TMI Blog2016 (8) TMI 1484X X X X Extracts X X X X X X X X Extracts X X X X ..... eposited, which was received by RTGS. Regarding credit-worthiness of the party, it has been proved from the bank account of these three companies that they had the funds to make payment for share application money and copy of resolution passed in the meeting of their Board of Directors. Regarding source of the source, Assessing Officer has already made enquiries through the DDI (Investigation), Kolkata and collected all the materials required which proved the source of the source, though as per settled legal position on this issue, assessee need not to prove the source of the source. Assessing Officer has not brought any cogent material or evidence on record to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represent company s own income from undisclosed sources. Accordingly, no addition can be made u/s.68 of the Act. In view of above reasoned factual finding of CIT(A) needs no interference from our side - Decided in favour of assessee. Disallowance of 80% of the expenses claimed as interest repayment by treating same as pre-operative expenses of capital nature - HELD THAT:- These expenses were neither of per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses and deleting the addition of ₹ 5,05,87,952/- without appreciating the fact that these expenses have no relevance for business of the assessee, during the year. 3. Assessee filed its return of income at a loss of ₹ 5,04,64,311/-. Assessment was completed u/s.143(3) of the Act dated 28.03.2013 at income of ₹ 34,01,23,640/- where addition u/s.68 amounting to ₹ 34 crores and addition of ₹ 5.05 crores on account of expenditure of capital nature was made. Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having considered the same, CIT(A) granted relief to the assessee. 4. Same has been opposed before us on behalf of Revenue inter alia submitted that CIT(A) erred in deleting the addition made u/s.68 of the Act without appreciating the fact that assessee failed to discharge its onus to establish identity, genuineness and creditworthiness of companies, which had invested in share application money and the Assessing Officer established these to be non genuine. Further, ld. Departmental Representative submitted that in the circumstances of the case, CIT(A) erred in holding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office w.e.f. 21.02.2013 and according to which, the new address was as under: 7/1A, Grant Lane, 1st Floor, Room No.25, Kolkata, West Bengal 700012. Notices issued thereafter were served on these three companies on new address. 5.3 Assessee company submitted before Assessing Officer following documents in respect of these three companies from whom share application money was received: a) PAN Number of the companies, b) Copies of Income Tax return filed by these three companies for assessment year 2010-11 c) Confirmation Letter in respect of share application money paid by them; and d) Copy of Bank statement through which cheques were issued. In the meantime, Assessing Officer referred the matter to the Investigation Wing at Kolkata for making inquiries of the three companies from whom share application money has been received. As mentioned by Assessing Officer in assessment order, he has received report from Investigation Wing of Kolkata together with the documents collected from these three companies and also copy of statement of Director recorded by them. Vide letter dated 20.03.2013, it was informed by assessee company through its Chartere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etter dated 20.03.2013, it was intimated to the Assessing Officer that the enquiries were conducted by Investigation Wing, Kolkata and they have summoned the parties, recorded their statements and obtained the required documents and evidence including the ledger account of assessee as appearing in their books in support of the share application money paid by them. It was also informed that in view of these, it was not necessary for the assessee company to submit further evidences/ documents regarding share application money received by it. Assessing Officer has given its final finding that; i. These companies were merely entities on paper without proper address of their functioning and a single person controlling its affairs. ii. These companies have no funds of their own to make huge investment. iii. These companies have not responded to the letter written to them, which could have established their creditworthiness and held that the funds of ₹ 34 crores introduced by assessee company in the grab of share application money, as money from unexplained sources and, therefore, treated the same as unexplained cash credit u/s.68 of the Act. 5.6 We find that in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Investigation Wing, Kolkata dated 18.03.2013, Assessing Officer has drawn his own conclusion which was not based on any facts and figures as Assessing Officer has not mentioned anything in the order on what basis the conclusion was arrived on and what were the facts and materials available with him. Therefore, the addition made by him u/s.68 of the Act on account of share application money received without considering the various facts brought to the knowledge of Assessing Officer, which is not justified. 