By Ajay R. Singh, Advocate

1. S.68: Cash credits - Subscriptions of share premium done through banks and recorded in books of account - Genuiness of transaction, identity of subscribers and capacity of subscribers proved - Addition was held to be not justified.

The assessee is a company engaged in the business of builders, contractors and developers. During the year under consideration, assessee made a preferential issue of equity capital of 2,62,500 equity shares of face value of ₹ 10/- each at a premium of ₹ 190 per share. Thus, it raised Equity Capital of ₹ 26,25,000/- and Share Premium of ₹ 4,98,75,000/- aggregating to ₹ 5,25,00,000/-.

In the course of assessment proceedings, the AO required the assessee to furnish details of the source of Share Capital raised and the Share Premium and confirmation of the receipts supported by the relevant documentary evidence. The notice u/s. 133(6) of the Act was also issued by the AO to M/s. Sumit Infotech Pvt. Ltd. requiring it to furnish details of its income-tax particulars, PAN, copy of financial statements of the relevant period, copy of application for share allotment, copy of bank statement, etc. Before the A. O assessee furnished the requisite details and also justified the Share Premium charged @ ₹ 190/- per share.

In support, assessee referred to a Valuation Report, which was obtained by it prior to issuance of fresh Share Capital, which showed the book value of the Equity shares at ₹ 27/- per share and Earnings Per Share (EPS) ratio of 2.43. The assessee justified the Share Premium by future projections and comparing the PE ratios of other companies in the same business.

The AO treated the entire sum of ₹ 5,25,00,000/- inclusive of Equity Share Capital and Share Premium as the 'unexplained cash credit' within the meaning of Sec. 68 of the Act.

The CIT(A) noted that the investor in question, i.e. M/s. Sumit Infotech Pvt. Ltd., was identified and that the payment has been received through banking channels. The CIT(A) also noted that M/s. Sumit Infotech Pvt. Ltd. was an existing assessee who was being subjected to tax. The investment was made by a group concern and that it could have been also made at the face value; that subscription to the Share Capital made at a premium led to savings on stamp duty on raising of Authorised Share Capital by the assessee-company and it made no difference in the control held by the promoters or the investment brought in. The CIT(A) also examined the provisions of Sec. 56(2)(viib) of the Act which according to him would apply in such a situation. However, the CIT(A) noted that the said section was applicable w.e.f. 1-4-2013 and thus it was not applicable for the assessment year under consideration.

The Tribunal held that the A.O merely went by surmises and conjectures without establishing any infirmity. In fact, the financial statements of the investor, M/s. Sumit Infotech Pvt. Ltd. itself show that it had raised Share Capital of ₹ 5,24,00,000/- being Equity Share Capital of ₹ 49,00,000/- and Share Premium of ₹ 4,75,00,000/- which it has used to subscribe to assessee company's Share Capital. All said aspects were very much before the AO, who has merely disbelieved the same without establishing any infirmity therein. Thus, the Revenue appeal is dismissed.

DCIT vs. M/s. Sumit Woods Pvt. Ltd, ITA No.3195/Mum/2016, Bench: J , AY: 2011-12 DOH: 13/07/2018 (Mum)(Trib)

M/s. Sumit Woods Pvt. Ltd.

2. S. 271(1)©: Penalty – in absence of any concrete material which could disprove and dislodge the claim - no penalty under Sec. 271(1)(c) could be imposed u/s. 40A(3)

The assessee is engaged in the business of purchase and sale of textiles goods.

The AO being of the view that as the assessee had not produced any documentary evidence in support of the purchase and sale transactions, therefore, taking support of the cash transactions as had emerged from the documents seized in the course of the search & seizure proceedings conducted on Jhunjhunwala Group, thus concluded that the respective purchases aggregating to ₹ 1,87,774/- made by the assessee during the year under consideration were in excess of ₹ 20,000/- and had been made in cash.

The AO on the basis of his aforesaid conviction disallowed 20% of the purchase of ₹ 1,87,774/- by invoking the provisions of Sec. 40A(3) and made a consequential addition of ₹ 37,553/- in the hands of the assessee.

The CIT(A) not finding favour with the contentions of the assessee dismissed the appeal. The assessee did not carry the matter any further in appeal before the Tribunal, therefore, the order of the CIT(A) attained finality.

The AO while culminating the assessment proceedings initiated penalty u/s. 271(1)(c) and issued a show cause notice to the assessee. The AO being of the view that as the assessee had furnished inaccurate particulars of income leading to concealment of income as envisaged in Sec. 271(1)(c) of the Act, therefore, imposed a penalty of ₹ 7,466/- in the hands of the assessee.

The CIT(A) dismissed appeal on ex parte.

The Tribunal found that neither the AO had referred to any material which would irrefutably prove that the assessee had made cash purchases in contravention of Sec. 40A(3), which would conclusively evidence the same. The Tribunal observed that though the failure on the part of the assessee to produce the bills/invoices supporting the purchases made by him during the year under consideration would have justified making of disallowance by the AO under Sec. 40A(3) in the course of the assessment proceedings, but however, in the absence of any concrete material which could disprove and dislodge the claim of the assessee that he had not made any payments in excess of ₹ 20,000/- for making of purchases in contravention of the provisions of Sec. 40A(3), no penalty under Sec. 271(1)(c) could validly be imposed in his hands.

