CIT(A) noted that the assessee had not claimed the said professional expenses in its profit & loss account and had capitalized the same under work in progress i.e. ‘Building under Construction’ in fixed assets schedule. The CIT(A) thus deleted the addition. We find merit in the order of the CIT(A) and uphold that the provisions of section 40(a)(ia) of the Act are attracted only if expenses are claimed in the profit & loss account and not when the same are capitalized.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal filed by aseeesee is against order of CIT(A)-2, New Delhi dated 31.08.2015 relating to assessment year 2011-12 against order passed under. section 143(3) of the Income Tax Act, 1961.
2. The Revenue has raised following grounds of appeal which read as under:
1. Whether the Ld. CIT (A) has erred on facts and in law in deleting the addition of Rs. 10,20,64,174/ – on account of amount credited in bank account of the assessee in excess of receipts as per books of account and also allowing the assessee appeal against the rejection of the books of accounts of the assessee.
2. Whether the Ld. CIT (A) has erred on facts and in law in deleting the addition of Rs. 23,02,705/ – made on account of difference in brokers’ account submitted by assessee and party wise gross receipts in assessee’s books of accounts.
3. Whether the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 2,76,200/ – made on account of non deduction of TDS on professional charges.
4. Whether the Ld. CIT(A) has erred on facts and in law in deleting the disallowance of Rs. 6,25,265/- made as per rule 8D (i) (ii) & (iii) r/ w/ s 14A of the Act.
3. The Revenue has also raised an additional ground of appeal which reads as under:-
1. The Ld. CIT(A) has erred in admitting additional evidences without affording any opportunity to the AO which is violation of Rules 46A.
4. Briefly in the facts of the case, the assessee had furnished return of income declaring income of Rs. 42,43,39,960/-. The case of the assessee was selected for scrutiny. The assessee was engaged in the business of equity trading, derivatives trading and in real estate investment. The AO noted from the perusal of bank statement that the amount credited into bank account of the assessee was Rs. 59,71,35,900/- whereas the receipts of the year amounted to Rs. 49,50,71,726/-. The AO also analyzed the withdrawals made by the AO and the share transactions entered into by the assessee with different brokers and added the difference of 10,20,64,174/- between the deposits in the bank and the receipts shown by the assessee and further added difference of Rs. 23,02,705/- i.e. the difference between the broker’s statement and the receipt shown in the books of accounts of the assessee. The AO on the basis of certain information was of the view that the assessee was not trading in shar4 but was only an entry operator hence addition of Rs. 10,43,66,879/- was made.
5. The next addition made in the hands of the assessee was on account of deemed dividend under ,section 2(22)(e) of the Act at Rs. 29,27,178/ -. The assessee had claimed ROC expenses of Rs.2,50,91/- for enhancing its authorized share capital. However, the same was disallowed. The AO also disallowed the deduction claimed on account of professional fee paid of Rs. 2,76,200/- for non deduction of tax at source. Another addition made in the hands of the assessee was the disallowance under section 14A of the Act at Rs. 6,25,265/-.
6. Before the CIT(A), the assessee furnished written submissions and the CIT(A) dealt with each of the issue. The first issue which was decided was the addition made after rejection of books of accounts. The CIT(A) from para 3.0 to 3.1.9 dealt with the aforesaid issue and was of the view that the rejection of books of accounts was not sustainable.
7. Coming to the consequent addition made of Rs. 10,20,64,174/- on account of alleged difference in receipts as per the bank account of the assessee and receipts as per its books of account. The contention of the assessee in this regard was noted vide para 4.1.3, which reads as under:-
|Credit entries appearing into bank along with narration||Amount deposited into Bank Account of the appellant||Capital Receipts and revenue receipts shown in B/ s and P&L A/c during the year against amount deposited into bank||Difference added by the assessing officer||Explanation on difference which is corroborated from the bank statement, etc.|
|10,000||10,000||Cash deposited in previous year on 25.11.2009|
|Capital Receipts shown in Balance sheet|
|Indo Gulf Diagnostics &
Research Centre Pvt. Ltd.
|77,600,000||69,650,000||7,950,000||Amount received as loan and shown in balance sheet under the head “Loans & advances”|
|Unibros Manufactu-ring Company Pvt. Ltd.||40,000,000||40,000,000||Rs. 40,000,000 – is refund of loan given to M/s Unibros
Manufacturing Company Pvt. Ltd. Of Rs 150,000,000 on 25.08.2010 shown under
Loans & advances.
