TMI Blog2023 (12) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... ans given to the directors of the company holding more than 10% of share capital in the company being the person who is beneficial owner of shares holding not less than 10% of the voting power, that in the present case the amounts given the directors are for the business purpose under the current account, therefore, the same cannot be categorized as loan moreover, the account in case of director which has been squared up in the year under consideration therefore provisions of sec. 2(22)(e) are not applicable, cannot be amicably subscribed to, since the ledger account of the said directors does not reflect any transactions or details where from it can be perceived that the transactions are in the nature of normal business transactions, much less the said transactions were not substantiated with any documentary evidence substantiating that these pertains to or have any nexus with the business of the assessee company, therefore, we are unable to accept such contentions of the assessee, which has been approved by the Ld. CIT(A). Whether provisions of Sec. 40(ai)(a) cannot be invoked in absence of any expenditure ? - As decided in Dedicated Healthcare Services (TPA) India ltd. [ 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es carried out in a [recognized stock exchange] [which is chargeable to commodity transaction tax under chapter 7 of the Finance Act, 2013 (17 of 2013),]] shall not be deemed to be speculative transaction. On perusal of copies of contract note issued by Kayan Securities Pvt Ltd, furnished before us, it is apparent that the transactions carried out are through recognized stock exchange, tax on transaction charges are also charged, therefore, the same, as rightly observed by the Ld. CIT(A) are in the nature of business transactions which shall not deemed to be speculative transactions as per provisions of section 43(5)(e). Our observations are duly supported with the various decisions relied upon by the AR, referred to supra. Respectfully following the settled position of law, we are of the considered opinion that the decision of Ld. CIT(A) holding the transaction as business transaction is on right appreciation of facts and the law, which in absence of any adverse finding against the assessee by the AO or any cogent material or contrary decision to dislodge the claim of the assessee, are qualities to be concurred with, and we do so. Consequently, ground of the revenue is rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR ORDER PER ARUN KHODPIA, ACCOUNTANT MEMBER: The captioned two appeals are filed by the department pertains to same assessee against the different orders of Commissioner of Income Tax, Appeal, NFAC, Delhi, dated 07/12/2022 for AY 2014-15 dated 15/12/2022 for AY 2016-17. Which in turn arose from the orders of ACIT- 1(1), Raipur, u/s 143(3) dated 29/12/2016 18/12/2018, respectively. The ground of appeal raised by the revenue are as under: Grounds of Appeal for AY 2014-15 1. Whether on the facts and in the circumstances of the case the Ld. CIT(Appeals), NFAC is justified in deleting the addition of Rs. 5,00,000/- made by the A.O by way of disallowance out of provision made under the head construction expenses. 2. Whether on the facts and in the circumstances of the case the Id. CIT(Appeals), NFAC is justified in deleting the addition made by the A.O by way of disallowance of Rs. 1,34,83,176/-being non-deduction of tax on deemed dividend u/s 2(22)(e) of the Act. 3. Whether on the facts and in the circumstances of the case the Id. CIT(Appeals), justified in deleting the addition of Rs. 56,15,450/- made by the A.O by disallowing the loss shown to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed deemed dividend for the amount paid to Shri Sanjay Raheja and Shri Deepak Raheja amounting to Rs. 66,32,406/- and Rs. 68,50,770/- respectively, being the maximum amount, rejecting the explanation that provisions of Sec. 2(22)(e) are not applicable at all. It was explained by the assessee that no amount has given to Shri Dipak Raheja during the year, whereas the account of Shri Sanjay Raheja was in the nature of current account and not loan or advance as on majority dates there was credit balance in this account. It was also explained that provisions of Sec. 40(a)(ia) were not applicable on deemed dividend u/s 2(22)(e) for A.Y. 2014-15 which were made applicable w.e.f. A.Y. 2015-16 i.e., from 01.04.2015. The learned AO further considered loss on derivatives in currency in Future and Option at Rs. 56,15,450/- as speculative loss and did not allow set-off from the business income. 3. On the basis of aforesaid facts of the proceedings during the scrutiny assessment, assessment order u/s 143(3) of the Income Tax Act, 1961 was passed on 29-12-2016 determining total income at Rs. 2,54,22,939/-. The following additions/disallowances have been made in the assessment order: (i) Addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in ready to use state. M/s Devyani international Ltd, the Lessee, was asked to design the restaurant as per their requirement and the cost towards interior and finishing expenses are to be borne by the assessee company. Accordingly, assessee company has made the payment of Rs. 5/- lac on 16/09/2014 and made a provision of balance Rs. 5/- lac on 31/03/2015. To substantiate such claim the assessee further submitted before us copies of ledger account of provision for construction expenses for the FY 2013-14 2014-15. Accordingly, Ld. AR of the assessee submitted that Ld. CIT(A) had rightly observed that the provision was made at the end of FY 2014-15 i.e., on 31/03/2015 and, therefore, the AO was directed to delete the addition. It was the request that since no provision in the year under reference was made, no addition is warranted, therefore, the same is liable to be vacated. 