2007 (8) TMI 715 - AT - Income Tax

Tribunal partially favors assessee on addition under section 68. Remands deduction issue under section 80-IA for fresh examination.

The Tribunal allowed the appeal partly, favoring the assessee on the issue of addition under section 68, as the assessee successfully proved the identity, ... - Issues Involved:1. Sustenance of addition under section 68 of the Income-tax Act.2. Reduction of deduction claimed under section 80-IA.3. Charging of additional interest under section 234B.Detailed Analysis:Issue 1: Sustenance of Addition under Section 68The assessee filed an appeal against the addition of Rs. 9.22 crores made under section 68 by the Assessing Officer (AO). The AO found that the assessee received share application money and share premium from Milli Marketing Pvt. Ltd. during the assessment year 2003-04. A search operation revealed that Mr. P.K. Ruia floated companies to provide entries to beneficiaries after receiving cash from them. The AO suspected the genuineness of the transactions and concluded that the share application money was undisclosed income.The AO's inferences were based on several observations, including the lack of real income for Milli Marketing, inability to provide details of godowns/warehouses, and absence of stock registers. The AO issued a commission under section 13(1)(d) and sent notices under section 133(6) to verify the transactions, but the responses were unsatisfactory.The assessee contended that it had provided sufficient documentary evidence to prove the identity, creditworthiness, and genuineness of the transactions, including confirmations from Milli Marketing and Vivek Leafin Pvt. Ltd., bank statements, and IT details. The CIT(A) upheld the AO's findings, leading to the appeal before the Tribunal.The Tribunal found that the assessee had discharged its burden by providing sufficient documentary evidence, including balance sheets, confirmatory certificates, bank statements, and details of share application money. The Tribunal noted that the department failed to provide any tangible evidence to contradict the assessee's claims. The Tribunal referred to various case laws, including Divine Leasing & Finance Ltd., which laid down guidelines for proving cash credits under section 68. The Tribunal concluded that the assessee had proved the identity, creditworthiness, and genuineness of the transactions and allowed the appeal in favor of the assessee.Issue 2: Reduction of Deduction Claimed under Section 80-IAThe assessee challenged the reduction of deduction under section 80-IA by Rs. 93,71,110, arguing that the AO wrongly excluded interest received and hire charges from the business income. The CIT(A) upheld the AO's decision, relying on the Supreme Court's decision in Pandian Chemicals Ltd.The Tribunal considered the assessee's reliance on ITAT decisions in DLF Power Ltd. and Bharat Rasayan Ltd., which distinguished the language used in section 80-IA from sections 80HH and 80-I. The Tribunal found that the entire relevant material had not been properly examined to establish the nexus between the business activity and the income. The Tribunal set aside the CIT(A)'s findings and restored the matter to the AO for fresh examination, directing the AO to provide a reasonable opportunity of being heard to the assessee.Issue 3: Charging of Additional Interest under Section 234BThe assessee challenged the charging of additional interest of Rs. 1,42,06,445 under section 234B. The CIT(A) observed that the AO had not adjudicated this issue, and it arose only from computation in ITNS 150. The CIT(A) directed the AO to look into this aspect from case records of various years and apply the provisions of section 115JA.The Tribunal agreed with the CIT(A) and added that the charging of interest under section 234B is consequential. The AO was directed to recalculate the interest while giving effect to the appellate order.ConclusionThe Tribunal allowed the appeal partly, favoring the assessee on the issue of addition under section 68 and remanding the issue of deduction under section 80-IA for fresh examination. The issue of additional interest under section 234B was directed to be recalculated by the AO.