ITAT decision restricts expense disallowance & deletes addition of unverified share application money

The ITAT partly allowed the appeal by restricting the disallowance of expenses to 10% of unverified expenses and deleting the addition of unexplained share application money under section 68 of the IT Act. The decision was based on errors in the calculation of disallowance and the burden of proof regarding the creditworthiness of shareholders, aligning with legal precedents.

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Issues involved: Appeal against order of CIT (Appeals) regarding disallowance of expenses, addition of unexplained share application money u/s 68 of the IT Act.

Disallowed expenses: The Assessing Officer disallowed expenses under various heads totaling about &8377; 1.27 crores on estimate basis. The CIT (Appeals) upheld this disallowance, considering it reasonable at 2.81% of total expenses claimed. However, the ITAT found this calculation erroneous and restricted the disallowance to 10% of the unverified expenses, providing relief to the assessee.

Unexplained share application money: The Assessing Officer added &8377; 61,50,000 under section 68 of the IT Act as unexplained share application money. The CIT (Appeals) confirmed this addition, but the ITAT disagreed. It held that the burden was on the Revenue to verify the creditworthiness of the shareholders, and the addition should have been made in the hands of the shareholders, not the assessee. Citing relevant case laws, the ITAT deleted the addition of &8377; 61,50,000 u/s 68.

Conclusion: The ITAT partly allowed the appeal, providing relief to the assessee by restricting the disallowance of expenses and deleting the addition of unexplained share application money. The decision was based on the erroneous calculation of disallowance and the burden of proof regarding share application money, as per legal precedents.

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