2010 (7) TMI 993 - AT - Income Tax

Tribunal Decision: Share Application Money Deletion Affirmed, Burning Loss Addition Partially Allowed

Income Tax Officer Versus Maruti Aluminium Pvt. Ltd

Income Tax Officer Versus Maruti Aluminium Pvt. Ltd - TMI Issues Involved:1. Deletion of addition on account of unaccounted share application money u/s 68.2. Deletion of addition on account of excessive claim of burning loss.Summary:1. Deletion of Addition on Account of Unaccounted Share Application Money u/s 68:The first issue pertains to the deletion of an addition of Rs. 23,50,000/- made on account of unaccounted share application money u/s 68. The Assessing Officer (AO) issued a show-cause notice regarding the introduction of fresh share capital accepted in cash. The assessee provided a detailed compilation including share application money with relevant evidence. However, the AO noted discrepancies such as the applicants being low-paid, illiterate agriculturists, and the money being received in cash. Despite affidavits and explanations, the AO rejected the evidence and taxed the amount u/s 68, citing failure to establish identity, capacity, genuineness, and creditworthiness.The CIT(A) examined the facts and allowed the claim, noting that the assessee submitted share application forms, identity cards, affidavits, and proof of agricultural income or salary/business income from shareholders. The CIT(A) referenced decisions from the Guwahati High Court and ITAT Ahmedabad, concluding that the shareholders were identified and confirmed their investments, thus deleting the addition.The Tribunal affirmed the CIT(A)'s findings, referencing Supreme Court decisions in CIT vs. Steller Investment Ltd. and CIT vs. Lovely Exports (P) Ltd., and dismissed the Revenue's ground.2. Deletion of Addition on Account of Excessive Claim of Burning Loss:The second issue involves the deletion of an addition of Rs. 3,51,70,869/- made on account of excessive burning loss. The AO noted a burning loss of 45.80% as per the Audit Report, which was reworked by the assessee to 38.39%. The AO deemed this excessive and disallowed 30.80%, allowing only 15% burning loss.The CIT(A) accepted the assessee's explanation that the raw material was Aluminium Scrap with significant impurities, justifying the burning loss. The CIT(A) noted that the assessee maintained complete quantitative records and excise records, and the Excise Authorities accepted the Audit Report. The CIT(A) also considered a comparable case with a burning loss of 36.46%, concluding that the AO's estimation of 15% was baseless and deleted the addition.The Tribunal noted that the AO disturbed the book results without rejecting the books of account. The assessee maintained quantitative records and the RG-1 Register as per Excise Department requirements. The Tribunal acknowledged the impurities in the raw material and the varying burning loss percentages in subsequent years. It concluded that the AO's estimation was not justified but also noted inconsistencies in the assessee's book results. To maintain consistency and account for potential pilferage, the Tribunal deemed it fair to allow a burning loss of 30%, resulting in a partial disallowance of 8.39%.Conclusion:The appeal of the Revenue was partly allowed, with the Tribunal affirming the deletion of the addition on account of unaccounted share application money and partially allowing the addition on account of excessive burning loss.