Case Law Details
Naresh Jagumal Karda Vs ACIT (ITAT Pune)
ITAT Pune held that addition of unexplained cash credit sustained as mere filing of documentary evidence doesn’t absolve proving of genuineness and creditworthiness of the unsecured loans.
Facts-
Assessee alleges that the lower authorities have erred in law and on facts in treating unsecured loans of Rs.50 lakhs obtained from M/s Sumukh Commercial P. Ltd., unexplained cash credits.
Further, the assessee also alleges the issue of disallowance of compensation of Rs.7,51,068/- paid to customers upon cancellation of bookings. The Assessing Officer had disallowed this entire sum which stands restricted to Rs.3,05,068/- in the CIT(A)’s order.
Conclusion-
We keep in mind the same to note that the assessee has not been able to discharge his burden of proving the genuineness of the impugned unsecured loans of Rs.50 lakhs by proving genuineness and creditworthiness of M/s. Sumukh Commercial P. Ltd. We further observe that all what this assessee has done is to simply file documentary evidence which could hardly be taken as sufficient material to prove the foregoing latter twin limbs of genuineness and creditworthiness. So far as the assessee’s reliance on the foregoing judicial precedents is concerned (supra), the same are not found to be squarely applicable in the facts herein since those assessees’ had indeed prove the twin limbs of genuineness and creditworthiness in their respective explanation(s). Faced with the situation, we conclude that the assessee having merely filed documentary evidence or interest payment or repayment, details does not get absolved from proving the genuineness and creditworthiness of his unsecured loans. We thus affirm the impugned addition of Rs.50 lakhs in his hands.
We failed to understand the logic behind the CIT(A)’s impugned conclusion once it has come on record that neither the Assessing Officer nor the CIT(A) reject genuineness of the impugned compensation amounts paid by the assessee wholly and exclusively for the purpose of its day to-day business activity in line of development and building construction etc. We thus reject the Revenue’s arguments and accept the assessee’s stand to this effect in entirety to allow the impugned sum of Rs.7,51,068/- as an allowable business expenditure deduction u/s. 37 of the Act. The Revenue’s 4th to 6th sole substantive grounds raising the instant issue fail therefore.
FULL TEXT OF THE ORDER OF ITAT PUNE
The instant batch of nine cases pertains to two assessees herein viz., Shri Naresh Jagumal Karda [seven] and M/s. Karda Constructions [two appeals]. We first of all advert to the former assessee Shri Naresh Jagumal Karda’s cases. He has filed four appeals followed by Revenue’s three cross-appeals. ITA.No.798 to 800 & ITA.Nos.815 to 817/PUN./2019 for assessment years 201314 to 2015-16, respectively, followed by the former appeal ITA.No.814/PUN./2019 for assessment year 2012-13 against the CIT(A)’s common order dated 26.03.2019 in case nos.PN/CIT(A)-12/10386/2015-16, 10248, 10815/2016-17 & 10472/2017-18 assessment year-wise, respectively. The Revenue’s and the latter assessee M/s.Kada Construction Pvt. Limited’s cross-appeals ITA.No.796 & 813/PUN./2019 for assessment year 2015-16 also emanate against the very CIT(A)’s order dated 26.03.2019 passed in case no. PN/CIT(A)-12/10471/2017-18. Relevant proceedings in all these nine cases are u/s. 143(3) of the Income Tax Act, 1961 (in short “the Act”).
2. Heard both the parties. Case files perused.
3. It emerges at the time of dictation that although we had heard these nine appeals on different dates i.e., on 30th November, 2022 and 01st December, 2022; assessee-wise, respectively, we find that the issues raised herein are identical qua these parties, we propose to decide all these nine cases vide common adjudication for the sake of convenience and brevity.
