bank of India, Ungutur. Thus, the CIT(A) confirmed the action of the AO in making the addition u/s 68 as unexplained investment in the case of said person.
85. The learned counsel invited our attention to pages 26 to 28 of the paper book, where the creditor has confirmed the loan of Rs. 50,000/- and as seen in the case of Subbalakshmi and K. Ramesh the creditor is owning agricultural land in Nachugunta Village, W.G. Dist.
86. In case of G. Srihari, the CIT(A) observed that he is the son of Sri G. Murali Krishna and in the sworn statement recorded on 03/11/2005 by the AO, had stated that he was a post graduate and presently doing agriculture in the village and the loan of Rs. 1 lakh was shown as taken by the company from this person on 31 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
26/12/2000. The AO had mentioned in his report that in the year 2000, this person must have been a student and it is not known how he would have earned agricultural income as claimed in his name. After considering the above background, the held that the bank statement is only in the name of Sri G. Muralikrishna and did not contain the name of Sri G. Srihari, the creditor. Moreover, the balance in the account of this person in December, 2000 was hardly Rs. 429/-. The CIT(A) observed that even if it is accepted for argument's sake that the investment had been made by his father, no credible source of investment is found available in this case. He, therefore, confirmed the action of the AO in making addition u/s 68 of the act treating as unexplained investment in the said case also.
87. In the case of Sri G. Srihari, the learned counsel submitted that the CIT(A) confirmed the addition on the ground that the creditor is a student when the loan given. Kind attention was drawn to pages 41 to 43 of the paper book wherein the creditor the pattadar pass book which shows that he owns 5 acres and 74 cents of agricultural land. Further, the pass book shows the creditor's name as well as the fact that he was under the guardianship of V. Ganjaraju and hence the loan of Rs. 1 lakh is treated as genuine and addition may be deleted.
88. In case of Sri Ch. Paddalu, the CIT(A) observed that an amount of Rs. 25,000/- has been shown in the name of this person on 05/12/2000 and it has been stated that he invested Rs. 25,000/- out of sale proceeds of land, which he has taken back on 04/04/2000 for purchasing common land and, in the interim period, he had deposited with the company. In view of the above, the CIT(A) confirmed the action of the AO in making addition u/s 32 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
68 on the ground that this is a case of a person living below poverty line, and claiming that he had given loan of Rs. 25,000/- to the company, which is totally unacceptable.
89. The learned counsel submitted that the CIT(A) confirmed the addition on the ground that the creditor has meager income even as per MRO certificate. The learned counsel stated that the creditor invested Rs. 25,000/- out of the sale proceeds of land, which he has taken back on 04/04/2000 for purchasing common land and, in the interim period, he had deposited with the company.
90. In case of P. Satyanarayana, the CIT(A) held that from a perusal of the bank accounts, neither in the bank account No. 2927 maintained in Indian Bank, nor in the other account no. 453 maintained in Godavari Grameena Bank, copies of which were filed before the AO, there is any reflection of the amounts invested by this person in February, 2001 and the MRO certificate also shows annual income of Rs. 50,000/- only which is barely sufficient to meet a person's household expenditure in current times. Moreover, there are no entries in the bank accounts indicating savings to the extent of Rs. 75,000/- in the relevant previous year. In view of the above findings, the CIT(A) confirmed the action of the AO in making addition u/s 68 of the Act in this case.
91. The learned counsel drew our attention to pages 39, 40 & 44 of the paper where the creditor has confirmed the land and also filed land owners right pass book owning 3 acres 37 cents agricultural land. The counsel submitted that Rs. 50,000/- certified by the MRO was not the only income of the creditor but 33 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
the creditor has some irregular income which was utilized for his upkeep. In these circumstances, the learned counsel submitted that the addition may be deleted.
