Assessee is not responsible for wrong certificate issued by other party

IN THE INCOME TAX APPELLATE TRIBUNAL

(DELHI BENCH “B” New Delhi)

BEFORE SHRI R. P. TOLANI: JUDICIAL MEMBER

And

SHRI B.C. MEENA: ACCOUNTANT MEMBER

ITA No.3402 /Del/ 2010

(Assessment Year: 2005-06)

Income-tax Officer,

Ward-3(2), New Delhi.

PAN: AABCC7720P

(Appellant)

Vs.

 M/s CNR Leading Softek (P) Ltd.,

26/1, Gali No. 13, Shahdara, Delhi.

 (Respondent)

Appellant By: Ms. Archana S. Awasthi Sr. DR

Respondent By: Shri Raj Kumar CA & Sh. Sumit Goel CA

ORDER

PER R. P. TOLANI, J.M:

This is revenue’s appeal against CIT(A)’s order dated 29-4-2010 relating to assessment year 2005-06. Following grounds are raised:

“1) The Ld. CIT(A) has erred on facts and in law and on facts in deleting addition of Rs. 1,93,660/- on account of difference in cash deposit in bank account and cash sales, ignoring the cash deposits in bank account exceeded cash sales and the assessee offered no explanation for the same during the course of assessing proceedings.

2. The Ld. CIT(A) has erred on facts and in law and on facts in deleting addition of Rs. 4,48,000/- (actual figure Rs. 4,80,000/-) on account of unexplained share application money, ignoring that the assessee failed to prove the sources of the same during the course of assessment proceedings.

3. The Ld. CIT(A) has erred on facts and in law and on facts in deleting addition of Rs. 6,00,000/- on account of credits from M/s Integra Telecommunication & Software Ltd. (ITSL), ignoring that the copy of account of the assessee in the books of account of ITSL does not match with the confirmation filed by the assessee.

4. The Ld. CIT(A) has erred on facts and in law and on facts in deleting addition of Rs. 73,000/- on account of interest accrued but not declared as income, ignoring that the assessee failed to submit any reply during the course of assessment proceedings on a specific show cause on this issue.

5. The Ld. CIT(A) has erred on facts and in law and on facts in deleting addition of Rs. 4,76,000/- on account of amount received from M/s Global Info System Ltd. for the sale of non-existing fixed assets, ignoring that the assessee failed to submit any reply during the course of assessment proceedings on the specific show cause on this issue.

6. The Ld. CIT(A) has erred on facts and in law and on facts in deleting addition of Rs. 4,06,000/- on account of unexplained cash credits received from M/s Global Info System Ltd., ignoring that the assessee failed to submit any reply during the course of assessment proceedings on the specific show cause on this issue.

7. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”

2. Ld. DR relied on the order of assessing officer and contends that the assessee did not produce sufficient documents before the assessing officer. Though the assessing officer gave the assessee adequate opportunities to file necessary documents, the assessee did not avail the same and the additions were made by assessing officer. CIT(A) admitted the additional evidence and rightly called for the remand report from the assessing officer. The assessing officer pointed out that necessary hearings were granted to the assessee and objected to admission of additional evidence. Assessing officer ought to have been given one more opportunity to comment on the merits of the additional evidence. Thus, the order of assessing officer is relied on and it is pleaded that CIT(A) gave the relief without proper justification. Alternatively it is urged that matter may be set aside to assessing officer.

3. Ld. counsel for the assessee on the other hand contends that revenue has not raised any ground challenging the admission of additional evidence by CIT(A). Besides additional evidence was sent by CIT(A) to the assessing officer to examine the same and submit his comments thereon in the remand report. Assessing officer however chose not to offer comments for which assessee should not be penalized to face another round of proceedings.

Therefore, no justification in issues being raised by revenue in this behalf or to set aside the matter.

