Spandan Tradecom Private Limited Vs ITO (ITAT Kolkata)- The treatment of an investment as bogus is not justified by improper accounting or misclassification
Fact and issue of the case
This appeal filed by the assessee pertaining to the Assessment Year (in short ‘AY’) 2016-17 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the ‘Act’) by ld. Commissioner of Income-tax (Appeals)-NFAC, Delhi [in short ld. ‘CIT(A)’] dated 05.06.2023 arising out of the assessment order framed u/s 143(3) of the Act dated 28.12.2018.
The assessee is in appeal before the Tribunal raising the following grounds:
In the facts and circumstances of the case the learned CIT(A) erred in passing the order without giving the opportunity of hearing to the assessee.
In the facts and circumstances of the case the learned CIT(A) erred in confirming the addition of Rs. 10,50,000/- made by the Learned Assessing Officer by alleging that the investment of Rs. 10,50,000/-shown in M/s Kothari Containers Pvt Ltd is bogus investment which was actually assessee’s investment in shares with M/s Kothari Containers Pvt Ltd and wrongly classified under the head ‘loans and advances’.
In the facts and circumstances of the case the learned Assessing Officer as well as the CIT(A) erred in not considering the fact mentioned in reply received in response to notice u/s 133(6) by M/s Kothari Containers Pvt Ltd.
In the facts and circumstances of the case the learned CIT(A) erred in not considering the facts submitted by the assessee along with form no. 35 in the statement of facts.
The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing.”
At the outset, ld. Counsel for the assessee did not press ground no. 1 hence, dismissed as not pressed.
ground nos. 4 & 5 are general in nature which needs no adjudication.
The only effective issue raised in ground nos. 2 & 3 is against the addition of Rs. 10.50 Lakh made by the Assessing Officer (in short ld. ‘AO’) for the alleged investment in shares of M/s. Kothari Containers Pvt. Ltd. holding it as bogus and action of ld. AO confirmed by ld. CIT(A). The facts in brief are that assessee is a private limited company. Income of Rs. 66,510/- declared in the e-return for AY 2016-17 filed on 31.03.2017. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. The assessee’s main source of income is trading and investment. While carrying out complete scrutiny, ld. AO noticed that sum of Rs. 10.50 Lakh is appearing in the name of M/s. Kothari Containers Pvt. Ltd. on the asset side of the balance sheet. Ld. AO enquired the correctness of the said sum from M/s. Kothari Containers Pvt. Ltd. who stated that it has issued 35,000 equity shares for Rs. 15 Lakh on 31.03.2012. Based on this submission, ld. AO came to a conclusion that the investment of Rs. 10.50 Lakh is a bogus investment and made the addition thereof. The assessee failed to get any relief before ld. CIT(A). Aggrieved, the assessee is now in appeal before this Tribunal.
Ld. Counsel for the assessee submitted that investment was made in the equity shares of M/s. Kothari Containers Pvt. Ltd. in preceding years but it was wrongly shown under the head ‘loans & advances’. Further during the year under consideration, the assessee sold the equity shares at Rs. 4.50 Lakh and incurred a capital loss of Rs. 10.50 Lakh but failed to recognize the same as capital loss in the books as a result of which Rs. 10.50 Lakh was appearing in the balance sheet. He further, submitted that it is not a case of bogus investment. Therefore, no addition is called for.
On the other hand, ld. D/R vehemently argued supporting the orders of both the lower authorities.
Observation of the court
We have heard rival contentions and perused the records placed before us. Addition of bogus investment of Rs. 10.50 Lakh has been challenged by the assessee before us. We observe that the assessee earns income from trading and investment. It invested Rs. 15 Lakh in the equity shares of M/s. Kothari Containers Pvt. Ltd. This was actually investment but it is disclosed under the head ‘loans & advances’. This error is claimed to have been occurred at the end of the person who prepared the financial statement and it is a case of wrong grouping. Further, it is brought to our notice that the investments in the equity shares of M/s. Kothari Containers Pvt. Ltd. were sold in the past for consideration of Rs. 4.50 Lakh. As per the correct accounting system the capital loss of Rs. 10.50 Lakh [Cost Rs. 15 lakh (-) sale Rs. 4.50 Lakh] should have been carried to the profit and loss account and the account of M/s. Kothari Containers Pvt. Ltd. would have become NIL. But, as per the details filed before us, we notice that the assessee did not transfer the capital loss from M/s. Kothari Containers Pvt. Ltd. account to the loss in share trading account and as a result, Rs. 10.50 Lakh was standing as a balance in the name of M/s. Kothari Containers Pvt. Ltd.
After perusing of all the details and considering the facts placed before us, we notice that it is not a case of bogus investment but it is a case where proper accounting under correct group heading has not been done which has thus, given rise to the issue in question before us. Therefore, since the investment of Rs. 15 Lakh was made during FY 2011-12 and during FY 2014-15 (AY 2015-16) that investment has been sold and the remaining amount of capital loss of Rs. 10.50 Lakh not transferred to capital loss account, remained as a balance amount in the account of M/s. Kothari Containers Pvt. Ltd. and brought forward from the preceding year has been wrongly considered as bogus investment by both the lower authorities. We thus, set aside the finding of ld. CIT(A) and delete the addition of Rs. 10.50 Lakh and allow ground nos. 2 & 3 raised by the assessee.
In the result, the appeal filed by the assessee is partly allowed. Kolkata, the 18th September, 2023