3.1 We proceed assessment year-wise in case of the former assessee Shri Naresh Jagumal Karda who has filed his appeal ITA.No.814/PUN./2019 for assessment year 2012-13 raising the sole substantive ground that both the lower authorities have erred in law and on facts in treating unsecured loans of Rs.50 lakhs obtained from M/s Sumukh Commercial P. Ltd., unexplained cash credits. The CIT(A)’s lower appellate discussion affirming the Assessing Officer’s action to this effect reads as follows :
4. Learned counsel invited our attention first of all to the assessee’s detailed paper book running into 46 pages inter alia, containing of his ledger extracts in the books of M/s. Sumukh Commercial P. Ltd. Mr. Pravin Jain’s affidavit attested in July 2016 [after Assessing Officer’s assessment dated 29.03.2015], bank statement, annual report that the business turnover of the lender entity was Rs.26,19,21,204/- at page-32, payment of interest, repayment as well as various case laws ITO vs. Smt. Pratima Ashar [2019] 177 ITD 481 (Mum.); M/s. Nisarg Lifespace LLP, Navi Mumbai vs. ITO ITA.No.629/PUN./2020 dated 11.06.2021 and ITO vs. M/s. Span Venture ITA.Nos.4446 & 4447/Mum./2017 dated 26.04.2019. Mr. Joshi vehemently contended in the light thereof that the impugned addition of unexplained cash credit deserves to be deleted in light of the foregoing detailed evidence on merits as well as the foregoing judicial precedents.
5. The Revenue placed strong reliance on both the lower authorities action making the impugned addition.
6. We have given our thoughtful consideration to rival contentions and find no merit in assessee’s stand. We make it clear that we are dealing with an instance of unsecured loans coming from M/s. Sumukh Commercial P. Ltd. The assessee has not been able to prove genuineness thereof either before the Assessing Officer or in the lower appellate proceedings. Hon’ble apex court’s landmark decisions Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC), CIT vs. Durga Prasad More [1971] 82 ITR 540 (SC) and PCIT vs. NRA Iron & Steel Pvt. Ltd. [2019] 412 ITR 461 (SC), inter alia, hold that any evidence tendered in income tax proceedings has to be considered in the light of human probabilities, after removing all blinkers and that mere filing of documentary evidence does not mean that the relevant three parameters of identity, genuineness and creditworthiness, and more particularly, the latter two, stand discharged. We keep in mind the same to note that the assessee has not been able to discharge his burden of proving the genuineness of the impugned unsecured loans of Rs.50 lakhs by proving genuineness and creditworthiness of M/s. Sumukh Commercial P. Ltd. We further observe that all what this assessee has done is to simply file documentary evidence which could hardly be taken as sufficient material to prove the foregoing latter twin limbs of genuineness and creditworthiness. So far as the assessee’s reliance on the foregoing judicial precedents is concerned (supra), the same are not found to be squarely applicable in the facts herein since those assessees’ had indeed prove the twin limbs of genuineness and creditworthiness in their respective explanation(s). Faced with the situation, we conclude that the assessee having merely filed documentary evidence or interest payment or repayment, details does not get absolved from proving the genuineness and creditworthiness of his unsecured loans. We thus affirm the impugned addition of Rs.50 lakhs in his hands. This assessee’s first and foremost ITA.No.814/PUN./2019 for assessment year 2012-13 is rejected. Ordered accordingly.
7. Next assessment year 2013-14 involves the Revenue’s and assessee’s cross-appeals ITA.Nos.798 and 815/PUN./2019 respectively, raising the sole substantive ground issue of deemed dividend addition amounting to Rs.4,82,66,792/- made by the Assessing Officer in his assessment order dated 01.03.2016 and upheld in CIT(A)’s order to the extent of Rs.2,01,11,155/- representing the alleged actual accumulated profits only. The CIT(A)’s detailed discussion in issue to this effect reads as follow
8. We have given our thoughtful consideration to the rival stands. The Revenue’s case before us is that the CIT(A) ought to have upheld the entire deemed dividend addition amount of Rs.4,82,66,792/- whereas the assessee seeks to prove the foregoing amount as a pure business transaction between M/s. Shree Sainath Land Development India Pvt. Ltd., [in short “M/s. SSLDIPL”] and M/s. Karda Constructions. He indeed holds 50% and 86.59% stake in both the above entities, respectively. There is further no quarrel between the parties that M/s. Karda Constructions had advanced an amount of Rs.14,24,63,327/- to M/s. SSLDIPL which forms subject matter of sec.2(22)(e) addition before us. The assessee’s stand from the very beginning was that this is purely a business transaction as per the notarized agreement dated 11.12.2012 which also made the former entity liable to pay interest amount @ 15% since the land in issue admeasuring 11775 sq.mts would have taken a long time to be converted into plotted parcels. We make it clear that the former entity M/s. SSLDIPL had purchased the land in issue on 17.09.2012 only. The Assessing Officer is indeed very fair in reproducing the entire agreement to this effect in his assessment order dated 13.02.2016. The Revenue’s case all along is that neither the said agreement is registered nor it deserves to be accepted as a valid one since involving the alleged suspicious circumstances followed by cancellation on 04.01.2016.