3.1. Apropos the first ground of the revenue it is pleaded that the assessee maintains regular books of account and all the deposits in the bank and withdrawals from the bank are duly incorporated in the books. Assessing officer on suspicion made the addition holding that the total cash deposits in the bank were to the tune of Rs. 12,12,160/- as against the sale of software in cash amounted to Rs. 10,28,500/-. The assessee filed a proper reconciliation and cash flow statement and demonstrated that apart from the receipt of software sales, there were other receipts also. The same have been recorded in the books of a/c and thus the cash deposits in bank came out from the cash in hand available in the books only. CIT(A) after duly verifying these facts and books of a/c has properly deleted the addition by following observations:

3.2. Revenue’s ground no. 2(iii) is against addition of 6 lacs on account of credits appearing in the account of M/s Integra Telecommunication & Software Ltd. (ITSL) The AO has added this amount vide his observations in para 2 at page 2·3 of the impugned assessment order. According to the AO, copy of account of Integra Telecommunication & Software Ltd. Does not match with the confirmation of M/s Integra Telecommunication & Software Ltd. submitted by the assessee which raises serious doubts about the genuineness of the transactions entered by the assessee with M/s Integra Telecommunication & Software Ltd. The AO further observed that the assessee was asked to show cause why addition of Rs. 10 Lacs be not made on account of credits appearing in the account of, M/s Integra Telecommunication & Software Ltd. for which no satisfactory explanation had been filed, the AO added Rs. 6 Lacs as also added Rs. 4 Lacs on account of share application money separately.

3.3. Ld. Counsel contends that copy of account of M/s Integra Telecommunication & Software Ltd. appearing in the account books of the appellant placed at P.B. shows brought forward opening debit balance of Rs. 1,07,000/-. The assessee had further debited an amount of Rs. 4,09,000/- on account 'of ,29,500 shares of Panka Gas Cylinder and 11,400 shares of Moza Paints Pvt. Ltd. sold by it to ITSL besides further debit of Rs. 55,400/- being the sale of fixed assets to ITSL aggregating at Rs. 5,16,000/-. It was against the amount due from ITSL that the assessee had received Rs. 5 Lacs by account payee cheque No. 128813 on 12/10/04 and Rs. 1 Lac by account payee cheque No. 128812 on 12/10/04. Therefore, the observations of the AO made In the assessment order are factually Incorrect and untenable. Further M/s Integra Telecommunication & Software Ltd. had issued copy of appellant's account in their books copy placed at P.B. which was duly filed before the AO which also reveals that that ITSL had debited the account of the appellant with Rs. 1 Lac and Rs. 9 Lacs on 12/10/04 against which they had confirmed the opening balance of Rs. 1,07,000/-share purchased at Rs. 4,09,000/- and Rs. 55,400 for computers, printers and fixtures purchased and Rs.' 4 Lacs towards the share application money paid. ITSL PA No. is AAAC19473Q. CIT(A) after due verification of accounts and explanation, deleted the addition.

3.4. Revenue’s ground No. 2(ii) is against the addition of Rs. 4,48,000/- (in fact the figure is. Rs. 4,80,000/- on account of share application money which has been discussed by the AO in para 3 at page 3-4 of the Impugned assessment order.

3.5. According to the AO, the appellant had not submitted any evidence like bank statement or copy of Income-tax return of both share subscribers except submitting confirmations from ITSL and other parties and also did not produce the concerned persons and consequently, according to him onus which lay on the assessee had not been discharged, against which submissions of the assessee are:

a) M/s Integra Telecommunication & Software Ltd., C-133; 111 Floor, Saket, New Delhi had deposited share application money of Rs. 4 Lacs which was embedded In account payee cheque No. 128813 dated 12//10/04 for Rs. 9 Lacs deposited In assessee's bank account copy which is placed at P.B. on lDBI Bank which was received from them by the appellant towards purchase of shares and fixed assets. Before the AO, the appellant had filed letter dated 1/11/07 received by the appellant from M/s Integra Telecommunication & Software Ltd. Along with their bank statement which clearly shows debit of Rs. 9 Lacs in their bank account on 12/10/04. Copy of account of the appellant in the books of Integra Telecommunication & Software Ltd. was also filed before the AO and CIT(A) giving therein identity details and PAN No. AAACI9473Q.