9. We have considered the rival submissions and perused the material available on record. Admittedly, the fact that the provision for construction expenses of Rs. 5/- lac was made in the succeeding year i.e., in FY 2014-15, on 31/03/2015, whereas the same was misread by the Ld. AO that the provision was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of funds do not have any apparent nexus with trade transactions with the company as no purchase of goods happened through Shri Sanjay Raheja and Shri Deepak Raheja Director. Except making Director's Remuneration, no other payments made by the company which are directly related with business affairs of the company. Thus, the maximum outstanding amount available in the hands of the Directors was Rs. 66,32,406/- on 02/04/2013 and Rs. 68,50,770/- on 23/05/2013 respectively. The said amount of Rs. 1,34,83,176/- is not related with business transactions, rather distribution of accumulated profits by the assessee company to its shareholder in the form of loans/advance. Thus, the amount given as loan, a liability also arises in the hands the assessee company to deduct tax u/s 194 before making any payment of any sum deemed to be dividend u/s 2(22)(e) of the Act which the assessee company failed to comply. The company was obliged to deduct tax at source in respect of Deemed Dividend in terms of section 194 of the Act. Thus, the above payment be treated as deemed dividend and the amount of loan given will be disallowed u/s 40(a)(ia) of the I.T. Act, 1961 in the hands of the assessee comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are for the business purpose. It is also mentioned that the distributable profit of the company when the loans given was only Rs. 1,35,466/-. It is further submitted that no fresh loan was given during the relevant year to Mr. Deepak Raheja, whose account was squared off in the relevant AY 2014-15. It was also contended that sec. 40(a)(ia) was not applicable on dividend in the AY 2014-15. Ld. AR submitted that the provisions of Section 2(22)(e) are not applicable in case the amounts are given under the running current account. Reliance was placed on the following judgments: Commissioner of Income Tax Vs. Gayatri Chakraborty [(2018) 102 CCH 0053 Kol HC] If sum received by assessee formed part of running current account giving rise to mutual obligations or payment formed one-way traffic, assuming character of loan or advance out of accumulated profit then payment of sums to assessee cannot be treated as dividend out of profit. Commissioner of Income Tax Vs. Suraj Dev Dada, [(2014) 88 CCH 0393 PHHC] Section 2(22)(e) was inserted to stop misuse by Assessee by taking funds out of the company by way of loan advances instead of dividends and thereby avoid tax. Exotica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving heard Mrs. Bhatt, learned advocate appearing on behalf of the Revenue and considering the provisions of Section 2(22)(e) of the Act, more particularly, Explanation 2 to Section 2(22)(e) of the Act, it cannot be said that the learned Tribunal has committed any error in directing the Assessing Officer not to include the current profit to be part of accumulated profit while determining the amount of deemed dividend under Section 2(22)(e) of the Act. While determining the amount of deemed dividend under Explanation 2 to Section 2(22)(e) of the Act, the current profit was not required to be included to be part of accumulated profit. As such, as observed by the learned Tribunal, the issue is already settled by the Hon'ble Supreme Court against the Revenue in the case of Associated Banking Corporation of Ind. Ltd. V/s. Commissioner of Income-Tax, Bombay reported in (1965) Vol.56 ITR I(SC) by which, the view taken that the profit accrues when the books of account are closed. 5. Under the circumstances and considering the Explanation 2 to Section 2(22)(e) of the Act, we confirm the view taken by the learned Tribunal and held the question No. 1 raised in the present appeal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (AY. 2012 13/FY. 2011-12), the accumulated profit as on 31.03.2011 should only be looked into; and if the same was taken into consideration, then the assessee was having (-) Rs. 74,80,633/-. (as on 31.03.2011). And since M/S. Sony Money Developers have loss in AY. 2011-12 i.e., as on 31.03.2011, there would be no accumulated profit for making any addition for the current/relevant AY. 2012-13. Therefore, no addition u/s 2(22) (e)/deemed dividend was warranted. Therefore, the Ld. AR pleads that the addition confirmed by the Ld. CIT(A) to the time of Rs. 3.46 crores should be deleted. 16. Thus, we note that the Hon'ble High Court has upheld the action of the Tribunal directing the Assessing Officer not to include the current year profit to be part of accumulated profit while determining the amount of deemed dividend under Section 2(22)(e) of the Act after considering Explanation-2 to Section (2(22)(e) of the Act (which defines the accumulated profit). And the Hon'ble High Court specifically observed that while determining the amount of deemed dividend under Explanation 2 to Section 2(22)(e) of the Act, the current profit was not required to be included to be part of accu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the rival submissions, perused the material available on record and the case laws submitted before our consideration. For better appreciation / interpretation, the provisions of sec 2(22)(e) are culled out as under: 2(22)(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ; but dividend does not include (i) a distribution made in accordance with sub-clause (c) or sub-clause (d) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umulated profits, whether capitalized or not, of the amalgamating company on the date of amalgamation. Explanation 3. For the purposes of this clause, (a) concern means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company ; (b) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the income of such concern ; 20. On careful perusal of the aforesaid facts in light of thoughtful consideration of the provisions of law as well as judicial pronouncements, the contentions of the assessee w.r.t. applicability of section 2(22)(e) on the amounts advanced or loans given to the directors of the company holding more than 10% of share capital in the company being the person who is beneficial owner of shares holding not less than 10% of the voting power, that in the