Addition towards unexplained cash credit unsustainable as identity & creditworthiness proved

Shree Automotive Pvt. Ltd. Vs DCIT (ITAT Kolkata)

ITAT Kolkata held that addition under section 68 towards unexplained cash credit unsustainable as assessee has discharged its onus to prove the identity and creditworthiness of the share subscribing company.

Facts- The assessee is engaged in the business as authorised dealer and service centre of Ashok Leyland Ltd. and Mahindra & Mahindra Ltd. Assessee deals in trading i.e. purchase and sale of vehicles and its spares. It is also engaged in providing servicing of vehicles. Return for the year was filed on 28.09.2012 reporting total income of Rs. 1,18,75,637/-. In the course of assessment, Ld. AO enquired about various aspects of claims made by the assessee in its return for which explanation with supporting documents and evidences were called for, and were duly complied with by the assessee. Assessment was completed on assessed total income of Rs.5,39,45,370/-. Additions/ disallowances made in arriving at the said assessed total income are challenged by the assessee.

CIT(A) confirmed all the additions/disallowances. Being aggrieved, the present appeal is filed.

Conclusion- Held that assessee has discharged its onus to prove the identity and creditworthiness of the share subscribing company and the genuineness of the transaction towards sum of Rs.4,01,00,000/- received during the impugned year. Accordingly, considering these facts and in the light of the judicial precedence referred above, we set aside the order of the ld. CIT(A) and delete the addition so made. Accordingly, grounds taken by the assessee in this respect are allowed.

With regard to addition made on account of share application money including share premium u/s 68 it is held that assessee has furnished all the relevant details and evidence for the entire sum hence the same is allowed.

Held that the interest payment on delayed deposit of income tax whether TDS or otherwise is not an allowable expenditure.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

Both these captioned appeals filed by the assessee are against the separate orders of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide order Nos. ITBA/NFAC/S/250/2022-23/1049994158(1) dated 22.02.2023 and ITBA/NFAC/S/250/2022-23/1049029688(1) dated 23.01.2023, respectively, against the assessment orders of Ld. Addl. CIT, Range-10, Kolkata dated 31.03.2015 and Ld. DCIT, Circle-10(2), Kolkata dated 17.03.2016 passed u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) for AYs. 2012-13 and 2013-14, respectively.

2. First we take up ITA No. 182/Kol/2023 for AY 2012-13. Grounds of appeal raised by the assessee read as under:

“1. That, the Ld. C.I.T.(A) has erred on facts and in law in having passed the appellate order u/s. 250 of the Act ex parte qua the appellant entirely on the untrue allegation of not furnishing any ex parte reply to various notices issued between 24.10.2017 and 10.02.2023 when as per records before migrating the appeal to NFAC on 25.09.2020 the appellant attended the hearing on each date, filed written submission before the Ld. CIT(A) with relevant documents and the A.O. after considering the replies to the notices had duly submitted his remand report to the Ld. CIT(A).

2. That, therefore, the very foundation of passing the impugned faceless appellate order ex parte on 22/02/2023 without consulting the records and also without affording meaningful opportunity after migration of the appeal to NFAC was in violation of audi alteram partem, which is one of the fundamental principles of natural justice and that being so the impugned order passed on the untrue allegation that the appellant had chosen not to furnish any reply to the notices deserves to be set aside as void.

3. That, the Ld. CIT(A), NFAC has erred on facts and in law in having upheld the disallowance of Rs.15,00,000/- incurred on payment of commission of Rs.5 lakhs to each of the three group companies situated at the residential address of the Directors and corporate office and-covered u/s 40A(2) of the Act as for non-business purpose without considering that the said commission was paid genuinely through banking channel and for the purpose of business as against the sale of vehicles only which is the main business of the company.

4 That, the Ld. CIT(A), NFAC further erred on facts and in law in having upheld the addition of Rs.4,01,00,000/- in the guise of unexplained cash credit u/s 68 of the Act on account of allotment of 3,20,800 shares of Rs.100 each at a premium of Rs.25/- per share to the group company M/s. Laa Dhan Vyapaar Pvt. Ltd. without considering that the said company was existing shareholder, its bank statement, statement of accounts and audited Balance Sheet for earlier F.Ys along with identity proof of the directors of the said company were furnished.

5. That, the Ld. CIT(A) further erred in having upheld the disallowance of expenditure of Rs.1,15,000/- incurred on payment of medic1aim of staff members through the Credit Card of the Director of the company as his personal expenditure without considering that the expenditure incurred on behalf of the company through the credit card of the Director was debited on being paid to the said Director and the said expenditure was not personal expenditure of the Director.

6. That, the Ld. CIT(A) has wrongly upheld the disallowance of prior period expenses of Rs.3,54,730/- for lack of supporting details in spite of the fact that the excess provision of income accrued and credited on account of interest on fixed deposits kept with SBI as part of the loan agreement in the earlier years have reversed and debited to P/L Account under the head Prior Period Expenses.

7. That, as the ex parte order of Ld. C.I.T.(A) on the above issues suffers from illegality and is devoid of any merit, the same should be quashed and your appellant be given such relief(s) as prayed for.

8. That, the appellant craves leave to amend, alter, modify, substitute, add to, abridge and! or rescind any or all of the above grounds.”

