RSWM Ltd. Vs DCIT (ITAT Delhi)
ITAT Delhi held that addition u/s. 69 of the Income Tax Act based on working/ seized document retrieved from third person without granting cross examination opportunity to the assessee is unsustainable in law.
Facts-
The Assessee is a listed Company in which public is substantially interested engaged in the business of manufacturing of yarn. The original return u/s 139(1) of the Act was filed on 26/11/2014 declaring total of Rs.107,07,43,530/- which was subsequently revised on dated 08/09/2015 declaring total income of Rs.123,72,26,800/- and again on 22/03/2016 declaring total income of Rs.55,88,53,820/-.
Subsequently, search action u/s 132 was carried out in Bhilwara group on dated 04/08/2016 and the premises of the assessee were also covered. AO completed the assessment vide order dated 30/12/2018 u/s 153A on assessed income of Rs.78,02,55,263/- (after setting off with b/f losses of Rs.94,97,62,507/-) under normal provisions and book profits of Rs.133.39,86,575/- u/s. 115JB after making additions.
CIT(A) vide order dated 17/09/2020 upheld the disallowance to the extent of Rs.81,01,633/- u/s 14A read with Rule 8D of the Income Tax Rules, 1962. Further confirmed the addition of Rs.1,52,45,000/- made u/s 69 of the Act on account of unexplained investment.
Conclusion-
Held that, it is settled principle of law that if the Revenue wants to rely upon the entries of the document, seized from the premises of third party, the burden lies upon the Revenue Authorities to prove the genuineness and authenticity of the said entries to connect the said entry with the dealer.
Held that the person from who’s possession the seized document is recovered, was not subject to the cross examination of the assessee and no opportunity of cross examination has been given to the assessee. Therefore, for the detailed discussion made above, in our considered opinion, the Ld. AO as well as the Ld. CIT(A) have committed error in making the addition u/s 69 of the Act which deserves to be deleted.
FULL TEXT OF THE ORDER OF ITAT DELHI
The above captioned appeals filed by Assessee as well as Revenue against the order of Learned Commissioner of Income Tax (Appeals)-30, New Delhi [“Ld. CIT(A)”, for short], dated 17/09/2020 for Assessment Years 2014-15 & 2015-16 respectively. Grounds taken in these appeals are as under:
ITA No. 145/Del/202 for A.Y. 2014-15 (Assessee)
“1(i) That on facts and circumstances of the case, the Ld. CIT(A) was not justified in upholding disallowance to the extent of Rs. 81,01,633/- u/s 14A read with Rule 8D of the Income tax Act, 1961 even though the assessing officer has not recorded requisite satisfaction in terms of provision of section 14A(2)&(3) of the Act.
(ii) That in absence of recording of valid satisfaction u/s 14A(2) & (3) which is sine qua non for invoking Rule 8D, the consequential disallowance is illegal and arbitrary.
(iii) That the entire investment being out of interest free funds and in absence of incurring of any expenses in relation of exempt income or any nexus between borrowed funds and investments yielding exempt income, the disallowance of Rs. 81,01,633/- is on mechanical basis and not sustainable under the law.
2(i) That on facts and circumstances of the case, the Ld. CIT(A) has grossly erred in confirming addition of Rs. 1,52,45,000/- u/s 69 on the alleged ground of unexplained investment in total disregard to facts and submissions of the appellant.
(ii) That the addition being based on dumb document having no evidentiary value, the upholding of addition was illegal and not sustainable on facts and under the law.
(iii) That the seized annexure being an uncorroborated document and assessing officer having failed to establish the allegation of cash payment with some independent material, the addition u/s 69 is misconceived and without any basis.
(iv) That there being no case of any unrecorded cash payment or unexplained investment, the impugned addition u/s 69 is contrary to facts and invalid.
3(i) That on the facts and circumstances of the case, the Ld. CIT(A) was not justified in rejecting the claim of education cess of Rs. 81,43,988/- even though same is eligible deduction under the provisions of the Income tax Act, 1961.
(ii) That in absence of any prohibition or restriction in the Income tax Act regarding claim of education cess which does not form part of income tax as referred u/s 40(a)(ii), the non acceptance of claim is on arbitrary basis and without justification.
(iii) That education cess paid during the year being an eligible deduction u/s 37(1) of the Act and also liable to adjusted from book profit u/s 115JB, the rejection of claim is illegal and not in accordance with law.
(iv) That the decision of Ld. CIT(A) is contrary to settled legal position and scheme of the Income tax Act.
4. The orders passed by lower authorities are not justified on facts and are bad in law.
5. That the appellant craves leaves to add, alter, amend, forgot any of the grounds of appeal at the time of hearing.”
ITA No.146/Del/2021 for A.Y. 2015-16 (Assessee)
“1(i) That on facts and circumstances of the case, the Ld. CIT(A) was not justified in upholding disallowance to the extent of Rs.60,27,158/- u/s 14A read with Rule 8D of the Income tax Act, 1961 even though the assessing officer has not recorded requisite satisfaction in terms of provision of section 14A(2)&(3) of the Act.
(ii) That in absence of recording of valid satisfaction u/s 14A(2)&(3) which is sine qua non for invoking Rule 8D, the consequential disallowance is illegal and arbitrary.
(iii) That the entire investment being out of interest free funds and in absence of incurring of any expenses in relation of exempt income or any nexus between borrowed funds and investments yielding exempt income, the disallowance of Rs.60,27,158/-is on mechanical basis and not sustainable under the law.