92. In case of Smt. K. Shantha Kumar, Sri K. Sandeep and Sri KVK Chaitanya, the CIT(A) observed that all these three persons are shown as having invested Rs. 20,000/- each on 15/01/2001 in the company. Smt. Shantha Kumari, mother of the two persons, Sandeep and Chaitanya, filed an affidavit stating that she was a professional and income tax assessee since 1996, and had made deposits in her own name as well as in the name of her two sons of Rs. 20,000/- each, from the maturity proceeds of UTI growth fund and maturity of peerless investment savings scheme. The CIT(A) further observed that the AO in his report had stated that the source for investment were stated to be out of the gifts received periodically and these persons were children having no idea about advancing of loans/making investments. However, he has accepted the investment in the name of Smt. Shantha Kumari. In view of the above findings, the CIT(A) held that out of total investment of Rs. 60,000/- made by Smt. Shantha Kumar, investment of Rs. 40,000/- is made out of withdrawals from her bank account and the AO had already accepted investment of Rs. 20,000/- made by Smt. K. Shantha Kumari in her own name in the report dated 30/01/2006. The CIT(A), therefore, restricted the addition to Rs. 20,000/- against the addition of Rs. 60,000/- made by the AO in the name of the said three persons.
93. The learned counsel for the assessee invited our attention to pages 20 to 31 to submit that Smt. Shanta Kumari has filed confirmation about the cash credits and has also filed pass books of herself and her son Sri Chaitnaya. The counsel submitted that 34 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
having regard to the fact that withdrawals shown and the proximity of the same to the date of loan, the CIT(A) ought to have accepted the entire loans of Rs. 60,000/- as proved and ought to have deleted the addition of Rs. 20,000/- sustained by him.
94. In case of S. Himabindu, the CIT(A) observed that an investment of Rs. 40,000/- on 20/06/2000 in the name of this person is shown and, in the affidavit filed, it was stated that the investment is made out of income from agricultural land owned by her on lease basis and a copy of MRO certificate was filed in this regard. The CIT(A) further observed that the AO in remand report stated that no confirmation regarding investment in the company was filed and there is no evidence of identity also. The CIT(A) held that the person has neither appeared nor confirmed the investment during the remand proceedings despite specific opportunities given to the assessee and no copies of bank account etc. regarding source of investment had been filed which could explain the source of investment made by this person. He, therefore, confirmed the action of the AO in making addition u/s 68 against the said person.
95. The learned counsel invited our attention to pages 11 of the paper book to submit that the creditor has confirmed that loan of Rs. 40,000/- was given by way of DD No. 547069 dated 20/06/2000 and she has confirmed that the loan was given out of accumulated agricultural income from 4.5 acres of agricultural land owned by her in Dosapadu Village, Denduluru Mandal, W.G. Dist., AP.
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96. In cases of Kakarala Neelima, Kakarala Venkata Suresh, Kakarala Chandrasekhar, Kakarala Diwakar and Krishna Prasad, the CIT(A) observed that the investment is claimed in the month of January, 2001, but, no confirmations had been filed regarding the investments made by these persons in the company. The AO had reported that, except for filing copies of pattedar pass books, no details of worth had been filed either at the assessment stage or at the remand report stage. In view of the above findings, the CIT(A) held that neither these persons had confirmed their investment in the company nor any evidence of earning of income or sources of investment had been filed in the proceedings, therefore, the assessee had not been able to establish either the identity or the creditworthiness of these persons in any manner ad the burden cast on the assessee as per the provisions of section 68 has not been discharged in any of these cases. He, therefore, confirmed the action of the AO in making additions u/s 68 against the said persons.