2.1. Brief facts of the case are that assessee is engaged in the business as authorised dealer and service centre of Ashok Leyland Ltd. and Mahindra & Mahindra Ltd. Assessee deals in trading i.e. purchase and sale of vehicles and its spares. It is also engaged in providing servicing of vehicles. Return for the year was filed on 28.09.2012 reporting total income of Rs. 1,18,75,637/-. In the course of assessment, Ld. AO enquired about various aspects of claims made by the assessee in its return for which explanation with supporting documents and evidences were called for, and were duly complied with by the assessee. Assessment was completed on assessed total income of Rs.5,39,45,370/-. Additions/disallowances made in arriving at the said assessed total income are challenged by the assessee in the grounds stated above. Summarily, issues raised by the assessee in the appeal are as under:

3. We will deal with the above issue in seriatim.

4. In the first appeal before the ld. CIT(A), assessee furnished its explanations along with all the relevant supporting documents and evidences. Ld. CIT(A) disposed of the appeal by observing that assessee has not complied with the notices fixed for hearing and, therefore, passed an ex parte order, confirming all the additions made by the Ld. AO. Aggrieved, assessee is in appeal before the Tribunal.

4.1. At the outset, Ld. Counsel for the assessee strongly submitted that non-compliance by the assessee at the first appellate stage as alleged by the Ld. CIT(A) while disposing of the appeal ex parte is completely on wrong facts without verifying the documents placed on record. Ld. Counsel asserted that the appellate proceedings before the Ld. CIT(A) were first undertaken in the erstwhile regime where personal hearings were attended physically and all the required details and documents were placed on record, in the submissions made by the assessee. Ld. CIT(A) had called for a remand report from the ld. AO for which Ld. Counsel referred to the order sheet entry of the appellate proceedings, dated 28.02.2018. In this order sheet entry, it is noted that “Shri M. S. Murty, FCA attended. Filed some of the details. Matter to be remanded. Case adjourned to 30th April at 11.30 AM.”

4.2. Ld. Counsel further referred to the replies filed physically before the Ld. AO in the remand proceedings in respect of the four issues which are under challenge in the appeal. There are two submissions made by the assessee before the Ld. AO in the remand proceedings, dated 04.07.2019, both of which are duly acknowledged under the sealed stamp of the office of Dy. Commissioner of Income-tax, Circle-10(2), Kolkata, filed on 04.07.2019 and are placed in the paper book. Ld. Counsel thus, stated that all the material placed on record both, before the ld. CIT(A) as well as the Ld. AO has been altogether ignored for their meritorious consideration.

4.3. In this respect Ld. DR was directed to produce the assessment records so as to verify about the remand report for AY 2012-13. Ld. DR submitted that despite repeated requests by him, Assessing Officer did not send the remand report/assessment records for AY 2012-13. However, he admitted about the availability of remand report for AY 2013-­14 only.

4.4. On the submissions made by the Ld. Counsel, we observe that appeal of the assessee was migrated to National Faceless Appeal Centre (NFAC), Delhi in terms of CBDT Notification dated 25.09.2020.The present faceless regime in the administration of the Act is a recent technological introduction which is going through its teething phase. It is quite natural that in the initial phase of a new technologically driven faceless regime, certain lapses of procedural requirements may occur. However, we are mindful of the fact that such lapses should not lead to rendering prejudice to effective administration and disposal of the matter. In the present case, it seems that in the course of migration of appeal into the faceless regime, the documents and material already on record did not reach to appropriate authority in the NFAC for his consideration while disposing the first appeal. Such a lapse is not appreciated as Ld. CIT(A) has noted while disposing the appeal that there is complete non-compliance by the assessee which from the fact based records cannot be justified. Further, we also observe that assessee did not appear and represent its case on the hearings, fixed by issuing notices through the e-portal. Thus, there are lapses on the part of assessee too. These lapses cannot be attributed to any wilful default on either party owing to nascent stage of the faceless regime which may take sometime for the purpose of its stabilization and acclimatization for all the stakeholders. Thus, considering the issue holistically in respect of the newness of the faceless regime, by adopting a lenient approach, we take up the issues raised in the present appeal before us for appropriate adjudication, on the strength of arguments made before us and by considering the material placed on record in the form of two paper books and a case law compilation.

4.5. At this juncture, we also take note of the written arguments sent by Ld. DR by e-mail to the Registry dated 11.05.2023 which is after the conclusion of the hearing on 09.05.2023. These are nothing but reiteration of the oral arguments made in the course of hearing. Recourse to such a procedure in absence of any direction by the Bench in this regard is not appreciated. However, in the interest of justice, this is taken on record. Copy of the same was supplied to the Ld. Counsel of the assessee with the liberty to file reply on this, if so desired. Ld. Counsel has furnished a reply to this effect, dated 24.05.2023 which is also taken on record.

5. On the first issue in respect of disallowance of commission paid of Rs. 15 lakh, Ld. Counsel submitted that assessee, in the course of rendering service to its customers engaged service staff for providing service as well as group/associate companies as its Agents. Thus, assessee paid an amount of Rs. 5 lakh each as commission to three entities viz., (i) Laa Dhan Vayapar Pvt. Ltd. (ii) Time N Labour Pvt. Ltd. (iii) Vitta Vinimay Pvt. Ltd., for the purpose of its business, for sale of vehicles. Assessee claimed this amount of commission of Rs. 15 lakh as business expenditure in computing its total income. Ld. AO had disallowed the claim of the assessee by holding that it was not commercially viable and at par with the market rate and since the transactions were with related parties which are in the nature of accommodation entries to reduce the actual profit. Thus, disallowed the claim u/s. 40A(2) of the Act.

5.1. Ld. Counsel pointed out that in the course of first appellate proceedings, assessee had submitted all the details relating to the claim of commission expenditure in the remand proceedings. Details furnished include nature of services provided giving date and customer wise sale of cars, make and chassis nos. of the cars, value of cars sold and commission payable in respect of each sale of cars. It was also submitted that this commission payment has been subjected to TDS and has been duly offered by the three recipient companies in their respective returns. Also, this commission was duly disclosed in the audited financial statements of the respective companies under the related party disclosure details.