present case the amounts given the directors are for the business purpose under the current account, therefore, the same cannot be categorized as loan moreover, the account in case of director Shri Deepak Raheja which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or brokerage, rent, royalty, fee for professional services or fee for technical services , accordingly, applicability of sec 40(a)(ia) on deemed dividend u/s 2(22)(e) which was not in the list of expenditure incurred and claimed by the assessee, but included by widening the scope of section by placing word any sum , shall be applicable under the amended provision effective from 01/04/2015. On the basis of literal interpretation of the aforesaid amendment, it can be inferred that the provisions of section 40(a)(ia) cannot be invoked on deemed dividend u/s 2(22)(e) for the period before 01/04/2015. On this argument also the disallowance made u/s 40(a)(ia) in the AY 2014-15, cannot sustain. Resultantly ground 2 of the revenue s appeal stands rejected. 23. Ground No. 3: Regarding deleting the addition of Rs. 56,15,450/- made by the AO by disallowing the loss shown which have been claimed from commodity transactions being speculative loss and not loss from business activity of the assessee. 24. While arguing on the Ground No. 03, Ld. Sr DR has submitted that there were certain transactions against which the assessee has claimed losses from trading of currency derivative in Futur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, give evidence thereof. 7. Account opening form and KYC details of the assessee 8. This letter was sent to the broker through registered post as well as served in it's e-mail address, but no reply received till the date of order. Even, the letter revert back from the mail address of the broker akayan@sify.com Simultaneously, the requisition letter u/s 133(6) of the I.T. Act was also sent to United Stock Exchange, in its postal address as well as in the mail address of the company, but no reply received till the date of order. 9. In view of the above facts, it is clear that transactions through United Stock Exchange and related broker are nothing but accommodation transactions for the only purpose of claiming sham profit/loss in the books. Due to this reason, the broker as well as authority from NMC Exchange, Ahmedabad did not respond to the notices issued by this office. Hence, the veracity of such transactions is not ascertainable. In view of foregoing discussion, it is held that the loss shown to have been claimed at Rs. 56,15,450/- from currency derivative transactions is bogus claim of expenditure and no actual business transactions done by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount paid by the beneficiary. Thus, in order to minimize the tax liability by treating it as business loss in lieu of speculative loss, trading in F. O. transaction was made. Following unusual features noted in F. O. transactions done by the assessee - (i) Assessee company participated in limited number of transactions only i.e., from 25/09/2013 to 26/02/2014. Apparently, in order to minimize tax liability, the fictional business loss was claimed by the assessee instead of speculative one. (ii) Despite having transactions of large volume within a short span of transaction period i.e., to the extent of payment of Rs. 56.15 Lakh no initial margin money was kept by the broker Kayan Securities Pvt. Ltd Kolkata. The broker is bound to keep margin money in advance which is absent in the instant case of the assessee. 12.2 By virtue of sec.73 of the I.T. Act, 'Speculation Business/transactions' [Explanation 2 to Section 28 and section 43(5)] means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically and ultimately settled, otherwise than by the actual delivery or transfer of the commodity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracted as under: 12.5 Considering the totality of facts as mentioned above and position of law as explained by various courts above and respectfully following the decision of the Hon'ble Bombay High Court in the case of Souvenir Developers (l) (P.) Ltd. (supra), it is held that the AO is not justified in treating the derivative transaction as speculative transaction and not allowing to set-off of the losses arising from the transaction in derivatives from business income. 12.6 Further, the AO also disallowed it u/s 37(1) of the Act and added to the total income of the appellant company on the ground that the Notice u/s 133(6) of the Act issued to the United Stock Exchange and the broker (M/S. Kayan Securities Pvt. Ltd.) was remained unanswered. The appellant relied upon the decision of ITAT Delhi, in the case of Phool Singh vs ACIT [ITA No. 2901/ Del/ 2014] and ITAT Mumbai, in the case of Prabhat Gupta vs ITO [51 CCH 0713] and further submitted that the AO didn't point out any specific defects in the documents furnished by the assessee. Kayan Securities (P) Ltd is a registered broker in United Stock Exchange and an active company and is duly registered in MCA and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t paid by the beneficiary. On further verification of facts Ld. AO requested to explain that the assessee has claimed concocted loss in the garb of F O transactions, in retort the assessee company has not responded during the course of assessment proceedings. The AO, therefore, observed that the veracity of transactions are not ascertainable and has held that the currency derivative transactions are bogus and does not pertain to actual business transactions effect by the assessee. With these submissions, Ld. CIT DR has prayed that the AO has rightly disallowed the expenditure u/s 37(1) of the I.T. Act, 1961, therefore, the same should be sustained and the order of Ld. CIT(A) should be set aside. 27. In response to the submissions to the department Ld. AR of the assessee submitted that the Ld. CIT(A) has deleted the disallowance of Rs. 56,15,450/- on two different grounds. First, the CIT has treated loss of currency derivatives has business loss excepted claim of the assessee and secondly, the CIT has treated the loss of currency derivative as genuine loss. It was the submissions of Ld. AR that from the ground no. 03 raised by the department, it is evident that department has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee therefore, the same is justified on facts and in law, therefore, it was the prayer, that the same deserves to be upheld. 