97. The learned counsel invited our attention to pages 12 to 14 of the paper book to submit that Shri K. Suresh has filed affidavit confirming investment of Rs. 50,000/- in his name and Rs. 50,000/- in the name of his wife K. Neelima by way of cheques. The counsel further submitted that K. Suresh has filed evidence of ownership of agricultural land in the form of pattadar pass book showing ownership of 12 acres and 62 cents of agricultural land. The learned counsel also invited our attention to pages 15 to 17 of the paper book to submit that Sri K. Chandrasekhar has filed affidavit confirming investment of Rs. 50,000/- in the assessee company and he has also filed pattedar pass book evidencing ownership of 7 acres and 94 cents of agricultural land. The learned counsel also invited our attention to pages 18 to 19 of 36 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
the paper book to submit that Shri K. Diwakar S/o Late Ananda Rao has confirmed investment of Rs. 50,000/- in the assessee company and he has also filed pattedar pass book evidencing ownership of 27 acres and 74 cents of agricultural land in the name of his late father.
98. From the assessment order of the Assessing Officer, we find that originally all the above persons invested the amounts as share application money for allotment of shares and subsequently they made an application to convert the same into deposit/loans. The dates as to when the share application money was invested is not mentioned in the share application forms. Similarly, the date of application for conversion of such share application money into deposits/loans is also not mentioned. In the absence of the same, it is clear that, as an after thought, these were obtained after the Department started calling for information with regard to public deposits and started causing enquiries about the credits appearing under the head 'unsecured loans on the liabilities side of the balance sheet.
99. The above persons have not replied to the letter issued u/s 133(6) of the Act. On their behalf, the assessee company has filed only confirmation letters. In the confirmation letters in some cases, the source of income for advancing the loans/deposits was left blank. But in confirmation letters submitted by the assessee- company, the source was shown as agriculture income. Therefore, the Assessing Officer, in the absence of cogent evidence substantiating the source and credit-worthiness of the creditor/depositors, the above loans/deposits cannot be accepted as genuine.
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100. As far as the agricultural income is concerned, evidence has not been produced for the amount of agricultural income earned. It is also not known as to what were the household expenses for the year and the balance available so that the investors have advanced such a huge amounts as loans to the company. It is also observed by the Assessing Officer that from the confirmations, the mode of payment was by way of Demand drafts and most of the demand drafts were serially numbered and obtained on the same date. Most of the persons have given loans by way of cash or demand drafts even though these persons are having bank accounts. Hence, the Assessing Officer concluded that in the absence of basic details and also credit-worthiness of the depositors/loan creditors not being substantiated with proper evidence, that all the above persons are only name-lenders.
101. The following points clearly show that the investors are advised to invest the unaccounted money in shares:
i) All the investors are agriculturists having no other source of income except agricultural income.
ii) The amounts deposited by way of cash.
iii) The investors have not taken receipt or
acknowledgment for the investment made.
iv) The investors are not aware of the type of shares in
which they have invested.
v) Most of them have bank accounts and could have
invested by way of cheque and not by cash.
vi) When letters were served on them the investors do not
want to cooperate with the Department, perhaps, to conceal their benami status.38
ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
102. From the above, one thing is clear that only the identity of the creditor has been established but the creditworthiness and genuineness of the transaction has not been proved to the satisfaction of the Assessing Officer. The CIT(A) after thorough examination of the issues deleted certain additions made by the Assessing Officer. The CIT(A) has applied rigorous test to prove the genuineness of the transactions and credit worthiness of the investors for such persons whose investments have been deleted by him and in the process filtered the cases and confirmed the additions made by the Assessing Officer with respect to only such other persons who did not furnish required information as called for. Accordingly, we uphold the order of the CIT(A) in sustaining the addition of Rs. 7,95,000/- representing unsecured loans as unexplained credits u/s 68 of the Act, as against the addition the made by the AO of Rs. 1,09,32,630/- as unexplained cash credits u/s 68 of the Act.
103. The ground No. 3 a & b raised by the assessee is dismissed.
104. Ground No. 4 a) & b) is directed against the action of the CIT(A) in not allowing contributions towards PF of Rs. 2,87,317/- and ESI of Rs. 1,00,443/- as deduction.