5.2.Above details furnished in respect of one of the three companies placed in the paper book are reproduced hereunder for the purpose of reference:

5.3. It was also submitted that commission was paid through banking channel, duly reflected in the bank statement of the assessee as well as the recipient companies. 5.5. Ld. Counsel submitted that this issue has already been dealt by the Coordinate Bench of ITAT, Kolkata in assessee’s own case for AY 2010-11 in ITA No. 1392/Kol/2016 dated 27.07.2018, wherein commission and brokerage was allowed. Relevant extracts from the said order is reproduced as under:

“3. After hearing both the parties and perusing the record, we find that according to AO, the assessee failed to furnish the details with evidences in respect of expenditure shown by the assessee on account of “commission and brokerage” to an extent of Rs.23,05,118/- and disallowed the same. According to the CIT(A), the assessee has been making these payments under the above heads since its inception. The AO disbelieved the claim of the assessee only on the ground for non-submissions of any evidence. Further, the CIT(A) found that the AO himself allowed an amount of Rs. 9,00,000/- each paid on account of brokerage to M/s. Vita Vinimoy Viniyog Pvt. Ltd and M/s. Saffron Financial Services Pvt. Ltd in the year under consideration. It is also noticed from the impugned order of the CIT-A that the assessee has given names, addresses and PAN to the AO. The assessee deducted the TDS on such payments. The entire transactions were through banks. Relevant port of order of CIT-A is reproduced herein below: ….”

5.5. Per contra, Ld. DR in his e-mailed written submission has alleged that assessee has not furnished the addresses of customers who were provided the services by these companies and that the Principal Officers of these companies were not produced before the AO.

6. From the perusal of the above order of the Coordinate Bench and the facts along with corroborative documentary evidence placed on record, we find that there is no change in the facts of the case and applicable law. Accordingly, we allow the claim of the assessee in respect of commission of Rs. 15 lakh. Thus, the ground taken by the assessee in this respect is allowed.

7. On the second issue relating to addition made in respect of share application including share premium from La Dhan Vayaapar Pvt. Ltd. of Rs.4,01,00,000/-,the fact is that assessee had issued 3,20,800 equity shares of Rs. 100/-each at a premium of Rs.25/- per share, amounting to Rs.3,20,80,000/- as equity share capital and Rs.80,20,000/-as share premium. These shares were issued to one of the group companies of the assessee i.e. La Dhan Vyapaar Pvt. Ltd. who holds 32.09 % shares of the assessee. La Dhan Vyapaar Pvt. Ltd. had invested a sum of Rs. 45 lakh in the share capital of the assessee in the immediately preceding year i.e. AY 2011-12 and was already a shareholder of the assessee. In this respect, Form 20B under the Companies Act was furnished. Assessee also furnished details and documents to explain the nature and source of share capital raised by the assessee both, in the assessment proceedings as well as in first appellate proceedings including the remand proceedings before the Ld. AO.

7.1. Details furnished by the assessee in remand proceedings are as under:

8. Before us, Ld. Counsel asserted that the share subscribing company is regularly assessed to tax and is one of the group companies of the assessee. It had duly complied with the notices issued by the department by furnishing all the details along with supporting documents, all of which are placed on record. From the audited financial statements of the share subscribing company for AY 2012­13, Ld. Counsel pointed out that it had capital and reserves of Rs.8.04 Cr. which are more than sufficient for the investment made by it of Rs. 4.01 Cr. in assessee company. This substantiates the creditworthiness and the capacity of the subscribing company to make investment in the share capital of the assessee. Bank statement of the investor company along with details in respect of source of investment made by it is also placed on record. Ld. Counsel further submitted that both, the assessee as well as the investor company has reflected this transaction in their respective books of account and have duly reported in their respective audited financial statements.

8.1. Ld. Counsel also submitted that identity of the investor company cannot be doubted since subscriber company has been assessed by the department u/s. 143(3) read with section 147 for AY 2012-13 vide order dated 13.12.2019 passed by ITO, Ward-3(3), Kolkata, wherein the investment of Rs.45 lakh made by the said company in the share capital of the assessee in the immediately preceding assessment year as well as the current investment made in the year under consideration has been accepted and no addition made in this respect. Copy of the said assessment order is placed on record at pages 172 to 173 of the paper book.

8.2. Ld. Counsel also pointed out to the important fact in respect of assessment in assessee’s own case for the immediately preceding year i.e. AY 2011-12 which has been completed u/s. 143(3) dated 30.03.2014 wherein the subscribing company had invested a sum of Rs. 45 lakh in the share capital of the assessee and no addition has been made in this respect in the said assessment completed by DCIT, Circle-10, Kolkata. Ld. Counsel thus, strongly submitted that onus on the assessee has been discharged in totality and the addition so made calls for deletion. All the three ingredients for section 68 in respect of identity and creditworthiness of the investor and the genuineness of the transaction has been substantively established beyond any doubt.

9. Per contra, Ld. Sr. DR placed reliance on the orders of the authorities below. We have also perused the written submission made by way of e-mail wherein the key issues raised are in respect of non-attendance of the directors of the investor company which is nothing but a paper company.