29. Having heard the rival contentions, submissions, perused the material available on record and carefully considered the judicial pronouncements relied upon by the parties, the admitted facts of the issue are that the transactions of F O carried out during the relevant year by the assessee company are through broker M/s Kayan Securities Pvt Ltd, who is authorized by United Stock Exchange of India Ltd which is a recognized stock exchange. According to the provisions of sec 43(5)(e), an eligible transaction in respect of trading in commodity derivatives carried out in a [recognized stock exchange] [which is chargeable to commodity transaction tax under chapter 7 of the Finance Act, 2013 (17 of 2013),]] shall not be deemed to be speculative transaction. On perusal of copies of contract note issued by Kayan Securities Pvt Ltd, furnished before us at Page No. 62 to 70 of the paper book by the assessee, it is apparent that the transactions carried out are through recognized stock exchange, tax on transaction charges are also charged, therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rore from customer with certain adjustments, estimating at Rs. 33,61,22,561/- of which 10% is estimated as effective profit for the relevant year and an addition of Rs. 3,36,12,256/- was made. Further upon verification of records the AO come to conclusion that the advance of Rs. 27,57,26,457/- was covered in the sale of subsequent year, therefore, he rectified this mistake, and the addition was scaled down to the Rs. 60,39,790/-. However, the assessee was not satisfied with the addition in principle, therefore, has assailed the issue before the Ld. CIT(A), wherein Ld. CIT(A) has accepted the contentions of the assessee and has deleted the entire addition. 33. Ld. Sr. DR vehemently supported the orders of Ld. AO and has requested that the decision of Ld. CIT(A), NFAC on this issue is not acceptable on merits. He argued that the accounting standard issued by ICAI are binding on the companies [as per proviso to clause 3C of Sec. 211 of Companies Act], which has made it mandatory to follow AS-7 i.e., Percentage Completion Method for recognizing revenue in the construction contract. It was, therefore, the prayer that the AO has rightly made the addition and the same deserves to be su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- was excluded from the addition of Rs. 3,36, 12,256/-. As the mistake was apparent from the record, the AO restricted the addition to the extent of Rs. 60,39,790/- on this ground of addition. 7.1 The appellant has submitted in this matter as under: - 2.2 The appellant vehemently objects the addition of Rs. 60,39,610/- made by the AO. The assessee is a real estate developer and is developing the project on the land owned by the appellant. The company has initiated the development and construction of the residential project on its own cost and continues to build the project irrelevant of fact whether any booking has been made or not by the customer. When an intended buyer approaches assess to purchase a flat/shop, he enters into an agreement mutually at an agreed price with description of flat/shop, method, and instalments of payment of agreed sales consideration. Assessee receives payment in different instalments and final payment is received only upon the completion of construction of flat/shop as per agreement. The amount received over the period of time is treated as advance in the books of the company. Also, expenditure incurred during development of the project is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings till A. Y. 2015-16. There cannot be any dispute to the fact that every assessee being entitled to arrange its affairs and follow the method of accepted accounting policy, which the Department has earlier accepted. Under similar circumstances as obtained from the facts on hand, Hon'ble Apex Court in the case of Commissioner of Income Tax Vs Bilahari Investment Private Limited reported in (2008)299 ITR 1 (SC) has held Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. The completed contract method is one such method. Similarly, the percentage completion is another such method. Under the completed contract method, the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the contract. The profit and loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. This method leads to objective assessment of the results of the contract. On the other hand, the percentage of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract and another contractor can be engaged for the purpose of completion of contract. Here significant risk and reward on asset created, though incomplete, remains with the customer and does not part away along with the departing contractor [E.g.: - Bridge or road construction or Government building contract]. 2.5 Further, it is important to mention that in the present case of the appellant there is no contract between the customer's and the appellant company to construct the residential flats/shops unit on customer's behalf. The appellant is developing the project on its own land and is selling residential flats/shops after its completion. As long as the flat/shop is not sold, it is treated as closing stock in the books of the appellant as treated in case of goods and accordingly closing work in progress is calculated at cost at the end of the year. This results in high stock at the end of the respective financial year. In case of revise in method as per AS-7 then the opening stock of the project will also be required to be revalued. In the identical sets of facts in the case of Commissioner of Income Tax Vs. Prestige Estates Project Pvt. Ltd [(2020) 108 CCH 0001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreement at any point of time and demand refund of the money advanced. For example, the appellant has refunded Rs. 2,79,0,5064/- out of total advance received i.e., 