5.7 As per the provisions of Section 68 of the Act, for any cash credit appearing in the books of assessee, the assessee is required to prove the following- (a) Identity of the creditor (b) Genuineness of the transaction (c) Credit-worthiness of the party (i) In this case, the assessee has already proved the identity of the share applicant by furnishing their PAN, copy of IT return filed for asst. year 2010-11. (ii) Regarding the genuineness of the transaction, assessee has already filed the copy of the bank account of these three share applicants from which the share application money was paid and the copy of account of the assessee in which the said a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cations u/s.37 of the I.T. Act because 1/5th of the expenses are allowed as in the manner of section 35D of the I.T. Act. There is no question on the nature of expenses for being for non business purpose or in the nature of capital expenditure as such, liable to be disallowed. There is no specific discussion to the effect that the expenses under question are disallowable for any of the specific reasons applicable under section 37 of the I.T. Act for this purpose, which have been claimed by the appellant in that manner. The grouping and description of expenses in the Books of accounts of the appellant is prima facie Revenue in nature as same have been recorded in the books and final accounts in that manner and also accepted in the Audit Report. It is also on record that the appellant has ongoing business and the expenses are stated to be relating to such ongoing business. The AC. has not brought on record any reason or material to contradict the nature of expenses, the entries in the account books as made and any cogent material that same are related to a different business of the appellant in a pre-operative stage. Under the circumstances, the AC. having allowed 1/51h of such expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.12.2013 which was incorporated by Assessing Officer in para 10.4 of his order inter alia submitted that earlier assessee company was manufacturing various types of automobile parts as per the requirement of customer from its factory at Pune, which is now closed and since A.Y. 2009-10, the assessee company has started manufacturing of AMR and other hardware material which were supplied to various clients and having its head office at Mumbai and branches at Hyderabad, Secunderabad, Kolkata, Baroda, Jaipur, Delhi, Pune, etc. Regarding the interest expenses also, full details were filed and explanation was given by letter dated 28.09.2013 which was partly incorporated in the assessment order in para 10.4. This being a specialized business wherein hardware and software both are required and it takes time to fully exploit the market and get the customers. Assessee company has got the fruits of these expenses and efforts in the subsequent years, which was clearly established from the following data of the sales, major expenses and net profit for last A.Ys. 2009-10, 2010-11 and subsequent A.Ys. 2011-12 and 2012-13 - statement showing Sales, Major Expenses and not profit are as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company has already started its business. No factory premises were under construction. No plant and machinery were under installation at relevant point of time, hence no expenditure could be treated as pre-operative expenses of capital nature. As per the provisions of Sec. 37, there are three requirement for allowing the expenses (i) expenses are incurred for purpose of business; (ii) expenses are not of capital nature; and (iii) expenses are not of personal nature. Therefore, these expenses were neither of personal nature, nor of capital nature or of pre-operative nature. These were all of revenue nature which were incurred for the purpose of carrying on the business and therefore, same are obviously allowable as revenue expenses during the year. Assessing Officer has neither given any finding as to why any part of these expenses were to be disallowed, nor he has issued any show cause notice why he intends to disallow part of these expenses. 6.5 In view of above, CIT(A) was justified in granting relief to the assessee as discussed above. We are not inclined to interfere with the finding of CIT(A) on this issue. Same is upheld. 7. As a result, appeal file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance should be restricted to the extent of dividend income earned during year which is ₹ 1,88,900/-. 13.1 We find that ITAT D Bench in case of M/s. Daga Global Chemicals Pvt. Ltd. vs. ACIT in ITA No.5592/Mum/2012, wherein similar set of facts held as under: 2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is a limited company, engaged in trading of bulk and fine, chemicals, solvent and pharmaceutical raw materials declared its income at ₹ 74,40,000/- on 26/09/2009. The assessee credited dividend income of ₹ 1,82,262/- in its profit and loss account. The Assessing Officer while framing the assessment invoke section 14A r.w. Rule 8D by contending that assessee claimed various expenses which are related to exempt income in its profit loss account and disallowed ₹ 14,58,412/-. On appeal, before the ld. Commissioner of Income tax (Appeals) broadly the stand taken in the assessment order was affirmed against which the assessee is in further appeal before this Tribunal. The totality of facts clearly indicates, as claimed by the assessee that no borrowed funds were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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