105. The AO had disallowed the PF and ESI contribution of Rs. 2,87,317/- and Rs. 1,00,443/- respectively as the same was paid beyond the due dates. On appeal, the CIT(A) following his order in 1999-00 confirmed the action of the AO.
106. Similar issue was decided in AY 1999-00 (supra), therefore, following the conclusions drawn therein vide para 40, we set 39 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
aside the order of the CIT(A) and restore the issue to the file of the AO with identical directions.
107. Ground No. 5 a) & b) are directed against the action of the CIT(A) in confirming the action of the AO in reducing 90% of the job work charges of Rs. 55,650/- from profits of business applying clause (baa) of Explanation to section 80 HHC of the Act.
108. The assessee had objected to reduction of 90% of job work charges of Rs. 55,650/- from profits of business by applying clause (baa) of explanation to section 80HHC by the AO. On appeal, the CIT(A) following his decision in 1999-00, confirmed the action of the AO in this year also.
109. A similar issue was decided in the Assessee's appeal for the AY 1999-00 at para 47 above. For the same reasons, respectfully following the decision of the Apex Court in the case of Ravindranthan Nair (reported in 295 ITR 228), the AO is directed to recompute the deduction u/s 80HHC(3) of the Act.
110. Ground No. 6 a) & b) is directed against the action of the CIT(A) in sustaining the addition of Rs. 48,300/- representing agricultural income as 'income from other sources'.
111. The AO stated that the assessee failed to produce any satisfactory evidence regarding agricultural activities and earning of agricultural income, therefore, he treated the amount of Rs. 48,300/- claimed by the assessee as agricultural income, as 'income from other sources'. On appeal, the CIT(A) confirmed the action of the AO on the ground that there was no evidence of earning of agricultural income.
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112. Aggrieved the assessee is in appeal before us.
113. We have heard the arguments of both the parties and perused the record as well as gone through the orders of the authorities below. The CIT(A) has given a categorical finding that no evidence of earning of agricultural income has been produced before the lower authorities. In these circumstances, we remit the issue to the file of the Assessing Officer to give one more opportunity to the assessee to establish that agricultural operations have been carried out on the land and agricultural income has been derived. For this purpose, the assessee shall adduce evidence and substantiate his claim by production of certificate from the MRO and revenue records to be verified by the Assessing Officer. The Assessing Officer if satisfied that agricultural operations have been carried out by the assessee shall treat the amount of Rs. 48,300/- as 'agricultural income' and not 'income from other sources'
114. In the result, the appeal of the assessee is partly allowed for statistical purposes.
ITA NO. 831/Hyd/06 for AY 2002-03
115. Ground No. 1 is general in nature.
116. Ground No. 2.a) & b) is directed against the action of the CIT(A) in sustaining the addition of Rs. 3,55,000/- out of share capital as unexplained credits u/s 68 of the Act.
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117. Briefly the facts relating to this ground are that during the course of assessment proceedings, the assessee company was asked to furnish the complete list of share applicants, their addresses, confirmation letters and the details of sources thereof. In reply, the assessee had filed list of share applicants, the amount invested and only the confirmation to that extent, which were extracted by the AO in his order at pages 2 & 3 in tabular form, which reveals that the assessee received Rs. 18,15,000/- from 37 persons. After discussing the issue elaborately and analyzing the issue with various case laws, the AO held that the amounts introduced by the assessee company under the guise of share application money is nothing but income earned from the sources not disclosed to the Department and the same were brought into the books by way of share application money on different names. He, therefore, treated an amount of Rs. 14,15,000/- as unexplained cash credits u/s 68 of the Act and made the addition accordingly.