The above documentary evidence is on the file of the AO, therefore, the observations of the AO to the contrary are factually incorrect. A copy of account of Integra Telecommunication & Software Ltd. in the books of the assessee was also filed before the ASSESSING OFFICER. All these documentary evidence demonstrate that the account of Integra Telecommunication & Software Ltd. was an old account with an opening balance of Rs. 1,07,000/-. The appellant had sold shares worth Rs. 4,09,000/- to M/s Integra Telecommunication & Software Ltd. which were debited to their account. The appellant further received a cheque for RI. 9' Lacs as mentioned above out of which Rs. 5 Lacs were credited to their account in assessee's books on 12/10/04 and Rs. 4 Lacs had been credited to share application money account, against which 20,000 Equity shares of Rs. 10 each at a premium of Rs. 10/- per Share for Rs. 4,00,000/- were allotted for which Information was duly sent to the ROC. Copy of Form No. 2 Intimating the allotment of shares against the share application money filed by the appellant before the Ministry of Company Affairs.

b) Rs. 40,000/- from Sh. Narender Kumar, W-252, Chander Shekhar Azad Gali, Main Babarpur Road, Shahdara. Copy of confirmatory letter as filed before the AO is placed at page 34 which clearly mentions his PA No. ACCPS9711 Q. He is being assessed to tax for the last several years, copies of receipt evidencing filing of return computation of his income for the assessment years 2003-04, 2004-05 & 2005-06 along with statement of Affairs as at 31/03/2005 are placed at P.B. It was out of his savings, that he had deposited Rs, 40,000/-· towards the share application money. The amount was later refunded to him on 01/10/2005 by account payee cheque No. 958171 as he was not interested, which stands credited in his bank account at page 41 of the paper book.

c) Rs. 40,000/- from Sh. Mool Chand, 29/10A Main Babarpur Road, Shahdara. Copy of confirmatory letter as filed before the AO mentioning his PA No. AAEPC5370P, being assessed to tax for the last several years, copies of receipt evidencing filing of return computation of his income for the assessment years 2003-04, 2004-05 & 2005-06 along with ' statement of Affairs as at 31/03/2005 are on record. It was out of his savings, that he had deposited Rs. 40,000/· towards the share application money. The amount was refunded to him on 01/10/2005 by account payee cheque No. 958170 as he did not want the shares, 'which stands credited in his bank account as is evident account statement.

3.6. Ld. Counsel contends that it is well settled proposition of law that in the case of share application 'money, the appellant has to prove the identity of the subscribers coupled with the fact that they are admitted to have advanced such amount. Both the conditions stand \ satisfied in the case of the appellant in view of the submissions and the documentary 'evidence mentioned above. Following case law is relied upon. Thus, the assessee duly explained and reconciled the position vis a vis share application money and alleged difference in account in the case of ITSL. CIT(A) after due verification of all parameters has rightly deleted the addition.

3.7. Apropos ground no. 5 in respect of M/s Global Info System Ltd. (“GISL”), both the parties agree that the correct figure is Rs. 8,06,000/- (not Rs. 4,06,000/- as mentioned in revenue’s ground). Ld. Counsel for the assessee contends that the assessing officer made the addition by following observations:

“a) Copy of the account of M/s Global Info system Ltd. In the books of the appellant as filed before the AO is placed at page 51 which shows that there was debit balance of Rs. 9,26,000/- as on 18/09/04 and it was against such amount that the appellant had received cheque of Rs. 4,50,000/- and Rs. 4,76,000/- on 12/10/04. It was through oversight that against the credit of Rs. 4,76,000/-, the words "sale of fixed assets" was written by the appellant. This position could not be cleared before the AO. in view of the submissions made above with regard to various dates of hearing. This fact has now been clarified in the Affidavit of Shri Pawan Kumar Singhal.”

3.8. It is pleaded that this amount being on running account, is verifiable from the accounts of GISL and the closing balance. Thus, the addition was made purely due to an inadvertent mistake of the accountant of the assessee. Instead of word ‘deposit’ , by mistake the word “sale of fixed asset” has been mentioned in account only and not even in P&L a/c. A mistaken description due to over sight cannot be held to tax the assessee, more so when the actual is demonstrated by the assessee. Reliance is placed on Kedarnath Jute Mfg. Co. Ltd. Vs. CIT 82 ITR 363 (SC).

