TMI Blog2023 (1) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... h in the financial figures of RCSPL, which is the main basis to accept / reject the creditworthiness of RCSPL. Therefore, it is necessary to re-verify these material discrepancies in the orders of lower authorities. At this stage, finding no assistance from assessee, we are unable to rule out these discrepancies and ascertain the correct position. Therefore, in such circumstance, we are inclined to remit this ground to the file of Ld. CIT(A) who will take a call on these aspects and pass a reasoned order to settle the grievance of assessee involved in this ground. Needless to mention that the assessee shall be entitled to place before Ld. CIT(A) all evidences as may be in his possession for a proper adjudication of the issue involved in this ground. Thus, the Ground No. 2 is remanded back to Ld. CIT(A). Addition u/s 36(1) - disallowance of interest expenditure - HELD THAT:- We note that the Ld. AO has given adequate findings for making this disallowance. On the other hand, the Ld. CIT(A) has given very summary and cryptic order and given relief to the assessee. A bare reading to the paragraph of Ld. CIT(A) indicates that he has stated It is accepted principle that if there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessee. But the Ld. DR representing the revenue was ready to argue. In view of this, the matter is being decided after hearing the Ld. DR and considering the material held on record ex-parte qua the assessee. Ground No. 1: 3. This ground relates to the disallowance of Rs. 1,30,729/- u/s 14A read with Rule 8D on account of expenses incurred for earning exempted income. 4. During assessment-proceeding, the Ld. AO found that the assessee has derived revenue from agricultural-activity (exempted segment) as well as non-agricultural activity (taxable segment) and prepared separate P L A/c of two segments but debited Sundry Office Expenses of Rs. 23,834/-, Directors Remuneration of Rs. 1,80,000/- and Telephone Expenses of Rs. 1,21,867/- to the P L A/c of non-agricultural activity, although these expenses are related to normal functioning of the company and therefore incurred for both segments. The Ld. AO computed 40% of these expenses as incurred for earning agricultural activity (exempted segment) and thus made a total disallowance of Rs. 1,30,279/- consisting of Sundry Office Expenses of Rs. 9,533/-, Directors Remuneration of Rs. 72,000/- and Telephone Expenses of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/-. When the Ld. AO /confronted the assessee about the nature and source of this borrowing, the assessee submitted that it had received an advance / security deposit from M/s Rajat Consumers and Services Private Limited [ RCSPL ] under an agreement of land to be used for herbal purpose. The assessee further submitted an unregistered agreement dated 07.11.2012 entered with RCSPL executed on a stamp-paper of Rs. 100/-. The terms of agreement are noted by Ld. AO on Page No. 3 and 4 of the assessment-order, according to which RCSPL was obligated to give a security deposit of Rs. 8,00,00,000/- but however deposited Rs. 3,75,00,000/- during the year. The assessee also filed a copy of its own bank account in which the receipt of Rs. 3,75,00,000/- on various dates, was credited. The assessee also filed a copy of the ITR and audited accounts of RCSPL. On perusal, Ld. AO observed that the registered office of RCSPL was said to be at 38/1345, Ravi Kiran Building, Shubash Nagar, Chembur, Mumbai but the address given in ITR was Ground Floor Shop No. 2, Santi Sadan, P K Tagore Street, Kolkata-700 071. Ld. AO issued notice dated 08.03.2016 u/s 133(6) to Mumbai address of RCSPL which was returned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement with Rajat Consumers and Services Private Limited ('RCSPL'). The said agreement was duly submitted during the course of assessment proceedings. As per the terms of the agreement, the Appellant was eligible to receive an advance of Rs. 8 crores, which was to be adjusted against the profits arising in the future years from the agricultural activities, envisaged as per the terms of the agreement. The advance of Rs. 3.75 crores has been in pursuant to the above referred agreement. The same has also been recorded in the books of accounts of the Appellant. During the course of assessment proceedings, the Appellant furnished the following details of RCSPL in support of the transaction: JV Agreement entered by the Appellant Transaction / ledger account with the Appellant Copy of bank account statement reflecting the advance given Acknowledgment of Return of Income for FY 2012-13 Copy of Balance Sheet for the year ending 31 March 2013 10.2 The Appellant has discharged its onus of offering explanation in respect of the credit found in its books of accounts. The A.O. made the addition by applying the section on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve evidence submitted to corroborate the genuineness of the transaction undertaken such as JV agreement, confirmation from party, income-tax return and financial statements and the same has been rejected on capricious and arbitrary grounds. Further, the opinion of the AO as stated in the impugned order is not based on proper appreciation of material and other circumstances available on record. In this regard, reliance is placed on the decision of the Hon'ble Supreme Court in the case of Commissioner of Income-tax v. P. Mohanakala ([2007] 161 Taxman 169) where in the Hon'ble Supreme Court has observed that opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The relevant paragraph of the judgment is reproduced below for ready reference: The expression the assessee's offer no explanation means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below for your ready reference: On perusing the records, it appears that the finding that the assessee was rerouting its own funds was based on surmise. The CIT (A) had the benefit of considering the balance sheet of the lender as well as confirmatory certificates in respect of the advances which the lender in tum had received. There was no material to establish that the assessee was engaged in a transaction for routing its own funds. The view which has been taken by the Tribunal is a possible view to take and there