7.60% approx. of total advance has been refunded. In such situation, irrespective of the degree of completion, asset remains with the builder and is again available for sale. Thus, there is no certainty of accrual of revenue in such scenario. Where transfer of legal title is a condition precedent to the buyer taking on the significant risks and rewards of ownership and accepting significant completion of the seller's obligation, revenue cannot be recognized till such time legal title is validly transferred to the buyer. Due to this peculiar nature of this trade of real estate business, it is practically not possible for the builder to recognize revenue as per percentage completion method prescribed in Accounting Standard-7 even though substantial advance is received from customers. Hence, the addition made by the AO based on percentage completion method i.e., AS-7 should be deleted. The appellant places his reliance to following judgments: - 7.2 1 have gone through the facts of the case and submission made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of the company. The appellant company pointed out that both the method of revenue recognition i.e. Project Completion Method and Percentage of Completion Method is recognized in the standards prescribed by the ICAI. 7.6 All the facts and circumstances related to the impugned addition are duly considered. Apropos to the adoption of project completion method of accounting by the assessee, the appellant IS consistently following project completion method of accounting since the inception of appellant company and project in question. The appellant company never deviated from such method of accounting since the inception of the business and that the revenue had also accepted project completion method and profit shown by the assessee during the assessment proceedings for AY 2015-16 in Assessee s own case. It is well settled that the project completion method is one of the recognized methods of accounting and as the assessee has consistently been followed such recognized method of accounting thus in the absence of any prohibition or restriction under the act for doing so, it can't be held that the Project completion method followed by the appellant company was erroneous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of CIT Vs Bilahari Investment P Ltd. (2008) 299 ITR 1 (SC) held as under: 15. Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. Completed contract method is one such method. Similarly, percentage of completion method is another such method. 16. Under completed contract method, the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to P L account. The said method determines results only when contract is completed. This method leads to objective assessment of the results of the contract. 17. On the other hand, percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recognized under this method is determined by reference to the stage of completion of the contract. The stage of completion can be looked at under this method by taking into consideration the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnished before us various case laws, out of which some of relevant judgments in support of their claim are as under: PCIT Vs. Salarpuria Simplex Dwellings LLP, (2022) 289 Taxman 0264, Calcutta High Court: The revenue has raised the following substantial questions of law for consideration: (i) Whether on the facts and circumstances of the case the Tribunal was justified in law to accept the accounting method followed by the assessee as accounting standard-9 (AS9) instead of accounting standard-7 (AS-7) despite the fact that the assessing officer arrived at a conclusion finding that the assessee is a contractor and not a builder after analysing the various aspects of the business of the assessee? (ii) Whether in the facts and circumstances of the case the Tribunal was justified in law in accepting the accounting method AS-9 (Project Completion Method) instead of accounting method AS-7 (Percentage Completion Method) since the assessee is a contractor which has been proved by the assessing officer in the Assessment Order? The Court also took note of the decision of the Hon'ble Supreme Court in Bilahari Investment (P) Ltd. (supra) in Commissioner of Income-Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of the assessee. In the result, the appeal fails and is hereby dismissed. Unique Builders Developers (Reality), Vs The DCIT, Jaipur in ITA No. 464,465 466/JP/2012 vide order dated 30.04.2015, identical issue was discussed, the finding of the ITAT are as follows: 39. Apropos substituting the method of accounting from Project Completion to % Completion by the authorizes below is by observations that Assessee s have not followed Accounting Standards 9 7 which tantamount to not following Accounting Standard-I as prescribed under section 145(2) of the Act. It is admitted position that the appellant were regularly following project completion method from year to year and the assessments prior to the date of search were also framed by accepting project completion method. As per ICAI guidelines real estate developer has an option to choose from Project Completion method or the Percentage Completion method as both are recognized methods for revenue recognition in such cases. Once the option is exercised by assessee, it is not open to the Assessing Officer to substitute his own opinion to change the method of accounting because mid-way it is found that other method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed AS-I under section 145(2) of the Act is profoundly misplaced, unnecessary, and uncalled for besides being contrary to principles of accountancy and interpretation of the statutory provisions. The same, therefore, could not be taken a valid basis for change of method regularly employed by the appellant. Thus, we uphold the method of revenue recognition adopted by the assessee's as Project Completion Method. The other judicial precedents cited by the assessee mentioned in ITAT orders as well as written submissions support our view. 36. backed with the aforesaid submissions, it was the contention of the Ld. AR that the assessee has rightly and consistently followed the project completion method, which is approved by the Ld. CIT(A), therefore, the decision of Ld. CIT(A) in favour of assessee cannot be held as unjustified so as to be rejected and set aside, accordingly, the same qualifies to be maintained. 