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TMI Blog2012 (4) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... ppearing In the name of (i}East end Management Tech Pvt. Ltd. (ii) Lunkad securities Ltd {iii} K. K.Patel Finance Ltd. (iv)Trimurti Finvest Ltd. in the books of the accounts of the assessee on the ground that primarily identity of the creditors have been established without appreciating the fact that the evidence available with the department in the form of documents impounded during the course of survey u/s 133A carried out in the Lunkad Group of Companies clearly indicates that this group had only provided accommodation entries and accordingly the transactions with them of the assessee were not genuine. (iii) The Ld. CIT(A)-I, Indore has erred in law and on facts in directing to cancel the disallowance of interest of ₹ 5,95,553/- on the loans which ultimately were considered as unexplained u/s 68 of the I. T. Act. (iv) The Ld. CIT(A) erred on facts & circumstances of the case in holding that the assessee was entitled for depreciation on the assets without appreciating the fact that the deduction on this account had already been claimed by virtue of exemption u/s 11 of the I. T. Act on application of receipts of acquiring such assets and therefore this claim of deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est of ₹ 4,59,543/-on the loans which ultimately were considered as unexplained u/s 68 of the I. T. Act. (iii) The Ld. CIT(A) erred on facts & circumstances of the case in holding that the assessee was entitled for depreciation on the assets without appreciating the fact that the deduction on this account had already been claimed by virtue of exemption u/s 11 of the I. T. Act on application of receipts of acquiring such assets and therefore this claim of deduction on account of depreciation tantamount to double deduction. (iv) The Ld. CIT(A) has erred on facts and circumstances of case in holding that the assessee was entitled for depreciation on the assets without appreciating the fact that the claiming depreciation over a period of years is nothing but the diminution of the value of assets which had already been claimed on account of exemption u/s 11 on application of receipts for acquiring such assets. (v) The ld. CIT(A) has erred on facts and circumstances of case in holding that the assessee was entitled for depreciation on the assets without appreciating the fact that the legislature has not provided any scope for double deduction in the cases of trust. (vi) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A at the Lunkad Group on 2.5.2006, some incriminating documents were found, which indicate that Lunkad Group was involved in providing accommodation entries, the Assessing Officer made the addition on account of various loans received and outstanding in the account of Lunkad Group. The Assessing Officer also added a sum of ₹ 38 lakhs in respect of loan received from Shri Rakesh Singhvi. 5. By the impugned order, the ld. CIT(A) deleted the addition on account of unsecured loans by observing that addition has been made on substantive basis in the hands of Lunkad Group, therefore, no addition was warranted in the hands of the assessee trust. The ld. CIT(A) also observed that Lunkad Group had issued confirmatory letters to various beneficiaries in support of having income, genuine loan and share application money. As per ld. CIT(A), had the Lunkad Group accepted the modus operandi of providing only entries, then the required recourse would have been confirming the addition made in the hands of beneficiaries, but since this has not been done so, rather the Lunkad Group has tried to reinforce the stand of beneficiaries by way of issuing confirmatory letters to them. Accordingly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of Institute of Banking Personnel Selection, 264 ITR 110. Precise conclusion of CIT(A) was as under :- "In all the judgments, the consistent view has been that expenditure incurred in earlier years towards the objects of the Trust can be allowed to be an application u/s. 11 as against the income of subsequent year. This would entitle the assessee's claim to carry forward the excess expenditure. Thus, in principal, the claim of the assessee to carry forward its excess expenditure (on the objects of the trust) to the subsequent year is allowed. But, what I find that in spite of the claim of expenses (on the objects of the trust) is more than the surplus, the assessee as well as AO provided for accumulation to the extent of 15%. This approach is not correct. The deduction on account of 15% permitted accumulation is not warranted. This will have a bearing onto the quantum of carried forward balance. The AO would re-compute and work out the correct amount of excess of expenditure by way of application u/s. 11 out of the surplus for being carried forward and allowed