118. Aggrieved, the assessee carried the matter in appeal before the CIT(A).
119. The CIT(A) observed that the investments shown in the name of S/Shri/Smt. (1) E.V. Durgam (2) M. Satyanarayana (3) S. Himabindu (4) Kakarla Neelima, Kakarla Venkata Suresh, Kakarla Chandra Sekhar, Kakarla Diwakar, Kakarla Krishna Prasad (5) N.R. Shanthi (6) G. Srihari (7) G. Seetharamachandra Rao (8) P. Satyanarayana (9) K. Shantha Kumari (10) KRK Murthy (11) K. Sandeep, KVK Chaithanya (12) K.A. Ramaiah (13) K. Subba Laxmi, K. Ramesh (14) S. Satyavathi, were already shown as unsecured loans in AY 2001-02 and added u/s 68 of the Act by the AO. The CIT(A) further observed that the said investments 42 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
were confirmed by him in AY 2001-02 except Sri G. Seetharama Chandra Rao (Rs. 1 lakh), Smt. N.R. Shantha (Rs. 50,000) and in the case of of Sri K. Shantha Kumari, therefore, investments shown in the name of these persons cannot be again considered as fresh deposits to be considered for addition u/s 68 of the Act. He, therefore, directed the AO to delete the additions made in the name of the said persons, as the same have been already considered in AY 2001-02.
120. As far as investments shown in the name of 14 other persons, which are not reflected in the earlier year, the CIT(A) decided the same as under:-
121. In case of G. Sai Krishna, Ms. G. Navya, Smt. K. Kaveri, the CIT(A) observed that in all these cases, affidavits had been submitted stating that they had received the sum of Rs. 25,000/- each from close relatives etc. and no evidence had been submitted in the assessment proceedings or the appellate proceedings, nor any copies of bank statements etc. had been filed to indicate the source of investment. The CIT(A), therefore, confirmed the action of the AO in treating the said investments as unexplained credits and making addition u/s 68 of the Act.
122. The learned counsel for the assessee filed paper book wherein containing affidavit by the investors, G. Sai Krishna, Ms. G. Navya, and G. Sriramachandram, father of Smt. K. Kaveri confirming the investment of Rs. 25,000/- each. He further submitted that shares have been subsequently allotted to the investors.
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123. In case of G. Balachandar, the CIT(A) directed the AO to delete the addition of Rs. 25,000/- made in this case and the assessee is not in appeal before us.
124. In case of G. Saraswathi, the CIT(A) held that MRO certificate itself cannot be an evidence of actual earning of agricultural income, and savings therefrom made by the alleged creditor. If the creditor had sufficient income and savings, this would be reflected in some bank accounts, or in any other form and no evidence has also been produced regarding the sale of cashew nuts etc. in the earlier years in this regard. He, therefore, confirmed the action of the AO in treating the same as unexplained credit u/s 68 of the Act.
125. The learned counsel invited our attention to 7 to 11 of paper book containing the affidavit by the investor and copy of the pattadar pass book confirming the ownership of 2 acres and 88 cents of agricultural land. It was submitted that subsequently she has been allotted shares.
126. In the case of S. Satyavathi, the CIT(A) had noticed that the investor produced electoral card and copy of bank account. He confirmed the addition on the ground that the bank account produced before him showed deposit of matching amount on the day before the date of taking out DD for investment. He agreed with the AO that the assessee did not have proper source of investment.
127. The learned counsel for the assessee submitted that the identity of the investor having been established, the evidence having been submitted to show that the money reached the 44 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
assessee by way of DD, the amount of investment being very small, the addition ought to have been deleted. It was submitted that the investor has also been issued shares for the amounts invested.
128. In cases of BH. Anasuya, BH Madhavi and BH Bhagyalakshmi, the CIT(A) observed that these persons are wife and daughters of one Sri BH Trinadha Rao, who appeared before the AO and stated that these persons made investments out of gifts received from elders on various occasions and no other evidence was filed regarding the investments shown in their name. The CIT(A) held that none of these 3 persons had produced any documentary evidence, regarding their sources of income, out of which, the investment had been claimed and there is a discrepancy also in the earlier statements made, wherein it was stated that the investments were made out of gifts received from elders and in subsequent statement it was stated that they had their own sources of income. In the absence of any credible evidence produced either in the assessment proceedings or in the appellate proceedings, the CIT(A) confirmed the addition of Rs. 1 lakh made by the AO u/s 68 of the Act for investment shown in these names by the assessee.