37. We have considered the rival submissions, perused the material available on record and case laws relied upon by the opponent parties. AS-7(revised 2002) issued by the institute of Chartered Accountants of India, applicable for all the construction contracts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR vehemently supported the order of Ld. AO. It is submitted that the decision of Ld. CIT(A) is found to be erroneous wherein the observation of Ld. AO are disregarded that, it is evident from the bank statements provided by the assessee, the money comes in the bank account was from unexplained sources, since the same are transferred to the assessee on the same date or within a short period of time. Much less, Ld. AO did not find the behaviour of loan provider as creditworthy. Under such circumstances it was requested to set aside the order of Ld. CIT(A) and restored the addition made by Ld. AO. 39. Contradicting the aforesaid submissions of the Ld. CIT DR, Ld. AR of the assessee submitted that Ld. AO during the course of assessment proceedings had queried the assessee to furnish the details of unsecured loans received from M/s Pitambara Udyog Pvt. Ltd., in reply the assessee submitted ITR, Computation, Bank statement and confirmation of the loan creditor. Assessee also furnished details of unsecured loan received during the year a/w audited financial statement to discharge the onus cast upon it under the provisions of section 68 of the Act. Regarding nature and source of the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , creditworthiness, and genuineness of the transactions in View of 68 of the l. T. Act, 1961 vide written submission dated 12.12.2018 and 25.12.2018. Copy of both the written submission is enclosed herewith. Kindly refer Annexure-9. Thereafter the Ld. A.O. issued notice dated 23.12.2018 stating therein that why unsecured loan of Rs. 2,11,21,38/- received from Pitambara Udyog Pvt. Ltd should not be added to the total income as creditworthiness of the lender and genuineness of the transactions are not proved from the bank statements, balance sheet and its income produced in this office. Copy of notice dated 23.12.2018 is enclosed herewith. Kindly refer Annexure-10. In response to this the appellant submitted that the appellant has discharged his onus and also stated that the lender has filed return of income of Rs. 30/- lacs approximately and also explained that all the funds were remitted out of overdraft account of the lender. Further the appellant requested to the A.O. to summon directly to the lender if any further detail required. Copy of written submission dated 25.12.2018 is enclosed herewith. Kindly refer Annexure-ll. However, the Ld. A.O. without properly appreciating the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has filed their ITR regularly. Further the appellant has also explained the source of the said loan i.e out of overdraft account. However, the AO in his assessment order has not discussed these facts but stated that the source of loan is not clear and comes from unexplained sources. The said observation of the A iS not substantiated by any material evidence. 3.4 At this juncture it is also important to bring in notice of your honour that the said loans were duly repaid in succeeding years i.e., in A. Y 2017-18 and 2019-20 Copy of account evidencing the repayment of loan along with relevant bank statement is enclosed herewith. (Kindly refer Anexure- 13.) 3.5 It is further to submit before your honour that the entire allegation have been framed on the basis of mere presumption and assumption. It is also a matter of fact that the funds were remitted out of overdraft account of the lender which has not been disproved by the A.O. It is also to important to bring in notice of your honour that even after specific submission by the appellant wherein it was stated that the party can be summoned for further verification, the AO has not conducted any enquiries. We would like to sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the office. From the said notice it is apparent that the Ld. A.O has proposed to make the addition without specifically pointing out the specific defects in the various documents submitted by the appellant, The Ld. A.O has given the genera/ observation without mentioning the reason why the documents could not be accepted. The Ld. A.O. has mentioned certain observation directly in the assessment order only without stating the same during the assessment proceeding. The A.O. is duty bound to mention the reason why the documents furnished should pot be accepted or not sufficient to prove the identity, creditworthiness, and genuineness of the transactions. The entire addition have been proposed and made without any adverse material brought on record. The addition made by the Ld.AO is merely based on presumption and assumption and is not sustainable in the eyes of law. 3.8 That in para 23 of the assessment order, the Ld. A.O has mentioned that, it is visible from the bank a/c statement of the lender that as money comes in the bank account from unexplained sources, same are transferred to the assessee on the same date or within a short period. Further it is required to mention that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.06.2021 has held that Source of Source as per Proviso to Section 68 is not applicable to the credits from Unsecured Loans/ Borrowings. 3.9 That in para 23 of the assessment order, the Ld. A.O have relied upon one case law namely Novoday Castle Pvt. Ltd In this regard it is to submit here that the principal laid down in the said judgment of Delhi High Court is not applicable in the present case of the assessee since the factual conditions are totally different. In the case law i.e. Navodaya Castles (P) Ltd was not able to produce the shareholders from whom share application money was received. Notice u/s 131 also remained unserved to the shareholders. But in the present case the no notice /s 133(6)/131 was issued or make any third-party enquiry. The fact of the case IS altogether different from the fact of present case of the assessee. Further no material brought on record that the loan has been received from a paper company. 