Kundali Jewels (India) Pvt. Ltd. Vs ITO 12 (3)(1) (ITAT Mumbai)
Summary: The Mumbai ITAT considered cross-appeals arising from the assessment of Kundali Jewels (India) Pvt. Ltd. for AY 2012-13. In the assessee’s appeal, the challenge to reopening under section 148 was dismissed as not pressed. The Tribunal restored the disallowance of advertisement expenditure of ₹10,36,872 under section 40(a)(ia) to the Assessing Officer for limited verification of whether the respective payees had filed their returns, included the receipts in their income and paid the applicable tax. It accepted that the second proviso to section 40(a)(ia), read with section 201(1), applied retrospectively and that the disallowance would not survive to the extent the prescribed conditions were satisfied. The disallowance of other expenditure of ₹11,78,074 was also restored for examination of the supporting evidence, particularly because some bills were issued in the assessee’s earlier name. The connected claim for depreciation under section 32 on expenditure treated as capital was likewise remanded for verification. In the Revenue’s appeal, the Tribunal upheld deletion of the ₹4 crore addition under section 68 relating to share application money. The assessee had furnished the applicants’ PANs, addresses, board resolutions, bank statements, income-tax return acknowledgements and audited financial statements. These documents supported the identity and creditworthiness of the subscribers and genuineness of the transactions. The AO neither discredited the evidence through sufficient contrary material nor issued notices under section 133(6) to the subscribers before treating the share capital as unexplained. The Tribunal also noted that the proviso to section 68 requiring proof of source of source applied from AY 2013-14 and not to the impugned AY 2012-13. It consequently affirmed the CIT(A)’s deletion of the addition. Regarding alleged bogus purchases, the Tribunal upheld the CIT(A)’s restriction of the addition to 5% instead of 100%. Although invoices, ledger accounts and banking records could not be rejected summarily, the assessee had failed to produce transport receipts or suppliers to establish delivery. Considering the diamond trade, the assessee’s gross-profit position and the peculiar facts, estimation of the profit element at 5% was sustained. The assessee’s appeal was partly allowed, while the Revenue’s appeal was dismissed.