129. The learned counsel for the assessee invited our attention to the pages 12 to 14 of the paper book containing affidavits by the investors to submit that Smt. Anasuya confirmed that the investment of Rs. 50,000/- has been made out of savings from gifts received on various occasions from her elders from time to time. It is submitted that Sri Bh. Trinadha Rao has filed affidavit stating that Rs. 25,000/- has been invested by Smt. Bh. Bhagyajyothi, his daughter, from gifts received on the occasion of 45 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
her marriage. It was submitted that Smt. Madhavi filed affidavit confirming that she made investment of Rs. 25,000/- from out of the internship amount for Rs. 2,900/- p.m. received by her from Gandhi Medical College between July 2000 and June, 2001.
130. In the cases of K.R. Murthy, P. Manjula, S. Aparna, K. Parvathamma and K.S. Chakravarthy, the CIT(A) observed that an investment of Rs. 20,000/- each has been shown in these names, which aggregates to Rs. 1 lakh. Investment was claimed out of retirement benefits received from Sri K.R. Murthy, in the year 1995, but the AO made the addition stating that no bank statements were filed to substantiate the claim that the retirement benefits were available till the year 2002. The CIT(A) held that the assessee had been avoiding the main question as to whether the retirement benefits received by K.R. Murthy in the year, 1995 continued in his bank account till the year 2002, so as to enable him to make investment in his name, and in the name of his family members. He further held that if Sri K.R. Murthy really had the amount of Rs. 1 lakh in his bank account till the year 2002, he would have made the investment simply by issuing a cheque in the name of the assessee company and not by cash or by way of demand draft and the fact of availability of sources of investment could have been easily established by producing a copy of the bank account from 1995 to 2002 before the AO in the remand proceedings, which had not been done, either by the creditor or by the assessee. He, therefore, was of the view it indicates that the investment of Rs. 1 lakh made in March, 2002 is not out of the disclosed receipts of Sri K.R. Murthy, and his family members, and the time gap of 7 years between the receipt of retirement benefits, and the alleged investment in the assessee company is wide enough to reject the claim of nexus between the 46 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
retirement benefits received by Sri K.R. Murthy, and the investment shown in the company in the year 2002. He, therefore, confirmed the action of the AO in treating the amount of Rs. 1 lakh as unexplained credits u/s 68 of the Act in the said case.
131. The learned counsel for the assessee invited our attention to pages 15 to 23 of the paper book containing affidavits by the investors and confirmations by Sri KRK Murthy that he has given gifts to his wife and children out of his retirement benefits.
132. We have heard the arguments of both the parties and perused the record. Similar ground has been raised by the assessee as Ground No. 2.a) & b) in AY 1999-2000 in ITA No. 627/Hyd/08 and the same has been decided by us vide paras 24 to 29 (supra). Respectfully following the conclusions drawn therein, we confirm the order of the CIT(A) in sustaining the addition of Rs. 3,55,000/- out of share capital as unexplained credits u/s 68 of the Act, as against the addition of Rs. 14,15,000/- made by the Assessing Officer u/s 68 of the Act for unexplained credits representing share application money. This ground of appeal of the assessee is dismissed.
133. Ground No. 3 a) & b) is directed against the action of the AO in sustaining the addition of Rs. 34,750/- representing agricultural income as income from other sources.
134. The AO had treated the said sum of Rs. 34,750/- claimed by the assessee as agricultural income, as income from other sources on the ground that the assessee did not submit the 47 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
evidence regarding income earned or expenditure incurred on agricultural operations.