Shushil S. Jhujhunwala (HUF) vs. ITO-19(1)(4), ITA No.3001 to 3007/Mum/2015, DOH: 21/03/2018 (Mum)(Trib)

Shushil S. Jhujhunwala (HUF)

3. S. 80P : Co-operative societies - Providing credit facilities to members - Cannot be considered to be co-operative Bank for the purpose of section 80P(4)¡VEntitled to the benefit of deduction under section 80P(2)(a)(I)

The assessee a cooperative credit society engaged in providing credit facilities to its members, filed its return of income after claiming deduction of ₹ 2,29,20,225/- u/s. 80P(2) of the Act. The assessee has been collecting membership fees accepting deposits and providing credit facilities to the members. The assessee had kept fixed deposit with Mumbai District Central Co-operative (MDCC) Bank.

The AO asked the assessee to show cause as to why the disallowance claimed u/s. 80P should not be disallowed under the provisions of Sec. 80P (4) applicable with effect from 01-04-2007. The assessee contended that the assessee being cooperative credit society is entitled for deduction u/s. 80(2)(d) of the Act.

The AO disallowed the claim u/s. 80P of the Act, holding that since the assessee fulfils the condition laid down u/s. 56 (c)(ccv) of part-V of the Banking Regulation Act, 1949 and being cooperative bank, not entitled for deduction u/s. 80P (2)(a)(i) of the Act.

The CIT(A) allowed the appeal on the basis that the AO in the present AY has not demonstrated as to how the assessee qualifies to be a bank. It held that the assessee is a cooperative society and not a cooperative bank and is therefore eligible for deduction u/s. 80P(2)(a)(i).

On appeal by the revenue the Tribunal held that the assessee co-operative society is not licensed from the Reserve Bank of India to act as co-operative bank. Hence, as per the ratio emanating from the Hon'ble Apex Court judgment in case of Citizen Co-operative Society Ltd. vs. ACIT vide order dated 8-8-2017., the assessee is not affected by the provisions of section 80P (4). Accordingly, the assessee is entitled to deduction u/s. 80P(2)(a)(I).

M/s. Mumbai Sales Tax Staff Co-Op Credit Society Ltd vs. ITO-20(2)(1), ITA No.1820/Mum/2017, Bench :I, AY 2013-14, dated: 08/08/2018 (Mum)(Trib)

Mumbai Sales Tax Staff Co-Op Credit Society Ltd.

4. S. 271(1)©: Penalty - Mere disallowance of Legal claim - does not amount to furnishing inaccurate particulars of income

The assessee company is engaged in the business of running motor lorries and motor taxies. The AO noted that the assessee has diverted the interest bearing funds to make investment in shares/securities. Hence the AO held that the interest expenditure cannot be held to be incurred wholly and exclusively for the purpose of business of the assessee, the entire interest expenses was disallowed u/s. 36(1)(iii) of the Act. Without prejudice the AO further held that the interest expenditure was directly attributable towards investment activity and, therefore, it was also liable for disallowance u/s. 14A. Hence, the entire interest expenditure is hereby disallowed u/s. 14A of the Act. Assessee had not preferred any appeal.

The AO levied penalty u/s. 271(1)(c) of the Act on the above said disallowance for filing of inaccurate particulars of income leading to concealment of income.

Before the CIT(A) the assessee contended that the issue of genuineness of the expenditure on interest is not in dispute. That it was only by applying a legal fiction that a part of the interest expenditure has been disallowed. That there was no deliberate and malafide misconduct on the part of the assessee. Hence, it was submitted that no penalty is leviable in its case. However the CIT(A) confirmed the penalty.

The Tribunal found that all the particulars of interest were duly disclosed. The veracity of the expenditure claimed has not been doubted by the authorities below. The assessee has explained that it has claimed the expenditure as in the opinion of the assessee it has set up the business which mandates the allowance of claim of expenditure. It was the assessee's opinion that it was not necessary to carry on the business. This explanation has not been accepted by the authorities below. The explanation by the assessee is a plausible one. The assessee's admission that it was not carrying on business was admittedly with respect to the transport business inasmuch as A.O. had himself admitted that the assessee was making huge investment by diverting interest bearing funds. In this view of the matter, the very premise that the assessee was not carrying on 'any' business fails. By no stretch of imagination, that assessee's explanation can be said to be spurious, vexatious, mere bluster or frivolous. In similar situation, the Hon'ble Apex Court in the case of Reliance Petroproducts (P.) Ltd. (supra) has held that disallowance of a claim made by the assessee or a wrong claim by the assessee cannot by itself lead to levy of penalty u/s. 271(1)(c) of the Act.

M/s. Robust Transportation Private Limited vs. DCIT-3(3)(1), ITA No.3195/Mum/2018, Bench D, AY: 2014-15 dated:
23/08/2018 (Mum)(Trib)

Robust Transportation Private Limited

Note: The Whole decisions can be downloaded from the CTC website under Knowledge Centre.

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