3.6. Apropos ground no. 6, the ld. Counsel for the assessee contends that the assessing officer made the addition by following observations:

"The Bank statement of the assessee clearly indicates that on 18.9.04, the assessee company has received cheque of Rs. 8,06,000/- in the Bank account # 206010200000435 with Axis bank from M/s Global Info System Ltd. but the copy of the confirmation submitted by the assessee from M/s Global Info System does not reflect any such credit form M/s Global Info System Ltd. Since the assessee failed to controvert the stand taken in show cause notice issued to the assessee. The assessee has also failed to substantiate the details which the assessee had itself filed. In view of above it in clear that the evidence submitted by the assessee does not support the claim of assessee & thus remained unexplained & hence Rs. 8,06,000/- is added to the income of the assessee. "

3.7. It has been amply demonstrated by the assessee that it received the following amounts by a/c payee cheques:

“a) Rs. 4,07,000/- vide cheque no. 000671 received from M/s Global Info System Ltd. Which was duly credited to their account in assessee’s books kindly see page 51.

b) Rs. 3,99,000/- received by account payee cheque no. 001607 received from TSR Financial Services Pvt. Ltd. Which also was duly credited to their account by the appellant in its account books as is evident from the copy of account placed at P.B.

The total of these two amounts comes to Rs. 8,06,000/-.

As both the cheques had been debited by the appellant in its bank account on the same day place at page 55, the bank in the statement issued mentioned the first name of M/s Global Info System Ltd. Only. Apart from the entries made in the account books of the appellant coupled with the entries made in the respective account of both the parties.

Copy of confirmation of TSR Financial Services (P) Ltd. Along with copy of bank statement showing the cheque no. 1607 dated 18/09/04 debited in their bank statement Rs. 3,99,000/-, placed on P.B. supports the claim of the assessee.

4. We have heard rival contentions and perused the material available on record. Revenue is not in appeal before us on the admission of additional evidence, besides CIT(A) called for remand report from assessing officer who chose not to submit his comments. In view of these facts and circumstances, we are unable to accede to the request of the ld. DR that the matter should be set aside.

4.1. Apropos ground no. 1, the addition was made by the assessing officer observing that the assessee’s sale proceeds in cash from software are less than the cash deposits in bank for which the assessee ahs given satisfactory explanation about there being other receipts which are duly incorporated in

the account books. In view of these facts we see no infirmity in the order of CIT(A) on this issue. This ground of the revenue is dismissed.

4.2. Apropos ground no. 2, i.e. addition on account of share application money, the major share applicant is ITSL who has contributed Rs. 4 lacs, which also find mention in ground no. 3 in respect of credit of Rs. 6 lacs. It is noteworthy that ITSL is not new to the assessee and had financial transactions with the assessee in earlier years also which is evident from the fact that a sum of Rs. 1,07,000/- appears as opening debit balance in the books of the assessee qua ITSL. The assessing officer made the addition on the ground that assessee furnished two confirmations – one for Rs. 10 lacs and other for Rs. 9 lacs and therefore both were disbelieved. In our considered view, if there is a difference in the confirmations, at least the  lower figure thereof should be accepted and both of the confirmations cannot be disregarded more so when the transactions are entered into by cheques. Besides, ld. Counsel contends that there is no difference of Rs. 1 lac as alleged by the assessing officer which is properly reconciled . It is pleaded that the confirmation from ITSL was filed indicating its PAN number, shares were duly issued against the application money. Assessee along with these documents had filed a bank statement showing debit balance of Rs. 9 lacs in the a/c of ITSL. Copy of account of the assessee in the books of ITSL and copy of assessee’s bank account showing deposit of Rs. 9 lacs. All these documents were placed before lower authorities and form part of the paper book. Reliance is placed on Hon’ble Delhi High Court judgment in the case of Oasis Textiles 333 ITR 119 for the proposition that by filing of these documents assessee has discharged its onus approving the ingredients of sec. 68. The ITSL is not a new party or a creditor but a known party, whose financial transactions in past have been accepted by the department. Prior to issue of the shares of the assessee company, assessee had sold another shares of Rs. 4,09,000/- to ITSL. This has not been doubted by the department. Thus, when the department itself, on earlier occasion, has accepted the identity and existence of the party, primary onus to prove creditworthiness to purchase shares of Rs. 4,09,000 is discharged. We see no justification in assuming that ITSL was not a genuine party and does not have capacity. Assessee has duly demonstrated that an amount of Rs. 4 lacs was credited to share application money account and Rs. 5 lacs were credited to ITSL other running account. The allotment of shares has been duly intimated by the assessee to ROC. In view of these facts, relying on the judgment of Delhi High Court in the case of Oasis Hospitality (supra), we are of the view that the assessee has discharged its onus approving the share application money u/s 68. The addition is deleted.