8.1 We hardly see any reason to express our agreement with the Revenue’s contentions so far as the impugned entire deemed dividend addition of Rs.4,82,66,792/- is concerned. We make it clear that sec.2(22)(e) is a deeming fiction wherein any sum or advance made to a registered as well as beneficial shareholder attracts the same in the nature of dividends to the extent of the accumulated profits derived by the lender concerned. We keeping in mind the same and quote hon’ble apex court’s Commissioner vs. Dilip Kumar & Co. [2018] 9 SCC 1 (SC) (FB) that such a deeming fiction in a taxing statute indeed deserves to be strictly interpreted only. We proceed further and find that there is no material before us which could dispute the assessee’s ledger accounts of the corresponding loan advance(s) transaction between M/s. SSLDIPL and M/s. Karda Constructions. We are of the opinion that such a transaction itself disputes applicability of the foregoing deeming fiction u/s. 2(22)(e) of the Act.
8.2 Mr. Murkunde at this stage quoted Vikram Krishna vs. PCIT [2020] 114 taxmann.com 197 (SC) accepting the Revenue’s stand upholding the hon‘ble Delhi high court’s decision affirming the tribunal’s order reviving sec.2(22)(e) deemed dividend addition. He could hardly dispute that hon’ble Delhi high court’s latter judgment PCIT vs. Anumod Sharma [2021] 132 taxmann.com 70 (Del.) has considered the same and still concludes that such business transactions indeed negate applicability of sec.2(22)(e) deemed dividend addition. We thus reject the Revenue’s vehement contentions to delete this entire addition amount of Rs.4,82,66,792/- in issue. The Revenue’s instant appeal
9. Next assessment year 2014-15 involves Revenue’s and assessee’s cross-appeals ITA.No.799 & 816/PUN./2019. Their respective former three substantive grounds each raise sec.43CA addition issue of Rs.1,64,35,977/- made by the Assessing Officer which stand restricted to Rs.3,76,000/- only in the CIT(A)’s order reads as under:
10. We have given our thoughtful consideration to the vehement rival submissions. There is hardly any dispute that sec.43CA is applicable w.e.f. 01.04.2014 in the nature of a special provision for full value of consideration for transfer of assets other than capital assets in the specified cases. And also that sec.43CA(1) makes it clear that the difference between the stamp value and actual sale consideration has to be determined per asset-wise than as a whole regarding all the assets transferred in the relevant previous year. We note from a perusal of the Assessing Officer’s assessment order first of all that the assessee had indeed transferred 57 housing units in the relevant previous year wherein not each and every case involves difference between actual and stamp value thereof exceeding 10% as per sec.43CA First proviso inserted in the Finance Act 2018 w.e.f. 01.04.2019. The Revenue at this stage vehemently argued that the legislature had earlier prescribed 5% tolerance margin w.e.f. 01.04.2019 which stands enhanced to 10% w.e.f. 01.04.2021 vide Finance Act, 2020. The Revenue’s, therefore, argues that the foregoing twin tolerance margins as well as the 1st proviso does not carry retrospective effect since we are dealing with assessment year 2014 only.
10.1 All these Revenue’s arguments fails to evoke our concurrence. This is for the precise reason that the legislature has introduced similar amendments prescribing tolerance/margins @ 5% revised to 10% in Sec.50C third proviso vide very Finance Acts which have been held as curative in nature having retrospective effect in Dharmashibhai Sonani vs. ACIT [2016] 161 ITD 627 (Ahd.) and Smt. Maria Fernandez Cherly vs. ITO [2021] 209 TTJ 850 (Mum.).
10.2 Learned DR could hardly dispute that the legislature has introduced similar beneficial amendments in the case of concerned recipients in sec.56(2)(viib) as well. We further observe that neither the Assessing Officer nor the CIT(A)’s respective discussions give the benefit of the foregoing 10% tolerance margin to the assessee in the specified cases involving 57 sale transactions executed in the relevant previous year. We thus restore the instant issue back to the Assessing Officer for his fresh consideration as per law. We further wish to make it clear that in those cases only wherein the Assessing Officer finds the impugned difference between the assessee’s actual sale price vis-à-vis stamp price exceeding 10%, he shall make a reference to the DVO u/s. 43A(2) to (4) r.w.s. 50C(2) [held as mandatory in nature in Sunil Kumar Agarwal vs. CIT [2015] 372 ITR 83 (Cal.) (HC)] followed by his necessary adjudication on merits. Ordered accordingly.