to be claimed as application against the income of subsequent years. It is also noted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The Courts have power only to interprete a section and they have no power to legislate as held in the case of Prakash Nath Khanna (2004) 266 ITR 1(SC). Matters which should have been provided but not provided for in the statute cannot be supplied by the courts (Principle of Casus Omisus) as held in following cases by the Jurisdictional High Court-: 1) Laxamandas Pranchand & ors (MP) 234 ITR 261 2) R.J. Trivedi & Sons (MP) 183 ITR 420 Since the provisions u/s 11,12 & 13 are granting exemption, they require strict construction as held in the case of Kota Corporative Marketing Society Ltd. (Raj) 207 ITR 608 & Renuka Datla (Ap.) 240 ITR 463. Now coming to provision of section 32, the act itself does not provide palpability of this section to any other source of income except to the income from business or profession, because this section says:- 32. (1) [ In respect of depreciation of (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particular form though in essence and in substance, it may be a different transaction. Pan pat woollen and General Mills Co. ltd. (SC) 103 ITR 66 In present case, assessee group has shown receipt of various loans from different group concerns of Lunkad group, but in reality it is only "accommodation entry" of loan/Share Capital provided by Lunkad group, because providing accommodation of loans/Share Capital on payment of commission, is the business of Lunkad group. 3 Colourable devices are not part of tax planning. Mcdowell and Co. Ltd. Vs Commercial Tax Officer (SC) 154 ITR 148. In present case, assessee co. and entire "Mittal Group" used their own unaccounted cash, used the services of "accommodation entry provider" Lunkad Group to plough such cash back to its books, without payment of any tax, in the guise of loan. This cannot be called tax planning, but is tax evasion. " 12. On the other hand, Shri S. N. Agrawal, C.A., appeared on behalf of the assessee and contended that the issue of depreciation has been decided by the I.T.A.T., Indore Bench in the case of Gujarati Samaj and the same has been confirmed by the Hon'ble Jurisdictional High Court in its decision dated 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken from Shri Rakesh Singhvi, which was deleted by the ld.CIT(A), contention of the ld. Authorized Representative was as under :- "2.2.1] The assessing officer on Page Nos. 6 & 7 of the Assessment order for A.Y. 2007-08 has discussed about the loan received from Shri Rakesh Singhvi of ₹ 38,00,000/-. 2.2.2] The AO issued letter u/s 133(6) on 23-11-2009 fixing the date of hearing on 04-12-2009. However, till date, no reply was received. The AO then asked the assessee to submit the details. The assessee filed confirmation letter with PAN card and Bank statement [Discussed by the AO in his order on Page No 6 in third para] 2.2.3] That on the request of the assessee, the said creditor also filed these details directly with the AO in original [Accepted by the AO in his order on Page No 6 in third para] 2.2.4] The letter as issued u/s 133(6) was received unserved. Hence, the AO issued commission to his counterpart at Mumbai u/s 131 (1)( d). 2.2.5] The AO, sought comments on report as submitted by the DCIT 3(3) Mumbai. In the said report, Inspector as deputed submitted that the said loan creditor is not capable in giving donation of ₹ 38,00,000/- to the assessee trust. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unsecured Loans received from Lunkad Group of Companies and their associated on the basis of information available with him due to survey conducted by the department on 02-05-2006 on the business premises of the Lunkad Group even when the assessee had filed complete details as to justify the amount of loans received from these loan creditors. 2.3.2] That the assessing officer while making the Additions/disallowances u/s 68 has held that the assessee has failed to prove the identity, genuineness and creditworthiness of the loan creditors. The assessing officer also reached to the conclusion that the loans received from the above parties are merely accommodation entries. 2.3.3] That the observation of the assessing officer is purely based on hypothetical story created on the basis a survey conducted at the premises of "LUNKAD GROUP" even when, there was no reference of the assessee's name in any of the documents found from the premises of LUNKAD GROUP. 2.3.4] The issue of addition of loans taken from Lunkad Group has been discussed by the assessing officer on following pages of Assessment order. Assessment Year Page No. of Asst. Order 2007-08 7 to 19 2008-09 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 143(3). The copies of orders have been filed on page nos. 270 to 306 of paperbook filed for the A.Y. 2007-08 and page nos. 112 to 127 of the paper-book filed for A.Y. 2008-09. 