4.3. Coming to remaining two minor share applications in respect of Davendra Kumar and Mool Chand, assessee has filed their confirmatory letters along with PAN numbers. This is further supported by the returns of past several years and statement of affairs. We are of the view that assessee has discharged its initial burden in terms of sec. 68 in respect of identity, creditworthiness and genuineness for these two share applicants who deposited Rs. 40,000/- each. In view thereof, we uphold the order of CIT(A) deleting this addition. Thus, ground no. 2 of the revenue’s appeal is dismissed.

4.4. Coming to ground no. 3 in respect of balance credit of Rs. 6 lacs in account of ITSL, we have already held that the identity and creditworthiness of this party is established, transactions are through bank a/c. The assessee has received an amount of Rs. 5 lacs by a/c payee cheque no. 128813 dated 12-10-2004 and Rs. 1 lac by a/c payee cheque no. 128812 on 12-10-2004. the debit of these amounts is reflected in ITSL a/c and credited in the assessee’s bank account. Copy of reciprocal accounts are also on the record. Under these circumstances we see no infirmity in the order of CIT(A) deleting the addition. This ground of the revenue is also dismissed.

4.5. Apropos ground no. 4, the addition has been made for a notional income of interest. In our considered view there is no enabling provision by which notional income can be added in the hands of the assessee. It is undisputed that assessee neither charged interest from this party nor showed it on accrual basis in the books of a/c. The assessee has not paid any interest on borrowed capital, therefore, there is no interest expenditure also. Thus, it is not a case of diversion of interest bearing funds as the advance to GISL is out of the interest free funds available at the disposal of the assessee. In view of these facts there is no enabling provision to add notional interest and on assumption the amount cannot be added as there is no interest payment by the assessee. This ground of the revenue is dismissed.

4.6. Apropos ground no. 5, on the allegation that the assessee has sold non-existing fixed assets, the fact of the matter is that the assessee received amounts of Rs. 4,50,000/- and Rs. 4,76,000/- by two cheques on 12-10- 2004. It is claimed that due to inadvertent mistake of the assessee the amount of Rs. 4,76,000/- instead of crediting to GISL a/c was wrongly credited to sale of assessee’s account. This entry was subsequently corrected in books and the amount was duly credited to GISL’s running account. The assessee has filed affidavit also in this behalf, which is not controverted. Since the assessee has demonstrated it to be an inadvertent mistake, merely an accounting entry which is subsequently corrected and explained cannot fasten the assessee with tax liability by assuming it to be an income whereas in realty the amount was by way of advance/ deposit. A mistaken entry cannot convert a receipt on account of deposit loan or advance as income of the assessee. Reliance placed on Kedarnath Jute Mills (supra), by assessee, is well placed. In view thereof we upholding the finding of CIT(A) deleting this addition.

4.7. That leaves us with last ground I respect of Rs. 8,06,000/- from GISL as unexplained cash credit. Ld. Counsel for the assessee has demonstrated that this confusion was created by assessee depositing two cheques by one paying slip into Axis Bank by which the cheque of Rs. 4,07,000/- received from GISL and cheque of Rs. 3,99,000/- received from TSR Financial services were deposited in Axis Bank which issued a transaction slip mistakenly writing it to be from Global Infosis. Thereafter assessee approached the Axis Bank which issued a revised transaction slip correcting the mistake, which is placed on paper book at page no. 43 in which amount of Rs. 8,06,000/- is shown to have been collected from Global Infosys and TSR Financial. Thus assessee’s explanation has been corroborated by the banks revised certificate.

4.8. Ld. counsel for the assessee has made reference to the accounts of Global Infosys and TSR Financial in which the respective amounts of Rs. 4,07,000/- and Rs. 3,99,000/- have been credited. The assessing officer made the addition only relying on the mistaken certificate issued by Axis bank ignoring the proper explanation of the assessee which has been duly demonstrated and explained by the assessee. Based thereon and verification CIT(A) has deleted this addition, therefore, we find no infirmity in his order which is upheld. This ground of the revenue is dismissed.

4.9. Ground no. 7 is general in nature requiring no adjudication.

5. In the result, Revenue’s appeal is dismissed.

Order pronounced in open court on 03 /05/ 2013.

Sd/- Sd/-

(B.C. MEENA ) (R.P. TOLANI)

ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated the 3rd day of May, 2013

*MP*

Copy forwarded to

1. APPELLANT

2. RESPONDENT

3. CIT

4. CIT (A)

5. CIT (ITAT),

New Delhi.