|Roc Exp. (Company Secretary)||202,850||2,02,850||Contra Entiy on account of DD cancelled us shown in bank account on 09.08,2010|
|Equity (F&O) and commodity derivative (net)||Revenue from Trading in|
|Zaljog Commodities Trade Pvt. Ltd.||132,667,277||121,667,277||10,500,000||Rs. 10,500,000/- (Rs 50,00,000 + Rs 5,00,000) dated 05.07.2010 Contra entry as shown in bank statement on account of Cheque dishonored on
|Difference of amount appeared in bank account on account of cash deposit, contra entry, loan received back, loans & advances given duly accounted into books of accounts||58,662,850|
|Zaljog Commodities Trade Put. Ltd.||5,00,000||Rs 5,00,000/- paid as Margin money on 26.06.2010 by the appellant which is received
back and not considered as part of revenue or expense
|R. K. Commodities Services Put. Ltd.||189,994,543||189,494,543||500,000||Rs. 500,000 paid as Margin money on 05.07.2010 by the appellant which is received
back and not considered as part of revenue or expense
|Kumar Share Brokers Ltd.||14.000,000||13,593,195||5,00,000||Rs 500,000 paid as Margin. money on 12.07.2010 by the appellari which is received back and no considered as part of revenue or expense .|
|(89,246)||Rs 89,246 Debit closing balance as shown in Balance sheet under the head “Advance to Parties”.|
|(3,950)||Rs 3,950 other charges shown separately in Profit & loss account|
|Capital Wizard Stock
Broking Pvt. Ltd.
|Difference of amount received from Brokers with whom trading in Equity (F&O) and Commodity Derivative is done||14,06,805|
|Revenue from Real
|Supertech Limited||120,506,000||70,506,000||Rs. 50,000,000/-||Rs. 50,000,000/- given advance against booking to M/ s Supertech Limited hence, net revenue
considered in P&L A/c while total receipts shown in bank account
|Total Difference without considering interest accrued||110,069,655|
|Revenue from Interest
|Interest income not actually received into bank||8,005,480||(8,005,480)||Interest accrued on loan credited in Profit & loss account not
received in. bank
|Net difference added by the learned assessing
8. The CIT(A) further observed as under:-
4.1.6 In my considered view, addition made of Rs 10,20,64,174/ – on account of amount credited in bank account of the appellant in excess of receipts as per books of account is not sustainable in view of documentary evidences already available on record to substantiate the said difference. The AO has failed to make any sincere effort regarding the same and made addition only on the basis of doubt, suspicion, conjecture or surmises without affording proper opportunity of being heard to the appellant which is in violation of principles of natural justice. Hence, considering the entire facts and circumstances of the case of the appellant, addition made by AO is liable to be deleted.
9. The learned DR for the Revenue has failed to controvert the findings of CIT(A) in this regard. We find no merit in the issue raised vide ground of appeal no. 1. Before parting, we may also point out that no additional evidence was produced before the CIT(A) and hence there is no merit in the additional ground of appeal raised by the Revenue.
10. Now coming to next issue i.e. against addition of Rs. 23,02,705/-made on account of alleged difference in brokers’ accounts and party wise gross receipts submitted by.the appellant. The assessee duly explained the said difference and the tabulated details read as under:-
|Name of Party||As per Accounts of Broker submitted by Assessee||As per Party – wise detail of Gross receipts(net off loss before deducting STT)||Difference income not disclosed||Explanation /Remarks|
|R,K. Commodities Services Pvt. Ltd.||19,00,94,585
(Correct Fig Rs. 19,01,50,957 gross receipts)
|18,94,94,592||5,99,993 Actually Rs 6,56,365||6,56,365 = (5,00,000 paid as Margin Money and not a part of gross consideration + 1,56,365 Loss not considered by AO)|
|Zaljog Comniodities Trade Pvt. Ltd.||12,22,67,276 (Correct Fig Rs 12,21,67,276 net of loss)||12,16,67,276||6,00,000 (Actually Rs 5,00,000)||Rs 5,00,000 paid as Margin Money and not a part of gross consideration|
|Kumar Share Brokers Ltd.||1,41,47,171 (Correct Fig Rs 1,44,16,594 gross receipts)||1,39,16,593||2,30,578 A dually Rs 5,00,000)||Rs 5,00,000 paid as Margin Money and not a part of gross consideration|
|Capital Wizard Stock Broking Pvt. Ltd,||2,36,55,328 (net of loss and SIT)||2,27,83,194||8,72,134||Rs 8,72,134 = (Rs 15,00,000 contra entry on account of DD cancelled as shown in ledger account of M/ s Capital Wizard less Rs 6,27,867 STT not deducted in gross receipts by appellant)|
11. The CIT(A) deleted the said addition made by the AO observing that the said difference in party wise detail and brokers’ account is due to Margin Money and STT. In view of the findings of the CIT(A) with regard to the aforesaid addition, we find no merit in the grounds of appeal no. 2 raised by the Revenue and the same is dismissed.
12. Now coming to the ,next issue of the deletion of addition of Rs. 2,76,200/-, the CIT(A) noted that the assessee had not claimed the said professional expenses in its profit & loss account and had capitalized the same under work in progress i.e. “Building under Construction” in fixed assets schedule. The CIT(A) thus deleted the addition. We find merit in the order of the CIT(A) and uphold that the provisions of section 40(a)(ia) of the Act are attracted only if expenses are claimed in the profit & loss account and not when the same are capitalized.
13. The last addition made in the hands of the assessee was on account of disallowance made under section 14A r.w.r. 8D. The CIT(A) noted that the assessee had made investment only in share application money of Rs. 2.69 Crores as on 31.03.2011 and hence there was no merit in invoking the provisions of section 14A of the Act. We uphold the order of CIT(A) in this regard and dismiss the ground of appeal no. 3 raised by the Revenue.
14. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 27th April, 2020.