2.3.8] That copies of Balance sheet as available are also filed. The copies of Balance Sheets are available on page nos. 147 to 269 of paper-book filed for the A.Y. 2007-08 and page nos. 89 to 111 of the paper-book filed for A.Y. 2008-09. That from the figure of Balance sheets and schedule thereof it is clear that all the creditors are having sufficient worth to advance Loans to the assessee. 2.3.9] That in view of the above facts, the assessee has properly discharged onus lying on him by filing the complete details of loan received, confirmation and the Balance sheet. Thus, the assessee has properly discharged onus lying on him. 2.3.10] The decisions as relied by the assessee are reproduced on inner Page No. 21 to 27 for the A.Y. 2007-08 of the CIT(A) order wherein it has been held by the various Tribunals, High Courts that once the Identity, capacity and creditworthiness of the Loan Creditors have been established the onus of assessee is discharged. 2.3.11] That in the one of the Latest decision The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to accept the amount of Unsecured Loans taken by the assessee as Genuine and approve the order passed u/s Ld. CIT (A)." 16. With regard to disallowance of claim of depreciation, contention of the ld. Authorized Representative was as under :- " 4.4.2 That Hon'ble ITAT Indore Bench vide its order dt. 31.01.2011 (ITA No. 171 to 173/Ind/2010) in the case of Shri Gujrati Samaj V/s ACIT 1(2), Indore for the A.Y. 2004-05 to 2006-07 has decided the said issue regarding claim of Depreciation as application of Funds. Thus it has allowed the claim of assessee and dismissed the appeal filed by the Revenue. Copy of Said order is enclosed. 4.4.3] The order of ITAT has been approved by the Hon'ble Jurisdictional High court vide its order dt. 08.07.2011. The said decision has been reported in 64 DTR 76. Copy of said order is also enclosed for your ready reference. 4.5.1] The Hon'ble P&H High court in its recent judgment CIT v. Desh Bhagat Memorial Trust (2011)37(I)ITCL 13 HP&H-HC) after considering the Supreme Court Judgment of Escorts Ltd held that Depreciation cannot be disallowed to a charitable trust whose income is exempt on the ground of double benefit. The object of allowi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellate order and specifically on following pages of his order. Assessment Year Discussed on Pages of CIT A order Specific Finding on Pages 2007-08 Pages 28 to 30, 56 to 58 Pages 56 to 58, Para 5.4 2008-09 Pages 13 to 15, 30 to 31 Pages 30 & 31,Para 4.2 5.4.1] That Hon'ble ITAT Indore Bench vide its order dt. 31.01.2011 (ITA No. 160, 171 to 173/IND/2010) in the case of Shri Gujrati Samaj] V/s ACIT 1(2), Indore for the A. Y. 2004-05 to 2006- 07 has decided the said issue regarding Carry Forward of excess amount of Expenditure incurred on objects of the Trust for being considered application against income of subsequent years. Thus it has allowed the claim assessee and dismissed the appeal filed by the Revenue. Copy of Said order is enclosed. 5.4.2] The order of ITAT has been approved by the Hon'ble Jurisdictional High Court vide its order dt. 08.07.2011. The said decision has been reported in 64 DTR 76. Copy of said order is enclosed for your ready reference. 5.5] The assessee also relied on the following direct decisions that wherein it has been held that if a trust/institute has incurred deficit during a particular year, the same should be carried forward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share capital received by them could not be explained. However, addition has been made in the hands of the assessee company on the plea that genuineness of the loan transactions has not been established in view of the incriminating documents found during course of survey at Lunkad Group. Incriminating documents was found pertained to the month of April, 2006, which indicated that Lunkad Group was in receipt of cash from various beneficiaries including assessee and which has again been given to the beneficiaries through cheques. There is no dispute to the well settled legal proposition that in case of cash credit, assessee is not only required to prove the identity of the loan creditor but also the genuineness of transaction of loan as well as capacity of the loan creditor to advance the said amount of loan. In the instant case, there is no dispute to the identity in so far as Lunkad Group is also on Department's record and a survey has been carried out at premises of Lunkad Group. The genuineness of transaction of the loans become doubtful in view of the incriminating documents found during survey at Lunkad Group. Even though the assessee has filed loan confirmation alongwith affid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by it from persons, whose name, address and other particulars could not be furnished