Addition u/s. 68 unsustainable because the burden has been properly discharged by filing the necessary documentation
Fact and issue of the case
This appeal by Revenue is filed against the order of Learned Commissioner of Income Tax (Appeals)-9, New Delhi [“Ld. CIT(A)”, for short], dated 30/03/2015 for Assessment Year 2011-12 as well as the assessee has also filed Cross Objections. Grounds of appeal of the Revenue are as under:
The Ld. CIT(A) has erred in deleting addition of Rs.1,71,00,000/- made by AO on account of treating share application money from undisclosed sources u/s 68 of the I.T. Act, 1961.
The appellant craves leave for reserving the right to amend, modify, alter or add any ground(s) of appeal at any time before or during the hearing of this appeal.” Grounds in Cross Objection filed by the assessee. “ That on the facts of the case and under the law, Ld. CIT(A) had erred in sustaining the addition/disallowance of Rs. 6,95,086/- being the provision of Excise Duty on finished goods.”
Brief facts of the case are that, the assessee filed return of the Assessment Year 2011-12 declaring an income of Rs. 34,40,837/- and the same was processed u/s 143(1) of the Act. Subsequently, an assessment order came to be passed u/s 143(3) of the Act on 31/03/2014 by making an addition of Rs. 1,71,00,000/- on account of share application money/share capital, Rs. 6,95,086/- disallowance on account of provision of excise duty, disallowance on the set off of brought forward losses of Rs. 34,40,838/- and also made addition on account of service tax payable of Rs. 15,06,665/-.
As against the assessment order dated 31/03/2014, the assessee preferred an Appeal before the CIT(A). The Ld. CIT(A) partly allowed the Appeal, wherein sustained the addition/disallowance of Rs. 6,95,086/- being the provision of excise duty on finished goods and further deleted the addition of Rs. 1,71,00,000/- made by the A.O. on account of treating share application money from undisclosed sources u/s 68 of the Act. Aggrieved by the above deletion of Rs. 1,71,00,000/- by the CIT(A), the Department of Revenue preferred the present Appeal in ITA No. 5114/Del/2015 and as against sustaining the disallowance of Rs. 6,95,086/- being the provision of excise duty on finished goods, the assessee preferred the C.O. No. 63/Del/2018 on the grounds mentioned above.
The Ld. Departmental Representative vehemently submitted that the order of the CIT(A) in deleting the addition of Rs. 1,71,00,000/- is erroneous and deserves to be set aside. Further submitted that, on perusal of the balance sheet of contributors, there are no fixed assets and there are negligible office expenses, no P & L Account has been enclosed in the paper book by the assessee and there are very normal income reflected in most of the investors companies, as per the bank account of the contributors except in the case of Intelligence Clearing Agency Pvt. Ltd., in all other companies, there were deposit in the bank accounts which were immediately transferred out living a very low balance in the account on the given day, which proves that the bank account has been used only to proved the money and source of fund as per balance sheet of the contributors are share capital and the same have been applied in share/investments and there is no other activities conducted by the Companies, therefore submitted that the CIT(A) has committed grave error in allowing the Appeal.
Per contra, the Ld. Assessee’s Representative submitted that all the 17 entities’ proved the confirmation of the transaction and the assessee has produced copy of the ITR, PAN Applications, copy of the Bank Statements, Copy of the Financial Statement of the Investors. Thus, the assessee has duly discharged the burden casted upon him u/s 68 of the Act. The notice issued u/s 133(6) of the Act were duly complied wherever the notices were sent to the correct address. Therefore, relying on the order of the CIT(A) sought for dismissal of the Appeal filed by the Revenue.
Observation of the court
We have heard both the parties and perused the material available on record. In the present case, the addition was made on the ground that the provision made in P & L Account towards the excess duty which is relating to closing stock shown in the manufacturing, trading account. In our opinion, if this provision of excise duty was included in the value of the such finished stock shown in the manufacturing and trading account for the year ending 31/03/2011, consequently the said component of excise duty to be considered as provisions as claimed by the assessee. Both the parties before us have not able to demonstrate inclusion of excise duty in the value of impugned stock of finished goods. The A.O. ought to have verified the valuation of closing stock of finished goods to see whether the said excuse duty component was taken into consideration while valuing the finished goods of closing stock. If the said component of excise duty not include in closing stock of finished goods, then the assessee cannot make provision for excise duty in P & L Account which amount to artificial claiming of deductions, hence we remit this issue to the file of the A.O. to decide the same, in the light of above observation. Accordingly, the Ground of C.O of the assessee is partly allowed for statistical purpose.
In the result, the C.O. filed by the assessee is partly allowed for statistical purpose.
Order pronounced in open Court on 19th September, 2023
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
Read the full order from hereDCIT-Vs-Vrindavan-Tubes-Ltd-ITAT-Delhi-2