10. We have heard the rival contentions and gone through the material placed on record. We note that Ld. AO without even going through and discussing the details submitted by the subscriber company, insisted for personal appearance to prove the identity, creditworthiness of the subscriber and the genuineness of the transaction. To our mind, Ld. AO could have taken an adverse view, only if, he could point out the discrepancies or insufficiency in the evidence and details furnished in his office and also as to what further investigation was needed by him by way of recording of statement of the directors of the assessee and the subscriber company. For this view, draw our force from the decision of Hon’ble Bombay High court in the case of PCIT v. Paradise Inland Shipping Pvt. Ltd. [2017] 84 taxmann.com 58 (Bom.) wherein it was held that once the assessee has produced documentary evidence to establish the existence of the subscriber company, the burden would shift on the revenue to establish their case. We also draw our force from the decision of Hon’ble Jurisdictional High Court of Calcutta in the case of Crystal Network Pvt. Ltd. v. CIT in ITA 158 of 2002 dated 29.07.2010 which held as under:

“We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter creditworthiness. As rightly pointed out by the learned counsel that the CIT(Appeals) has taken the trouble of examining of all other materials and documents viz., confirmatory statements, invoices, challans and vouchers showing supply of bidi as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued in our view is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the produce of the assessee or not. When it was found by the CIT (Appeal) on fact having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this fact finding.”

10.1. Ld. AO has not bothered to discuss or point out any defect or deficiency in the documents furnished by the assessee, of the share subscribing company. These evidences furnished have been neither controverted by the Ld. AO during the assessment proceedings and the remand proceedings nor anything substantive brought on record to justify the addition made by him. Ld. AO has simply added the amount of share capital and share premium on the ground that assessee has not produced the directors/shareholders. Thus, going by the records placed by the assessee of the share subscribing company, it can be safely held that the assessee has discharged its initial burden and the burden shifted on the Ld. AO to enquire further into the matter which he failed to do so. It is also noted from their audited financial statement that the investing company had sufficient own funds available with it to make investment in the assessee. It is pertinent to note that investor is a group company with common director fact of which is uncontroverted.

10.2. A perusal of the impugned order of the Ld. CIT(A) shows that the Ld. CIT(A) has not discussed anything about the material facts of the case. He has not pointed out any defect and discrepancy in the evidences and details furnished by the assessee but simply cited certain case laws even without pointing out as to how these case laws were applicable to the facts and circumstances of this case. By simply reproducing the contents of the case laws without discussing about their application on the facts of the case, in our view, would not make the order of the Ld. CIT(A) justifiable speaking order and hence, the same is not sustainable as per law.

10.3. From the perusal of the paper book and the documents placed therein, it is vivid that share applicant is (i) income tax assessee, (ii) it is filing its income tax returns, (iii) share application money was made by account payee cheque, (iv) details of the bank accounts belonging to share applicant and its bank statements, (v) share applicant is having substantial creditworthiness represented by its capital and reserves.

10.4. We also note that assessee asserted before the ld. CIT(A) that all the submissions were made in the assessment proceedings even though it is stated that assessee failed to comply with the requirements. The claim of the assessee for the submissions made before the Ld. AO in the remand proceedings is reproduced above which is contrary to the observation made by Ld. CIT(A) in the order.

10.5. We also take note of the most clinching evidence on record that both the investor company and the assessee have been assessed u/s. 143(3) r.w.s. 147 for AY 2012-13 and u/s 143(3) for AY 2011-12, respectively, by the Department. In these assessments, no addition has been made in respect of the share capital transaction. It is difficult to conceive the conclusion arrived at by the authorities below in the light of this vital fact.

10.6. Considering the facts and circumstances of the case and the material placed on record, we find that assessee has discharged its onus to prove the identity and creditworthiness of the share subscribing company and the genuineness of the transaction towards sum of Rs.4,01,00,000/- received during the impugned year. Accordingly, considering these facts and in the light of the judicial precedence referred above, we set aside the order of the ld. CIT(A) and delete the addition so made. Accordingly, grounds taken by the assessee in this respect are allowed.

11. The third issue is in respect of disallowance of expenditure in respect of payment made for mediclaim insurance of Rs.1,15,000/- which was paid for the staff members of the assessee, by Shri Saurav Kedia, Director of the company, through his credit card.

11.1. Assessee claimed that this amount was paid by the Director of the assessee for the mediclaim insurance premium duly accounted in its books and was subsequently reimbursed to the Director. It is claimed by the assessee that the payment of mediclaim insurance premium for the employees is incidental to its business and is an allowable expenditure u/s. 37 of the Act. Assessee submitted that Director of the assessee has made the payment through his credit card and later claimed it as reimbursement which has been duly accounted in the audited books of account. Details in this respect containing credit card statement were furnished in the course of assessment proceedings also. Ld. Counsel thus, asserted that this claim of the assessee is ought to be allowed.

11.2.From the perusal of records and the facts, we find that claim of assessee is justifiable as the disallowance has been made owing to the mode of payment which is through the credit card of the Director but for the benefit of the employees of the assessee which is towards mediclaim insurance premium and the same has been adequately corroborated by the documentary evidence placed on record. We thus, delete the addition made in this respect. Accordingly, ground taken by the assessee in this respect is allowed.

12. On the last issue relating to disallowance made towards prior period expenses of Rs.3,54,730/-, it has been explained by the Ld. Counsel that assessee had made provision for income accrued on its fixed deposits. However, at the time of maturity of fixed deposit, it was observed that excess provision of income had been made and this excess provision was reversed and written off under the head “Prior Period expenses” in the P&L Account for the year under consideration. Thus, Ld. Counsel asserted that there is no expenditure which has been claimed during the earlier years and the disallowance so made deserves to be deleted. Considering the factual matrix as explained above, we agree with the submissions made by the ld. Counsel and delete the addition so made. Accordingly, ground taken by the assessee in this respect is allowed.