before Assessing Officer. This addition is mothering to do with the genuineness of loan received by assessee from Lunkad Group. Before reaching to the third criteria of creditworthiness, assessee have to cross the barrier of genuineness of loan transaction, which has become doubtful in view of the incriminating material found during course of survey at Lunkad Group with regard to receipt of cash from the assessee company and issue of cheque against such cash in favour of the assessee company. Thus, a legally wrong view has been taken by the ld.CIT(A), which made the Department entitled to file an appeal against such order of CIT(A). Thus, there is no merit in the argument of ld. Authorized Representative to the effect that the Department had wrongly come in appeal against the order of CIT(A)." 20. However, the issue of addition on account of unsecured loans has also been dealt on merit in the case of Mittal Group (supra) and matter was restored to the Assessing Officer with the following observations :- "19. We have considered the rival contentions and found from record that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er these circumstances, the Department has taken a view that all the transaction of loan starting from financial year 2001-02 till date of search were not genuine and it was assessee's own money, which has been given back to the assessee in the form of loan entry. Here the contention of the ld. Authorized Representative was that Mr.Lunkad had challenged the survey action conducted by Income Tax Department before the Hon'ble High Court. Since the writ as filed by Lunkad Group is pending before the Hon'ble High Court for the reasons he has grievance with the Income Tax Department. Due to dispute of Lunkad Group with Department and pendency of writ petition in the Hon'ble High Court, assessee could not persuade the Lunkad Group to appear in person before the Department. His further contention was that impounded document from Lunkad Group only pertained to the month of April, 2006, and there was no incriminating material for any period other than month of April, 2006, indicating that the assessee has given any cash to Lunkad Group for taking loan entry from 1.4.2001 to 31.3.2007. He further contended that at the most additions could be made only with respect to the entries in the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e more opportunity should be given to assessee for producing the loan creditor for confirming the contents of confirmation and affidavits so filed. Keeping in view incriminating documents found during the course of survey at Lunkad Group for the period 1.4.2006 to 1.5.2006 pertaining to the assessment year 2007-08, even though related to one month only, the Department was justified in making addition in the hands of the assessee company in the assessment year 2007-08 by disbelieving the loan transactions. As per our considered view, addition should be made with respect to the amount of cash found to be given by the assessee to the Lunkad Group as per incriminating documents so found at Lunkad Group during survey after giving opportunity to assessee for cross examination. Mere presumptions without any material on record to the effect that even in respect of all the earlier years, the assessee might have given cash to the Lunkad Group for getting unsecured loan, is not justified. All the loans were received by assessee through account payee cheques and also repaid through account payee cheques. Assessee had also filed even confirmation letters and affidavits to substantiate the loan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al High Court vide its order dated 8.7.2011 reported at 64 DTR 76. The issue has also been dealt by Hon'ble Punjab and Haryana High Court in the case of Desh Bhagat Memorial Trust (supra), wherein after considering the decision of Hon'ble Supreme Court in the case of Escorts Limited, wherein it was held that object of allowing depreciation is only for the purpose of determining percentage of funds which have to be applied for the purposes of trust, which does not amount to double deduction. Precise observation of Hon'ble High Court was at para 6 & 7, which reads as under :- "6. We are of the view that the Tribunal was justified in allowing depreciation and judgment of the Hon'ble Supreme Court in Escorts Ltd's case is distinguishable. The matter was considered in recent judgment of this court dated 5-7-2010 in ITA. No.535 of 2009 The CIT, Karnal v. Market Committee, Pipli [reported in (2010) 36 (I) ITCL 537 (P&HHC)], wherein after considering the case law on the point, the judgment in Escort was distinguished. It was observed:- "9. In the present case, the assessee is not claiming double deduction on account of depreciation as has been suggested by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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