POWER DRUGS LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This appeal has been preferred by the assessee under section 260A of the Income-tax Act, 1961 (in short ''the Act'') against the order dated 22-10-2010 passed by the Income-tax Appellate Tribunal, Chandigarh Bench A, Chandigarh (hereinafter referred to as ''the Tribunal'') in ITA No. 706/Chd./2009, relating to the assessment year 2005-06, claiming the following substantial questions of law:-

(2.) Briefly stated, the facts necessary for adjudication as narrated in the appeal are that the assessee filed its return for the assessment year 2005-06 on 31-10-2005 declaring an income of Rs. 34,58,867 which was reduced to nil by adjusting brought forward losses of the earlier years. The return of the assessee was processed under section 143(1) of the Act on 6-3-2006 and demand of Rs. 9900 was raised on account of interest under sections 234B and 234C of the Act. The case of the assessee was selected under compulsory scrutiny as per CBDTs guidelines by issuing statutory notice under section 143(2) of the Act on 31-5-2006. During the year in question, the assessee had received Rs. 42,78,756 as share application money through private persons. During enquiry, the assessee furnished the names of persons, their addresses and share application forms which had the signatures or thumb impressions. The Assessing Officer held that the assessee had failed to discharge primary onus to establish the identity, creditworthiness and genuineness of the transactions. Further, during the year in question, the assessee had advanced Rs. 25 lakhs each to Mr. Ashok Anand and Mrs. Raj Rani Anand. The Assessing Officer while relying upon the judgment of this Court in CIT v. Abhishek Industries Ltd., 2006 286 ITR 1, held that the interest relatable to advances of such amount was disallowable. The reliance was also placed on section 36(1)(iii) of the Act. Accordingly, the Assessing Officer vide order dated 28-12-2007 disallowed a sum of Rs. 6 lakhs on this account. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) (in short ''the CIT(A)''). The CIT (A) vide order dated 23-4-2009 held that the assessee had not discharged his primary onus of establishing identity, creditworthiness and genuineness of transaction under section 68 of the Act. Further, the CIT(A) held that the proviso to section 36(1)(iii) was applicable and no allowance could be given till such asset had been put to use. Still feeling dissatisfied, the assessee approached the Tribunal. The Tribunal vide order dated 22-10-2010 rejected both the grounds of the assessee which gave rise to the assessee to approach this Court by way of instant appeal.

(3.) We have heard learned counsel for the appellant.