13. We now take up the second appeal in ITA No. 183/Kol/2023 for AY 2013-14. Grounds of appeal in this respect are reproduced as under:

“1. That, the Ld. C.I.T.(A) has erred on facts and in law in having passed the appellate order u/s. 250 of the Act ex parte qua the appellant entirely on the untrue allegation of not furnishing any reply to various notices issued between 16.10.2017 and 29.12.2022 when as per records before migrating the appeal to NFAC on 25.09.2020 the appellant attended the hearing on each date, filed written submission before the Ld. CIT(A) with relevant documents and the A.O. after considering the replies to the notices had duly submitted his remand report to the Ld. CIT(A).

2. That, therefore, the very foundation of passing the impugned faceless appellate order ex parte on 23/01/2023 without consulting the records and also without affording meaningful opportunity after migration of the appeal to NFAC was in violation of audi alteram partem, which is one of the fundamental principles of natural justice and that being so the impugned order passed on the untrue allegation that the appellant had chosen not to furnish any reply to the notices deserves to be set aside as void.

3. That, even on merits of the case the Ld. C.I.T.(A) in NFAC proceeding without any application of mind has ignored the evidences on record in relation to interest bearing unsecured loan and arbitrarily treated the entire unsecured loan of Rs.8,37,58,545/- received during the relevant previous year as unexplained cash credit u/s 68 of the Act and added back to the total income of the assessee.

3(a) That, the Ld. C.I.T.(A) while upholding the addition of Rs.8,37,58,545/- u/s 68 of the Act has grossly erred in not having considered/consulted the remand report of the Ld. A.O. on the written submission filed before the Ld. CIT(A) clearly admitting that upon requisition u/s 133(6) of the Act from the loan creditors and verifying the money receipts issued to the customers, invoices of sale, bank statement, certificate issued by the auditor firm etc. there was no irregularity in the claim of the assessee.

3(b). That, the order of the Ld. C.I.T.(A), NFAC also suffers from illegality and perversity inasmuch as he has failed to appreciate that the touchstone points on the basic issue of addition u/s. 68 of the Act are identity, creditworthiness and genuineness of the transactions which are totally established by authentic documents already on record and have not been considered in the impugned order.

4. That, as the addition of Rs.8,37,58,545/- m the guise of unexplained cash credit u/s 68 of the Act was ab initio void and null in law, the disallowance of interest of Rs.66,88,007/- paid to the loan creditors subject to TDS on the said genuine unsecured loan is completely unfounded, unjustified and untenable in law.

5. That, the Ld. CIT(A) further erred on facts and in law in having upheld the addition of Rs.4,12,50,000/- as unexplained cash credit u/s 68 of the Act on the specious ground of unexplained share application money with premium received during the relevant previous year in spite of the fact that the Ld. A.O. in his subsequent remand report submitted to the then Ld. CIT(A) after scrutiny of the documents, audited accounts etc. had mostly accepted the source of the fund utilized by the share applicants.

6. That, the Ld. C.I.T.(A) alleging non-response to the notices further erred on facts and in law in having upheld the disallowance of deduction of Rs.87,50,000/- claimed u/s 35(1 )(iii) of the Act under the pretext that the donee (SHGPH) during the survey operation had admitted their involvement in routing back the donations received in the form of cash to the donors and without allowing the assessee to cross- examine the said donee in violation of principle of natural justice.

7.That, the Ld. C.I.T.(A) alleging non-response from the assessee has erred in law in having upheld the disallowance of expenditure of Rs.5,04, 790/- incurred on account of payment of interest on late payment of statutory liabilities in spite of the fact that such payments of interest did not have the character of penalty for an offence as the same were merely compensations for moneys withheld.

8. That, as the ex parte order of Ld. CIT(A), NFAC on the above issues suffers from illegality and is devoid of any merit, the sameshould be quashed and your appellant be given such relief(s) as prayed for.”

14. In this year return of income was filed on 30.09.2013, reporting total income of Rs.2,73,14,200/-. Additions made by the Ld. AO in the course of assessment which are in challenge in this appeal before us are listed summarily as under:

15. In the course of first appellate proceedings, matter was remanded by the Ld. CIT(A) to the Ld. AO to submit a remand report vide letter no. CIT(A)-4/Kol/20 17-18/1317, dated 05.03.2018. In the remand proceedings, assessee vide its letter dated 27.04.2018 filed detailed explanation along with all the relevant supporting documents, all of which are placed in the paper book. Upon consideration of the submissions made by the assessee in the course of remand proceedings, Ld. AO considered them meritoriously and accepted the claim of the assessee on all the five issues for which the assessee is in appeal before the Tribunal. Detailed remand report furnished by the Ld. AO before the Ld. CIT(A) is reproduced hereunder for ease of reference, wherein the Ld. AO has accepted the claim of the assessee on all the five issues and duly considered by the Ld. CIT(A):

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15.1. Ld. Counsel has placed on record all the relevant supporting documents in respect of the claims made for which Ld. AO has placed his reliance while accepting the claim and issuing the remand report to the ld. CIT(A). In the course of hearing before us, on confrontation of this material before the Ld. Sr. DR, placed reliance on the remand report, observations and finding given by the Ld. AO.