2(i) That on the facts and circumstances of the case, the Ld. CIT(A) was not justified in rejecting the claim of education cess of Rs.80,19,858/- even though same is eligible deduction under the provisions of the Income Tax Act, 1961.
(ii) That in absence of any prohibition or restriction in the Income tax Act regarding claim of education cess which does not form part of income tax as referred u/s 40(a)(ii), the non acceptance of claim is on arbitrary basis and without justification.
(iii) That education cess paid during the year being an eligible deduction u/s 37(1) of the Act and also liable to adjusted from book profit u/s 115JB, the rejection of claim is illegal and not in accordance with law.
(iv) That the decision of Ld. CIT(A) is contrary to settled legal position and scheme of the Income tax Act.
3. The orders passed by lower authorities are not justified on facts and are bad in law.
4. That the appellant craves leaves to add, alter, amend, forgot any of the grounds of appeal at the time of hearing.”
ITA No.1928/Del/2020 for A.Y. 2014-15 (Revenue)
“1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in restricting the addition to Rs. 81,01,633/- (to the extent of dividend income) as against Rs. 6,10,36,000/-, made u/s 14A by the AO, without appreciating the detailed reasons given in the assessment order.
2. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of
Rs. 18,96,23,522/- (incentive under FAS/ FMS of Rs.18,96,23,522/-as capital receipt,) without appreciating the detailed reasons given in the assessment order. On similar issue in the case of M/s Nitin Spinners Ltd., Department has filed SLP in Hon’ble Supreme Court.
3. That on the facts and in the circumstances of the case, the Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs. 31,67,12,369/- (interest subsidy under TUFS of Rs. 31,67,12,369/- as capital receipt,) without appreciating the detailed reasons given in the assessment order. On similar issue in the case of M/s Nitin Spinners Ltd., Department has filed SLP in Hon’ble Supreme Court.
4. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 4,70,52,567/- (interest subsidy under RIPS of Rs. 4,70,52,567/- as capital receipt,) without appreciating the detailed reasons given in the assessment order. On similar issue in the case of M/s Nitin Spinners Ltd., Department has filed SLP in Hon’ble Supreme Court.
5. That the order of Ld. CIT(A) is erroneous and is not tenable on facts and in law.
6. That the grounds of appeal are without prejudice to each other.
7. The appellant craves leave to add, alter or forgo any ground(s) of appeal either before or at the time of the hearing of the appeal.”
ITA No.1929/Del/2020 for A.Y. 2014-15 (Revenue)
“1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in restricting the addition to Rs. 60,27,000/- (to the extent of dividend income) as against Rs.5,08,44,000/-, made u/s 14A by the AO, without appreciating the detailed reasons given in the assessment order.
2. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.14,65,42,563/- (incentive under FPS/ FMS of Rs.14,65,42,563/-as capital receipt,) without appreciating the detailed reasons given in the assessment order. On similar issue in the case of M/s Nitin Spinners Ltd., Department has filed SLP in Hon’ble Supreme Court.
3. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.26,33,12,680/- (interest subsidy under TUFS of Rs.26,33,12,680/- as capital receipt,) without appreciating the detailed reasons given in the assessment order. On similar issue in the case of M/s Nitin Spinners Ltd., Department has filed SLP in Hon’ble Supreme Court.
4. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 2,68,18,318/- (interest subsidy under RIPS of Rs. 2,68,18,318/- as capital receipt,) without appreciating the detailed reasons given in the assessment order. On similar issue in the case of M/s Nitin Spinners Ltd., Department has filed SLP in Hon’ble Supreme Court.
5. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 6,74,06,326/- (subsidy under SHIS of Rs. 6,74,06,326/- as capital receipt,) without appreciating the detailed reasons given in the assessment order. On similar issue in the case of M/s Nitin Spinners Ltd., Department has filed SLP in Hon’ble Supreme Court.
6. That the order of Ld. CIT(A) is erroneous and is not tenable on facts and in law.
7. That the grounds of appeal are without prejudice to each other.
The appellant craves leave to add, alter or forgo any ground(s) of appeal either before or at the time of the hearing of the appeal.”
2. As the issues involved in the captioned appeals of the Assessee and the Revenue are identical for the A.Y.2014-15 and 2015-16, all the appeals are heard together and decided in this common order.
3. For the purpose of convenience, the brief facts of the A.Y.2014-15 are considered which are mentioned in the order of the Ld. CIT(A), that the Assessee is a listed Company in which public is substantially interested engaged in the business of manufacturing of yarn. The original return of income u/s 139(1) of the Act was filed on 26/11/2014 declaring total of Rs.107,07,43,530/- which was subsequently revised on dated 08/09/2015 declaring total income of Rs.123,72,26,800/- and again on 22/03/2016 declaring total income of Rs.55,88,53,820/-. Subsequently, search action u/s 132 of the IT Act was carried out in Bhilwara group on dated 04/08/2016 and the premises of the assessee were also covered. The assessee has filed return of income u/s 153A of the Act on dated 05/03/2018 at total income of Nil (after setting off with b/f losses of 111,55,93,312/-). The learned Assessing Officer completed the assessment vide order dated 30/12/2018 u/s 153A of Income Tax Act, 1961 (“Act”, for short) on assessed income of Rs.78,02,55,263/- (after setting off with b/f losses of Rs.94,97,62,507/-) under normal provisions and book profits of Rs.133.39,86,575/- under section 115JB after making following additions. Under normal provisions of IT Act.
