2013 (11) TMI 674 - AT - Income Tax

Assessee's appeal partly allowed: share application money reassessment remanded for full presentation; speculation loss upheld.

Luminant Investments Pvt. Ltd. Versus Dy. CIT, Mumbai

The court partially allowed the assessee's appeal for statistical purposes. The assessment of share application money as unexplained income under Section ... Assessment of share application money as unexplained income u/s.68 - Revenue had followed the money trail up to fourth layer, i.e., whereat the cash was found deposited in the bank accounts of persons with no credibility - directors of the investors companies, admitting to the transaction beign bogus inasmuch as they are only providing accommodation entries for a commission - Held that:- Reliance has been placed on the judgment in the case of CIT vs. Youth Construction P. Ltd. [2012 (11) TMI 595 - DELHI HIGH COURT], wherein it was observed by the Hon’ble Court that Section 68 of the Income-tax Act, 1961, applies equally to share application monies received by an assessee and, therefore, the burden is on the assessee to prove the nature and source thereof, to the satisfaction of the Assessing Officer. It involves there ingredients, namely, the proof regarding identity of the share applicants, their creditworthiness to purchase the shares and the genuineness of the transaction as a whole. In the instant case, assessee has done little excpect raising a legal plea of non production of the said directors or deponents for cross examination. The same has been disregarded by the Revenue on the ground that sufficient opportunity is toward the same were granted during the course of the proceedings before the investigation wing and which had deliberately evaded by the assessee on pretext or the other - Furnishing of the documentary evidences, viz. the share application money, balance-sheet of the creditor companies is of little evidential value in the facts of unearth and late bear by the Revenue. Rather, it needs to be appreciated that if the evidence by way of book entries were to be itself sufficient to prove cash credits, section 68 would itself to be misconceived and redundant inasmuch as it is only based on the credit appearing in the books of account – Decided against the Assessee. Whether assessee's loss is a speculation loss in view of the provisions of explanation to section 73 o the Act - Assessee's principle business being trading in shares and securities, the A.O. has invoked the said provision and which has found confirmation by the ld. CIT(A) on the same ground – Held that:- There has been no business activity during the year and the impugned loss is on account of valuation of the inventories, would make no difference in the value of of stock is an integral part o the process of determination of business income – Reliance has been placed on the decision of the case CIT vs. Lokmat Newspapers Pvt. Ltd. [2010 (2) TMI 94 - BOMBAY HIGH COURT] – Decided against the Assessee. Issues Involved:1. Maintainability of assessment of share application money as unexplained income under Section 68 of the Income Tax Act, 1961.2. Treatment of the assessee's loss as a speculation loss under the provisions of Explanation to Section 73 of the Act.3. Levy of interest under Section 234(B) of the Act.Issue-wise Detailed Analysis:1. Maintainability of Assessment of Share Application Money as Unexplained Income (Section 68):The principal issue in this case is whether the share application money amounting to Rs. 2778.50 lacs can be assessed as unexplained income under Section 68 of the Income Tax Act. The assessee filed its return of income disclosing a loss of Rs. 8.34 lacs and was subjected to verification under Section 143(2). The Assessing Officer (A.O.) observed that the assessee had repaid a loan of Rs. 25.61 crores by raising share allotment money of Rs. 2778.5 crores. The money was received from 41 share applicants, mostly private limited companies, and was investigated by the department's investigation wing. The investigation revealed that the money trail led to cash deposits in bank accounts of persons with no credibility, thus assessing the amount as income under Section 68.The legal position, as clarified by the courts, places the burden on the assessee to satisfactorily explain the nature and source of the credit. The Revenue is not obliged to show the source of the income but can rely on the absence of a satisfactory explanation from the assessee. The assessee failed to provide confirmation letters from the creditors, and the investigation wing's findings indicated that the transactions were bogus, with directors admitting to providing accommodation entries for a commission.However, the assessee contended that it was not provided with the material in the possession of the A.O., amounting to a denial of opportunity to present its case. The CIT(A) did not address this aspect, leading to the conclusion that the assessee's appeal should be partly allowed for statistical purposes.2. Treatment of Assessee's Loss as Speculation Loss (Explanation to Section 73):The second issue pertains to treating the assessee's loss as a speculation loss under Explanation to Section 73. The assessee's principal business was trading in shares and securities, and the A.O. invoked this provision, which was confirmed by the CIT(A). The assessee argued that there was no business activity during the year and the loss was due to the valuation of inventories. However, the court held that the valuation of stock is an integral part of determining business income, and the loss should be treated as a speculation loss. This position is supported by decisions from the Bombay High Court in CIT vs. Lokmat Newspapers Pvt. Ltd. and Prasad Agents (P.) Ltd. v. ITO.3. Levy of Interest under Section 234(B):The third issue involves the levy of interest under Section 234(B) of the Act. The assessee claimed that the interest was not levied in accordance with the law and that there was a denial of opportunity to contest it. However, no specific case was made regarding the incorrect calculation of interest. The court reiterated that the levy of interest is compensatory and mandatory, as explained by the Supreme Court in CIT vs. Anjum M.H. Ghaswala. The Board has provisions for waiver of interest under genuine hardship, but the assessee did not present such a case. Consequently, the levy of interest under Section 234(B) was upheld.Conclusion:The assessee's appeal is partly allowed for statistical purposes, with the primary issue relating to the maintainability of the assessment of share application money as unexplained income being remanded for further consideration. The treatment of the assessee's loss as a speculation loss and the levy of interest under Section 234(B) were upheld. The judgment emphasizes the importance of providing the assessee with an opportunity to contest the material relied upon by the Revenue.