15.2. We have gone through the remand report extracted above and has also cross verified it with the submissions made in the paper book, corroborating the claim of the assessee, contained in the paper book having 384 pages. Details of documents furnished in the paper book are extracted by reproducing the index of the said paper book, as under:

15.3. We now deal with the additions made by the Ld. AO seriatim as tabulated in paragraph 14. In respect of the addition made towards unsecured loan u/s. 68 of the Act, in the remand proceedings, assessee had filed all the relevant documents in support of the loan transactions. Ld. AO had examined the same in detail for which he had also issued notice u/s. 133(6) of the Act and were duly complied with. Upon considering the documents furnished by the assessee and detailed examination and enquiry conducted by the Ld. AO in the remand proceedings, he arrived at a conclusion that the submissions of the assessee may be accepted. On perusing the observations and findings of the Ld. AO in the remand report vis-à-vis the material placed on record in the paper book, we find no reason to interfere with the findings given by the Ld. AO in the remand proceedings. Accordingly, we accept the submissions made by the assessee and delete the addition so made towards unsecured loan. Accordingly, grounds taken in this respect are allowed.

15.4. The next issue is of disallowance on interest accrued on the aforesaid unsecured loans. In the remand proceedings and the report thereon, Ld. AO has concluded that submission of the assessee might be accepted barring interest expenses of Rs.4,77,643/- on which tax was not deducted at source. In this respect, assessee submitted that post dated cheques on predetermined EMIs were issued to the well-known financiers and hence, there was no scope to deduct tax at source on the EMIs paid to them. It was also stated that this interest receiving financiers have shown the interest income in their respective returns which has suffered due tax, therefore, there was no loss to the revenue on account of tax payable on the said interest component. Reference was made to first proviso to sec. 201 of the Act according to which payer shall not be deemed to be an assessee in default in respect of non-deduction of tax if the payee has furnished its return and taken into account such sum for computing the income and paid the taxes due thereon. Considering the overall factual matrix on this
issue, we accept the finding of the Ld. AO as stated in the remand report allowing the interest expense. We also allow the claim of interest which has been sustained by the Ld. AO of Rs.4,74,643/- based on the submissions made by the Ld. Counsel of the assessee as discussed above. Accordingly, disallowance of interest expense on the unsecured loan amounting to Rs.66,88,007/- is allowed. Grounds taken in this respect are allowed.

15.5. On the third issue of addition made on account of share application money including share premium u/s. 68 amounting to Rs.4,12,50,000/-. in the remand report, Ld. AO has accepted the submissions of the assessee except for a sum of Rs.4,33,900/- by stating that no explanation was furnished in this respect. For the balance amount, Ld. AO has accepted the claim of the assessee. We are in agreement with the findings given by the Ld. AO in the remand report. However, for the amount of Rs.4,33,900/- which the Ld. AO has sustained, we note that this amount forms part of the total addition of Rs.4,12,50,000/-. Assessee had furnished all the relevant details and evidence for the entire sum and there is no basis and reason to give a partial allowance and sustain the balance though the evidence and explanation applied to the entire sum. Having perused the material on record and the submissions of the assessee, we are in agreement with the contention of the Ld. Counsel and accordingly, delete the addition of Rs.4,33,900/- also. Thus, the assessee gets relief of Rs.4,12,50,000/-. Grounds taken by the assessee in this respect are allowed.

15.6. On the next issue relating to disallowance made in respect of payment made by the assessee for weighted deduction u/s. 35(1)(ii) of the Act of Rs.87,50,000/-, ld. AO has elaborately dealt with the issue in the remand report justifying the disallowance. Before us, Ld. Counsel has placed reliance on the decision of Hon’ble Supreme Court in the case of CIT Vs. Chotatingrai Tea [2002] 258 ITR 529 (SC). This issue has been elaborately dealt with by the Coordinate Bench of ITAT, Kolkata wherein the decision of Hon’ble Supreme Court has also been considered and distinguished the light of recent judgment of the Apex Court in the case of Batanagar Education and Research Trust [2021] 129 taxmann.com 30 (SC). The detailed findings given by the Coordinate Bench in the case of DCIT Vs. A. R. Stanchem (P) Ltd. in ITA No.672/Kol/2022 dated 13.07.2023 vide para 8 which is extracted below (undersigned Accountant Member is the author of the same):

“8. Relief given by the Ld. CIT(A) in the present case before us is solely based on the decision of Hon’ble jurisdictional High Court of Calcutta in the case of Maco Corporation (India) Pvt. Ltd. (supra). From the perusal of the said judgment, it is observed that the decision is solely based on placing reliance on the judgment of Hon’ble Supreme Court in the case of CIT Vs. Chotatingrai Tea (supra), as is evident from the finding recorded in para 7 which is reproduced as under:

“7. In the light of the above decision, we find the reasoning given by the tribunal to be just and proper and cannot be held to be perverse. In the result, the appeal filed by the revenue (ITA/42/2020) is dismissed and the substantial question of law is answered against the revenue.”

8.1. This leads us to delve into the judgment of Chotatingrai Tea (supra) for a better appreciation of the facts and finding dealt therein. At the outset, it is a judgment passed in October 2002. Before the matter travelling to the Hon’ble Apex court, despite holding n favour of the assessee, Tribunal had remanded the matter back to the Assessing Officer for fresh disposal for the purpose of determining whether the money had in fact been utilised for an approved programme. Thus, there were apprehensions even in this case about the utilization of money for the approved programme at the end of the donees. The reasoning arrived at by the Hon’ble Court is on the premise of documentary compliance fulfilled by the donors to allow the deduction. Though the deduction claimed by the donors was allowed on the strength of fulfilment of conditions laid down in the relevant section, the apprehension on the factual aspect of utilization of money by the recipient donees for the approved programme was not set at rest.