11. Both the learned representatives have further argued before us that the sale price herein ought to be adopted as per the concerned figures in the agreement to sell at the time of booking of the asset [assessee’s stand] as against the Revenue’s case that it is only the actual price fixed at the time of transfer that ought to be adopted for the purpose determining the appropriate consideration u/s 43CA of the Act. Mr. Joshi could hardly dispute that sec.2(47) only “in relation to a capital asset” than u/s. 43CA of the Act applicable for “transfer of assets other than capital assets”. We, therefore, accept Revenue’s arguments and reject assessee’s stand to this effect. These Revenue’s and assessee’s former three substantive grounds each are accepted for statistical purposes in above terms.
12. The Revenue’s substantive ground nos.4 to 7 as well as assessee’s corresponding 4 to 7 grounds raised the common issue of disallowance of compensation of Rs.7,51,068/- paid to customers upon cancellation of bookings. The Assessing Officer had disallowed this entire sum which stands restricted to Rs.3,05,068/- in the CIT(A)’s detailed discussion.
13. We have given our thoughtful consideration to the vehement rival contentions against and in support of the Assessing Officer’s action disallowing the assessee’s impugned compensation paid to customers upon cancellation of bookings. The CIT(A) holds in his lower appellate order that the impugned compensation @ 12% only p.a. [qua the advances received] forms a reasonable amount. We failed to understand the logic behind the CIT(A)’s impugned conclusion once it has come on record that neither the Assessing Officer nor the CIT(A) reject genuineness of the impugned compensation amounts paid by the assessee wholly and exclusively for the purpose of its day to-day business activity in line of development and building construction etc. We thus reject the Revenue’s arguments and accept the assessee’s stand to this effect in entirety to allow the impugned sum of Rs.7,51,068/- as an allowable business expenditure deduction u/s. 37 of the Act. The Revenue’s 4th to 6th sole substantive grounds raising the instant issue fail therefore. The assessee’s corresponding 4 to 6 substantive grounds succeed in other words and his cross-appeal ITA.No.816/PUN./2019 is partly allowed in very terms.
14. We stay back in Revenue’s appeal ITA.No.799/ PUN./2019. It’s next substantive ground wherein the Revenue seeks to revive the very disallowance amount of Rs.7,51,068/-u/s. 40(a)(ia) for non-deduction of TDS at the assessee’s behest.
15. Learned DR could hardly quote any specific provision in Chapter-XVII of the Act prescribing TDS deduction in the specified case of payments. We thus uphold the CIT(A)’s findings for this precise reason alone. The Revenue’s instant appeal ITA.No.799/PUN./2019 raising foregoing eight grounds only is partly accepted for statistical purposes as indicated hereinabove.
16. This leaves us with the last assessment year 2015-16 involving the Revenue’s and assessee’s cross-appeals ITA.No.800/PUN./2019 and ITA.No.817/PUN./2019, respectively. The Revenue’s former three substantive grounds and the assessee’s corresponding pleadings in identical number of grounds raised the first and foremost issue of sec.43CA addition involving Rs.1,24,47,230/- made by the Assessing Officer and restricted to Rs.32,14,329/- in the CIT(A)’s order.
17. Both the learned representatives are ad idem during the course of hearing that our preceding detailed discussion on the very issue in assessment year 2014-15 (supra) squarely covers the same mutatis mutandis in absence of any distinction of fact or law. We thus accept these rival pleadings for statistical purposes and restore the instant issue back to the Assessing Officer in very terms. Ordered accordingly.
18. The Revenue’s 4th to 6th substantive grounds plead that the CIT(A) has erred in law and on facts in reversing the Assessing Officer’s action making addition of Rs.6,53,02,193/-by applying IAS-11 and 18 for the assessee having not recognized profit on sale of flats in the relevant previous year. The CIT(A)’s detailed discussion reversing the Assessing Officer’s findings to this effect reads as under :
19. We have given our thoughtful consideration to vehement rival contentions against and in support of the CIT(A)’s action deleting the impugned addition. Suffice to say, the Revenue could hardly dispute the CIT(A)’s clinching findings rejecting applicability of the foregoing twin accounting standards as the assessee does not fulfill the threshold limit having net worth of Rs.250 crores. This is indeed coupled with the fact that the assessee has already declared its profits on sale of flats in the subsequent assessment years (supra) since it is following project completion method. This is thus a clear-cut case of revenue neutral issue wherein department insists on percentage completion vis-à-vis project method claim at the assessee’s behest. We thus find no merit in Revenue’s instant substantive ground nos.4 to 6. The same stand rejected therefore.