is no material on the record for this Court to hold that the view of the Tribunal suffers from any perversity. Hence the appeal will not give rise to any substantial question of law. (Emphasis Supplied) The Hon'ble Gauhati High Court in the case of Jalan Timbers v. CIT [1997] 90 Taxman 298) (Copy of the judgment is enclosed at Paper Book - Volume 1, Page No. 104 to 106) wherein based on evidences such as returns of the creditors and acceptance of such income-tax returns during the course of assessment, creditors have been held to be genuine. The relevant extract of the judgment is reproduced below: In the instant case, the amounts were shown in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same, it is amply clear that the party advancing the money is a fiscally sound company, having reserves amounting to Rs. 49,52,26,086/- and revenue for the FY 2012-13 amounting to Rs. 43,65,438/- and as such, it cannot be said that the company has not proved the creditworthiness. In this regard, reliance is placed on the decision of the Hon'ble Delhi High Court in the case of Goodview Trading (P.) Ltd. [2017] 77 taxmann.com 204. In the instant case, the High Court has decided the issue of section 68 in favour of the assessee, where the applicant companies had substantial means to invest in company issuing shares. In the instant case, RCSPL, which has advanced money pursuant to a JV agreement had substantial means to give an advance to the Appellant company. The relevant part of the judgment in the case of Goodview Trading (P.) Limited (supra) is reproduced below for ready reference: It is quite evident from the CIT (A)'s reasoning in paragraph 4.3, that the materials clearly pointed to the share applicants' possessing substantial means to invest in the assessee's company. The AO seized certain material to say that minimal or insubstantial amounts was pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Shares Application Forms, Share Transfer Register etc., it would constitute acceptable proof or acceptable explanation by the assessee; (5) the Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more, against the assessee; (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation. (p. 453). 9. We are of the view that no substantial question of law arises in these appeals. Accordingly, these appeals are dismissed. (Emphasis Supplied) 10.7 The above referred judgment has been followed in another judgment of the Delhi High Court in the case of CIT v. Dwarkadhish Investment (P.) Ltd. [20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a business transaction. The appellant has not taken the loan from RCSPL. The appellant has not borrowed the fund from RCSPL but has entered into the business agreement and it is falling within the measure of commercial expediency. Both the parties has entered into the joint venture to carry out the business. The appellant is having substantial amount of land and RCSPL was having sufficient fund for investment. Since, in the case of RCSPL, the order has been passed uls 143(3) of the Act by the ITO, therefore, the identity cannot be doubted and RCSPL has transferred the fund to the appellant through R TGS, therefore, genuineness of the transaction cannot be doubted. There is a nexus between the investment and purpose of the business. On the facts and circumstances of the case, both parties came together to do the business and the money transaction is not falling within the purview of loan or cash credit. Therefore, the addition made by the A.O. amounting to Rs. 3,75,00,000/- is Deleted. Therefore, appeal on this ground is Allowed. 10. Ld. DR placed a very strong reliance on the findings made by Ld. AO. He submitted that the assessee has failed to bring RCSPL before the AO. Not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceedings RCSPL. The Assessing Officer of RCSPL in the assessment order mentioned that RCSPL is engaged in the investment in the property. The assessment order u/s 143(3) has been passed on 26.02.2016, the A.O. of RCSPL stated that the appellant was having investment as on 01.04.2012 and 31.03.2013 at Rs. 50,05,12,5731- and Rs. 38,58,83,373/-. As against this, the Ld. AO has mentioned M/s Rajat Consumers Services P Ltd. Kolkata has e-filed its ITR on 30.03.2015. Said company has shown income of Rs. 30,521/- for the AY 2013-14. As per balance sheet as on 31.03.2013, loans and advances of Rs. 11,71,53,969/- was shown including advances of Rs. 3,75,00,000/-given to the assessee. However, loan and advances as on 31.03.2012 was shown at Rs. 25,000/-. Thus, there is a mis-match in the financial figures of RCSPL, which is the main basis to accept / reject the creditworthiness of RCSPL. Therefore, it is necessary to re-verify these material discrepancies in the orders of lower authorities. At this stage, finding no assistance from assessee, we are unable to rule out these discrepancies and ascertain the correct position. Therefore, in such circumstance, we are inclined to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant has challenged the disallowance of Rs. 4,65,031/-. The A.O. made the addition on account of disallowance of interest on notional basis. The appellant has given the loan and advance to the persons from own fund and interest free fund. It is accepted principle that if there is interest free fund available to the appellant sufficient to meet its investment and at the same time the appellant raised the loan, it can be presumed that the investment is from the interest free fund available. It is not the case that the appellant has diverted interest bearing borrowed funds for investment not earning income. Therefore, the addition made by the Assessing Officer amounting to Rs.4,65,031/- is deleted. Therefore the appeal on these grounds is allowed. 15. With the able assistance of Ld. DR, we note that the Ld. AO has given adequate findings for making this disallowance. On the other hand, the Ld. CIT(A) has given very summary and cryptic order and given relief to the assessee. A bare reading to the paragraph of Ld. CIT(A) indicates that he has stated It is accepted principle that if there is interest free fund available to the appellant sufficient to meet its investment and at the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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