8.2. The apprehension stated above was addressed in the Hon’ble Apex Court judgment subsequent to the above judgment of Chotagtingrai Tea (supra), wherein issue relating to status of SGHPH as a trust for retaining its registration under section 12AA and 80G of the Act came before it in the case of CIT(E) Vs. Batanagar Education and Research Trust [2021] 129 taxmann.com 30(SC) dated 02.08.2021. Important fact noted in this case in para 3 reads as under:

“3. In a survey conducted on an entity named School of Human Genetics and Population Health, Kolkata under section 133A of the Act, it was prima facie observed that the Trust was not carrying out its activities in accordance with the objects of the Trust. A show cause notice was, therefore, issued by the CIT on 04.12.2015.”

8.3. By invoking section 12AA(3), registration of the said trust was cancelled including the approval granted u/s. 80G. Appeal filed by the trust before the Tribunal was dismissed by recording fact-based finding that from the evidence on record, it is clear that activities of the trust were not genuine and hence their registration is liable to be cancelled. Aforesaid conclusion of the Tribunal arrived at after considering the entire material on record is as under:

13. We have given a very careful consideration to the rival submissions. It is clear from the statements of Secretary and Treasurer of SHG and PH that they were accepting cash and giving bogus donations. In the statement recorded in the survey conducted in the case of SHG and PH on 27-1-2015, it was explained that SHG& PH’s source of income was the money received in the form of donations from corporate bodies as well as from individuals. In the said statement it was explained that there were about nine brokers who used to bring donations in the form of cheque/RTGS to SHG and PH. The Donations received would be returned by issue of cheque/RTGS in the name of companies or organization specified by the nine brokers. SHG and PH would receive 7 or 8% of the donations amount. It was also stated in such statement since the assessee was entitled to exemption u/s 80G and u/s 35 of the Act their organization was chosen by the brokers for giving donations to SHG and PH as well as for giving donations by SHG and PH. Till now the Assessee’s name did not figure in the statement recorded on 27-1-2015. However, pursuant to the Survey in the case of SHG& PH proceedings for cancellation of registration u/s 12A of the Act granted to them were initiated. In such proceedings, Smt. Samadrita Mukherjee Sardar (in a letter dated 24-8-2015) had given a list of donations which were given by them after getting cash of equivalent amount. It is not disputed that the name of the assessee figures in the said list and the fact that SHG& PH to the Assessee were against cash received from them in Financial Year 2012-13 of a sum of Rs.1,23,87,550/-. Even at this stage all admissions were by third parties and the same were not binding on the Assessee. However, in a survey conducted in the case of the Assessee on 24-8­2015, the Managing Trustee of the Assessee admitted that it gave cash and got back donations. We have already extracted the statement given by the Managing Trustee. Even in the proceedings for cancellation of registration, the Assessee has not taken any stand on all the evidence against the Assessee. In such circumstances, we are of the view that the conclusions drawn by the CIT(E) in the impugned order which we have extracted in the earlier part of the order are correct and calls for no interference. It is clear from the evidence on record that the activities of the Assessee were not genuine and hence their registration is liable to be cancelled u/s. 12AA(3) of the Act, and was rightly cancelled by the CIT(E). We therefore, uphold his orders and dismiss both the appeals by the assessee.”

[emphasis supplied by us by bold and underline]

8.4. Matter travelled before the Hon’ble Apex Court who gave its factual finding that the donations were bogus, out of which substantial money was ploughed back or returned to the donors in cash. According to the Hon’ble Court, registration conferred upon it under section 12AA and 80G of the Act was completely being misused by the Trust. Thus, cancellation of registration is justified. Hon’ble Supreme Court in conclusion, further noted that High Court erred in not dealing with the conclusion drawn by the CIT and the Tribunal. Relevant extracts of the conclusion arrived at by the Hon’ble Supreme Court in para 11 and 12 are as under:

“11. The answers given to the questionnaire by the Managing Trustee of the Trust show the extent of misuse of the status enjoyed by the Trust by virtue of registration under section 12AA of the Act. These answers also show that donations were received by way of cheques out of which substantial money was ploughed back or returned to the donors in cash. The facts thus clearly show that those were bogus donations and that the registration conferred upon it under sections l2AA and 80G of the Act was completely being misused by the Trust. An entity which is misusing the status conferred upon it by section 12AA of the Act is not entitled to retain and enjoy said status. The authorities were therefore, right and justified in cancelling the registration under sections 12AA and 80G of the Act.

12. The High court completely erred in entertaining the appeal under section 260A of the Act. It did not even attempt to deal with the answers to the questions as aforesaid and whether the conclusions drawn by the CIT and the Tribunal were in any way incorrect or invalid.

In our view, this appeal, therefore, deserves to be allowed.” [emphasis supplied by us by bold and underline]

8.5. From the above judgment of Batanagar Education and Research Trust (supra), the apprehension on the factual aspect of utilization of money by the recipient donee trusts for the approved programme which remained open, is set to rest by the fact-based conclusion arrived at, as quoted above. Hon’ble Court has made reference to the outcome of the survey at SHGPH and the post survey enquiry conducted upon BatanagarEducaiton and Research Trust to conclude about the organized fraud.