3.10 That in para 23 of the assessment order, the Ld. A.O. have relied upon one more case law namely N Tarika Properties Pvt. Ltd Vs. CIT, 2014 [387 SCI. In this regard It is to submit here that the principal laid down in the said judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t arise. Explanation prima facie reasonable cannot be rejected on capricious or arbitrary grounds or on mere suspicion or on imaginary or irrelevant grounds. The AO pas arbitrarily disbelieved the identity/creditworthiness without substantiating by any evidence and therefore the addition deserves to be deleted. Calcutta High Court in the case of Northern Bengal Jute Trading Co. Ltd vs CIT [70 ITR 407, 4151 ...the surrounding circumstances to be considered must however be objective facts, evidence adduced before the taxing authorities, presumptions of facts based on common human experience in life and reasonable conclusions. In holding a particular receipt as income from undisclosed source, the fate of the assessee cannot be decided by the Revenue on the basis of surmises, suspicions or probabilities...ll In the case of RIDDHI SIDDHI DEVELOPERS PVT. LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX, (2021) 63 CCH 0086 Mum Trib it was held that: No additions can be made merely on the basis of presumption, conjectures and surmises. In the case of NISARG LIFESPACE LLP vs. INCOME TAX OFFICER, (2021) 62 CCH 0203 Mum Trib it was held that No addition could be made on m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted by the AO on specific grounds, then in such circumstances the addition u/s 68 cannot be made. The above contention of the appellant also finds support from various judicial pronouncements as under: - High court of Gujrat in the case of Principal Commissioner of Income Tax vs. Gopal Heritage Pvt. Ltd [20211 133 taxmann.com 173 (Gujarat) The court held that Section 68 of the Income-tax Act, 1961 - Cash credit (Unsecured loans) - Assessee-company had taken unsecured loans from some persons - As assessee was not in a position to establish capacity and creditworthiness of depositor, Assessing Officer made an addition under section 68 - On appeal, Commissioner (Appeals) thread bare examined entire material in case of each of these persons and entities and eventually held that identities of depositors had been proved and moreover, loans had been granted through banking channels and copy of bank statements also had been provided and deleted addition under section 68 Tribunal confirmed said order - Whether since all ingredients contemplated under section 68 had been duly satisfied on aspect of identity of creditors, genuineness of transactions and their creditworthine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... YA PRADESH INDORE BENCH in the case of PRINCIPAL COMMISSIONER OF INCOME TAX ORS. vs. CHAIN HOUSE INTERNATIONAL (P) LTD. ORS. It was held as under: - Income Cash Credits issue of shares at premium Genuineness of transaction Search, seizure and survey operations u/s 132/133A were conducted along with other concerns/group companies of assessee at various residential and business premises Thereafter, a notice u/s 153A was issued to assessee, in response to which, assessee filed its returns declaring its total income of Rs. 1.03/- crores During course of search, it was found that assessee had received an unsecured loan of Rs. 30/- crores from company 'BSPL' who shown to had got a bogus share application money and premium of Rs. 55/- crones from 5 entry providing companies during FYs 2011-12 and 2012-13 in form of accommodation entries lt was also found that share capital share premium during FYs 2011-12 2012-13 1t was allegedly found that commission at rate of 5 % had been charged by such 5 entry providers companies for providing accommodation entries, therefore, commission of Rs. 1.50/- crores for FY 2011-12 and Rs. 1.25/- crores for FY 2012-13 was added to total in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporation of RTCHL, (ii) Incumbency of RTCHL, (iii) Good Standing of RTCHL, (iv) Director Certificate of RTCHL as well as the Balance Sheet of RTCHL for the years 2004-05 and the confirmation given by the remitters towards remittance of share capital etc. This was all that the assessee could have furnished in the circumstances. It could not be expected to prove the negative that the monies received by it were suspicious or not genuine infusion of capital etc. The assessee had discharged its burden of proof in terms of the settled dicta in Divine Leasing (supra). It was only logical to expect that if the AO was not convinced about the genuineness of the said documents, he would have inquired into their veracity from the bank(s) to ascertain the truth of the Assessee s claims. Having not done so, he was not justified in disregarding the Assessee s contentions that the infusion of monies into its accounts was legitimate. Consequently, the AO was not justified in making additions of the various sum s u/s 68 of the Act Bombay High Court in the case of Orient Trading Company Ltd vs. CIT [49 ITR 723] The Court held that ...where, however, the identity of the third patty and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d their bank accounts and statements of the relevant period, thus the primary onus was discharged by the assessee. The appellant contends that now it is for the AO to disprove the credits by bringing adverse material. In holding a particular receipt as income from undisclosed sources, the fate of the assessee cannot be decided by the revenue on the basis of surmises, suspicion or probabilities. In the case of K.P. MANISH GLOBAL INGREDIENTS PVT. LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX, (2021) 62 CCH 0195 Chen Trib, it was held that Once the assessee discharged its burden u/s 68, then burden shifts to Assessing Officer to prove otherwise that the transaction