20. The Revenue’s next substantive grounds 7 to 9 as well as assessee’s 4 to 6 grounds raised the common issue of disallowance of compensation amount of Rs.26,765,625/- paid to customers upon cancellation of bookings. The CIT(A) has admittedly sustained the same @ 12% coming to Rs.10.30 lakhs. This leaves both the parties aggrieved.
21. We note that our detailed discussion in assessment year 2014-15 hereinabove has already decided the instant issue in assessee’s favour and against the department. We adopt judicial consistency herein to reject the Revenue’s instant 7 to 9 substantive grounds and accept the assessee’s 4 to 6 substantive grounds in very terms.
22. The Revenue’s tenth substantive ground seeks to revive sec.40(a)(ia) disallowance on the foregoing compensation amount of Rs.26,75,625/- which stands rejected hereinabove in assessment year 2014-15 as well. Declined in very terms.
23. The Revenue’s eleventh substantive ground and assessee’s seventh substantive grounds raised a common issue of sec.14A r.w. Rule 8D disallowance of Rs.1,08,44,351/- made by the Assessing Officer and restricted to the extent of exempt income itself of Rs.2594/- in the CIT(A)’s order. Suffice to say, hon’ble jurisdictional Delhi high court decision in Joint Investments Pvt. Ltd., vs. CIT [2015] 372 ITR 694 (Del.) has settled the law that the impugned sec.14A r.w. Rule 8D disallowance could not exceed the amount of exempt income itself. We thus find no merit in either parties’ submissions seeking to reverse the CIT(A)’s action restricting the impugned disallowance in very terms. The Revenue’s eleventh substantive ground as well as assessee’s seventh substantive ground to this extent stand rejected therefore.
24. This Revenue’s instant appeal ITA.No.800/PUN./2019 as well as assessee’s cross-appeal ITA.No.817/PUN./2019 are partly accepted for statistical purposes in above terms therefore.
M/s. KARDA CONSTRUCTIONS PVT. LTD. :
25. We now advert to the Revenue’s and latter assessee’s cross appeals ITA.No.796 & 813/PUN./2019 for assessment year 2015-16.
26. It emerges that the Revenue’s and assessee’s former three substantive grounds seek to revive sec.43CA addition of Rs.1,87,13,996/- restricted to Rs.28,79,026/- which forms subject matter of assessee’s former twin grounds in cross-appeal as well.
27. The Revenue’s fourth to sixth substantive grounds plead that the Assessing Officer has rightly added the amount in issue of Rs.1,64,47,462/- by applying percentage completion method in light of Indian accounting standards-11 and 18. And also it’s 8 to 11th substantive grounds seek to revive the Assessing Officer’s action disallowing the entire sum of compensation of Rs.1,13,08,538/- made by the Assessing Officer which stands restricted to Rs.53,04,896/- in the CIT(A)’s order. The assessee has raised it’s fourth to sixth substantive grounds of allowability of compensation amount in it’s instant cross-appeal.
28. Both the learned representatives are ad idem during the course of hearing submitted that our foregoing detailed discussion in former assessee Shri Naresh Jagumal Karda’s seven cases (supra) squarely covers all these issues wherein we have inter alia restored sec.43CA addition back to the Assessing Officer, upheld the CIT(A)’s action deleting the addition on account of percentage completion method and agreed with the assessee’s contention that its entire compensation sums paid to customers deserve to be granted deduction u/s 37(1) of the Act, respectively. We thus partly accept both these cross-appeals in very terms.
29. No other ground or arguments have been raised before us during the course of hearing.
30. These Revenue’s and assessee’s latter cross-appeals ITA.No.796/PUN./2019 and ITA.No.813/PUN./2019 are partly accepted for statistical purposes in above terms.
31. To sum-up, the former assessee’s appeal ITA.No.814/PUN./2019 is dismissed. The Revenue’s and former and assessee’s cross-appeals ITA.Nos.798 to 800 & 814 to 816/PUN/2019 are partly allowed for statistical purposes. The Revenue’s and latter assessee’s cross-appeals ITA.No.796/PUN./ 2019 and ITA.No.813/PUN./2019 are partly accepted for statistical purposes in above terms. A copy of this common order be placed in the respective case files.
Order pronounced in the open Court on 28th December, 2022.
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