8.6. This very judgment of Batanagar Education and Research Trust (supra) was relied upon and analysed in the decision of Tarasafe International Pvt. Ltd. & Ors. (supra) by the Coordinate Bench of ITAT, Kolkata in para 39 which is reproduced for ease of reference:

“39. We are aware of the facts that a large number of orders have been passed in favour of the assessee by ITAT and some of those were upheld by Hon’ble High Courts also. We have extracted one of the orders from Hon’ble Gujarat High Court. The Hon’ble Supreme Court in the case of CIT –vs. – Batanagar Education & Research Trust reported in 129 taxmann.com 30, whose copy has been placed on the record by the ld. CIT(DR), has considered the identical material, which has been placed before us also. In the case of Batanagar Education & Research Trust, the facts are that during the course of survey at the premises of SHG&PH, and in post survey inquiry statement of Shri RamendraLahiri, Managing Trustee of the assessee, i.e. Batanagar Society was recorded. The Secretary, Smt. Samadrita Mukherjee Sardar and Treasurer Smt. Moumita Raghavan of SHG&PH have categorically deposed in their statements that source of income of SHG&PH was the money received in the form of donations from Corporate Bodies as well as from individuals. The assessee Batanagar Society was selected by the brokers, who have arranged the donations to SHG&PH as a conduit for receiving the donations from SHG&PH. This donation was to be returned back to those Corporate Houses and individuals in cash after layering the transaction and the Batanagar Education & Research Trust would also retain commission income for such an activity. On the basis of that, its registration was cancelled by the ld. Commissioner (Exemption) by exercising the powers under section 12AA(3). This order was upheld by the ITAT. However, on further appeal, Hon’ble High Court has reversed this order but Hon’ble Supreme Court restored this order, in other words upheld the cancellation of the registration to Batanagar Education & Research Trust. In this judgment, Hon’ble Supreme Court has made reference to the outcome of the survey at SHG&PH coupled with the post survey enquiry conducted upon Batanagar Society and satisfied that it was an organized fraud to misuse the status of a charitable entity. This judgment has been pronounced on 02.08.2021. After this judgment, a judgment of the Hon’ble Calcutta High Court in the case of Mackaw Corporation has been passed, which has been relied upon by the ld. Counsel, but in this decision, Hon’ble High Court has not considered the judgment of the Hon’ble Supreme Court, because the judgment of the Hon’ble Supreme Court in the case of Batanagar Education & Research Trust was not cited by both the parties.”

[emphasis supplied by us by bold and underline]

8.7. Coordinate Bench in the case of Tara safe International Pvt. Ltd. (supra) has recorded finding of facts, based on the material placed before it by the Revenue in voluminous paper books gathered in the course of survey conducted u/s. 133A in the case of the donee trusts as well as post survey enquiries. In the present case before us, the donee trusts are the same whose facts and credible material were brought on record by the Revenue and considered by the Coordinate Bench. Claim of deductions by the donors have already been disproved by the Revenue by dispelling the claim of first onus discharged by the donors, on the strength of credible material. These fact findings are substantive and cannot be overlooked in the present case wherein the donee trusts are the same. There is nothing brought on record by the Ld. Counsel of the assessee to rebut these factual findings except for relying on the judgment of Hon’ble Supreme Court in the case of Chotatingrai Tea (supra) which is distinguished in the light of recent judgment of Batanagar Education and Research Trust (supra) as discussed above.

8.8. Respectfully taking into account the fact-based finding in the judgment of Hon’ble Supreme Court in the case of Batanagar Education and Research Trust (supra) and which has been elaborately dealt with by the Coordinate Bench in Tarasafe International Pvt. Ltd. &Ors, we hold that assessee is not entitled for the deduction claimed u/s. 35(1)(ii) of the Act in respect of payments made to both SHGHP and MIERE(the done trusts). Relief granted by ld. CIT(A) on this issue is set aside. Grounds taken by the Revenue are allowed.”

15.7. Considering the above finding, claim of the assessee is disallowed since in the present case also the donee trust is same i.e. School of Human Genetics & Population Health (SHGPH). Accordingly, grounds taken by the assessee in this respect are dismissed.

15.8. On the last issue relating to disallowance of Rs.5,04,790/- on account of interest expenses for late payment of statutory liabilities, in the remand report, ld. AO has considered the submissions made by the assessee, wherein details of interest on late payment of various statutory liabilities were furnished. Ld. AO has accepted the submission of the assessee by allowing the claim in respect of interest on all the statutory liabilities except on account of TDS, amounting to Rs.8,428/-. All the other statutory liabilities are in respect of indirect taxes namely, VAT, Entry Tax, Service Tax, CST and education cess on service Tax. In this respect, we are in agreement with the finding given by the Ld. AO in the remand report. This issue of disallowing interest on delayed deposit of TDS has been dealt with by the Coordinate Bench of ITAT, Kolkata in the case of Premier Irrigation Adritec Pvt. Ltd. Vs. ACIT in ITA No. 387/Kol/2021 dated 20.01.2023. While dealing with this issue, the Coordinate Bench observed in para 21 that “At this stage, it is pertinent to mention here, that it is not all type of taxes that are not allowable as deduction under the Income Tax Act, but the question before us is of the allowability of interest on delayed payment income tax itself. Certain taxes such as sales tax, excise or custom duty etc. which go on to increase the purchase cost of the goods or raw material etc. are allowed as deduction under the income tax Act for arriving at the profits earned. Therefore, an interest paid on delayed payment of sales tax etc. being adding to the cost/purchase price or decreasing the profit margin on sales may be taken into account for computation of profit or to say computation of taxable income, but that concession is not available in respect of interest on Income tax. Hence, any case laws dealing with the levy of indirect taxes and interest thereupon are not applicable for the purpose of interpretation of the relevant provisions of the Income Tax Act.” The Coordinate Bench thus, held that the interest payment on delayed deposit of income tax whether TDS or otherwise is not an allowable expenditure. Considering the said decision, we uphold the disallowance of Rs.8,428/- and also uphold the relief granted for the balance claim. Accordingly, grounds taken in this respect are partly allowed.

16. In the result, appeal of the assessee for AY 2012-13 is allowed and appeal for AY 2013-14 is partly allowed.

Order is pronounced in the open court on 25th July, 2023.