was nothing but undisclosed income of assessee. In the case of NAMDHARI INDUSTRIAL TRADERS PVT LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX, (2021) 62 CCH 0216 Chd Trib, it was held that Addition u/s 68 is not sustainable where the. Assessee has prima facie discharged the onus of establishing identity and creditworthiness of the aforesaid three companies and further in establishing the genuineness of the transaction In the cases of DCIT (Central), Raipur Vs. R.K. Transport Constructions (P) Ltd ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letters in respect of al/ loan creditors. Court further observed that the assessee has filed income tax returns along with bank statements of al/ loan creditors. Al/ the loan creditors are assessed to Income tax and loans have been given by cheque. Court further observed that the A.O has summoned trustees of the trust who had appeared before the A.O and given a statement u/s 131, wherein they have clearly admitted that they have advanced loan to the assessee. In respect of remaining three patties, though they are not appeared before the A.O, the assessee has filed necessary details that these loans have been repaid by cheque in the next financial year Therefore, assessee has discharged his initial burden cast upon him by filing identity, genuineness, and creditworthiness of the parties. Once, three aspects have been proved, then the onus shifts to the A.O to prove otherwise. In this case, the A.O ignoring all evidence filed by the assessee, simply made additions on the simple reason that creditors are not having sufficient source of income to explain loan given to the assessee. If at all, the A.O having any doubt on the capacity of the loan creditors, he is free to proceed against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies on the assessee to establish the identity and the creditworthiness of the creditor as well as the genuineness of transaction. 5. The identity of creditors can be established by furnishing their PANs or assessment orders. The genuineness of the transaction can be proved if it was shown that the money was received through banking channels by A/c payee cheque/online/digital transfer. Creditworthiness of the lender can be established by attending circumstances by filing the documents. 8.3 It is seen that during the course of assessment proceedings, the following details were filed before the AO. 1. PAN, Acknowledgement of Income Tax Return of Pitambara Udyog for A. Y.2016-17. 2. Ledger a/c duly confirmed by Pitambara Udyog p Ltd. 3. Bank statement of Pitambara Udyog P Ltd showing the loan advanced. 4. Bank statement of appellant showing the loan returned. 5. Ledger a/c for the interest paid and tax deducted (TDS) by the appellant. 8.4 If the above referred principles are applied to the facts of the case under consideration it can be seen that the identity of the creditors has been established as they are having PAN and they are filing return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case the respondent given the names and addresses of the alleged creditors, lives in the knowledge of the Revenue that the said predators were income tax assessee. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices u/s 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion can be arrived at, no question of law as such arose. The High Court was right in refusing to state a case. 8.8 In Nemi Chand Kothari vs CIT [20031 264 ITR 254 (Gau), the Gauhati High Court held that it is not the business of the assessee to find out the source of money of his creditor or of the genuinene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e looking into the documents filed. Consequently, addition on account of unexplained credit cannot be sustained. This ground of appeal is accordingly allowed and addition of Rs. 2,11,21,389/- is deleted. 40. Ld. AR, further submitted that in the present case since the source of unsecured loans have been duly explained by the assessee, but the AO without any corroborative evidence to prove that the money taken as loan actually belongs to the assessee, have imposed the addition. The AO squarely failed to dislodge the explanations of the assessee, have made the disallowance under preconceived mind set on his own presumptions, therefore, the additions was rightly deleted by the Ld. CIT(A) and accordingly the decision of Ld. CIT(A) deserves to be upheld. 41. We have considered the rival submissions, perused the material available on record and case laws referred to pertaining to the issue. In the present case, admittedly the primary onus was discharged by the assessee in producing the documents to substantiate the transactions of unsecured loans. The document submitted are ITR, Computation, relevant bank statements, confirmation of account and audited financials. On perusal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee should be objectively w.r.t. material on record, the assessee has offered explanations about the nature and source of the funds so received during the relevant AY, the evidences produced by the assessee cannot be brushed aside in a casual manner, the assessee has adduced requisite documents to substantiate the identity, creditworthiness of the loan creditor and genuineness of the transactions. The AO instead of examining the application of section 68, has harped upon to discuss the case laws. No preliminary investigation u/s 133(6) of the Act from the lenders was initiated by the AO. Ld. CIT(A) also observed that according to him the assessee has discharged its primary onus when documents, confirmations and affidavits pertaining to the lender were filed and no infirmity in such documents could point out by the Ld. AO. Ld. CIT(A) placed his reliance on the judgment in the case of CIT vs Orissa Corporation Pvt. Ltd. 159 ITR 78, wherein Hon ble Supreme Court (supra) and other case laws by Hon ble High Court. 42. In view of aforesaid observations, considering overall facts and circumstances of the present case. The assessee has submitted all the required information also has re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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