135. On appeal, before the CIT(A) the learned AR of the assessee stated that the assessee company owned about 9 acres of land, out of which, one acre land was being used for business purpose and remaining 8 acres of vacant land was under cultivation and the assessee had earned income of Rs. 34,750/- on sale of guava, paddy, vegetables, and also incurred expenses for cultivation of the said lands. He, therefore, contended that the AO was not justified in treating this amount as 'income from other sources'.
136. The CIT(A) after considering the submissions of the assessee, following his decision in AY 1999-00 and 2001-02, confirmed the action of the AO in treating the said income of Rs. 34,750/- 'income from other sources' on the ground that the assessee failed to submit concrete evidence in this regard.
137. Aggrieved, the assessee is in appeal before us.
138. We have heard the arguments of both the parties and perused the record. The assessee's claim of Rs. 34,750/- as 'agricultural income' was treated by the AO as 'income from other sources' on the ground that the assessee did not submit the evidence regarding income earned or expenditure incurred on agricultural operations. We are of the view that to meet the ends of justice one more opportunity may be given to the assessee to substantiate its claim by producing evidence regarding income earned or expenditure incurred on agricultural operations before the AO. The AO shall examine the evidence which will be put-forth by the assessee and if the assessee failed to substantiate its 48 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
claim, the AO may repeat the addition. Thus, this ground of appeal of the assessee is allowed for statistical purposes.
139. Ground No. 4 a) & b) is directed against the action of the CIT(A) in not allowing contributions towards PF of Rs. 1,20,234/- u/s 43B of the Act.
140. The AO had disallowed the payment of Rs. 1,20,234/- paid by the assessee towards PF on the ground that the assessee had not paid the same within the due date. The CIT(A) following his decision in AY 1999-00 and 2001-02, confirmed the disallowance made by the AO.
141. Aggrieved, the assessee is in appeal before us.
142. Similar ground arose in AY 1999-00 (supra) vide para 40, wherein we have held that the deduction of payment of employees' contribution towards provident fund and ESI cannot be disallowed under section 43B, if paid before the due date of filing the return. In view of this fact, we set aside the order of the CIT(A) and restore the issue to the file of the AO to decide the issue with identical directions.
143. Ground N0.5 a) & b) is directed against the action of the CIT(A) in confirming the action of the AO in reducing 90% of the job work charges of Rs. 1,40,844/- from profits of business applying clause (baa) of Explanation to section 80HHC of the Act.
144. The AO while computing the deduction allowable u/s 80HHC reduced 90% of job work charges of Rs. 1,40,844/- considering as other income within the meaning of clause (baa) to 49 ITA Nos. 627, 628 & 831/HYD/2006 Impact Metals Ltd.
Explanation to section 80 HHC of the Act. On appeal, the CIT(A) following his decision in AY 2001-02, confirmed the action of the AO.
145. Aggrieved, the assessee is in appeal before us.
146. A similar issue was decided in the Assessee's appeal for the AY 1999-00 at para 47 above. For the same reasons, respectfully following the decisions of the Apex Court in the case of Ravindranthan Nair (reported in 295 ITR 228), the AO is directed to recompute the deduction u/s 80HHC(3) of the Act.
147. In the result, this appeal is partly allowed for statistical purposes.
148. To sum up, all the three appeals under consideration are partly allowed for statistical purposes.
Pronounced in the open court on 26 th December, 2012.
Sd/- Sd/-
(CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated:26 th December, 2012.
kv
50
ITA Nos. 627, 628 & 831/HYD/2006
Impact Metals Ltd.
Copy to:-
1) Impact Metals Ltd., Plot No. A-24, Road No. 6, IDA,
Gandhi Nagar, Kukatpally, Hyderabad - 500 037
2) DCIT, Circle 2(1), Hyderabad
3) The CIT(A)-III, Hyderabad
4) The CIT-II, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.