2016 (4) TMI 1317 - AT - Income Tax

Tribunal upholds CIT(A) decision, dismissing Revenue's appeal on Income Tax Act sections.

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the additions and disallowances made by the AO under Sections 68, ... Addition u/s 68 - Held that:- In the facts and circumstances of the present case in the face of numerous documentary evidences crying for bonafide of the assessee as against only suspicion and surmises in favour of the Department, we do not hesitate to hold that the proposition laid down by the Hon'ble Supreme Court in DURGA PRASAD MORE [1971 (8) TMI 17 - SUPREME COURT] is not applicable in the present case. Even the Assessing Officer has not been able to bring on record any adverse material, on his own investigations, the results have been in favour of the assessee. Suspicion, howsoever strong, cannot take part of the documentary evidences. Second contention of the Department with respect to the prices being manipulated and later on the company delisted from the Stock Exchange, we want to add that the company was very much in existence at the time of transaction and whatever happen later on is of no relevance. The grounds of appeal raised by the Revenue are dismissed Disallowance u/s 14A - Held that:- Punjab & Haryana High Court in the case of Lakhani Marketing Inc 2014 (7) TMI 44 - PUNJAB AND HARYANA HIGH COURT] is squarely applicable to the facts of the present case, as no exempt income has been earned by the assessee during the year. As regards the contention of the learned D.R. that the said judgment was delivered before the insertion of Rule 8D, we are of the view that the Rule 8D is just a mechanism provided to compute the disallowance under section 14A of the Act. The provisions of the Rules can never prevails over the provisions of the Act. The judgment has been given in the context of the provisions of the section. If the situation demands for no disallowance, the computational provision does not come into the picture at all. In view of this, we uphold the action of the learned CIT (Appeals) in deleting the disallowance. The grounds raised by the Revenue are dismissed. Addition u/s 69 - Held that:- The submission of two capital accounts does not in anyways be correlated to the cash deposits in bank. Therefore, this contention of the Assessing Officer is totally devoid of any merits. Further, we do not understand as on what basis the Assessing Officer has made addition of ₹ 16,10,000/-. Nowhere neither in assessment order nor in remand, he has detailed his reasoning. In view of this, we do not hesitate to confirm the order of the learned CIT (Appeals). Decided against revenue Issues Involved:1. Deletion of addition made under Section 68 of the Income Tax Act.2. Deletion of disallowance under Section 14A of the Income Tax Act.3. Deletion of disallowance under Section 36(1)(iii) of the Income Tax Act.4. Deletion of addition under Section 69 of the Income Tax Act.Detailed Analysis:1. Deletion of Addition Made Under Section 68 of the Income Tax Act:The Revenue challenged the deletion of an addition of Rs. 2,67,55,708/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, arguing that the assessee used a colorable device to avail benefits under Section 10(38). The AO contended that the assessee's transactions involving the purchase and sale of shares were not genuine and were meant to create unexplained cash credits. The assessee had purchased 36,000 shares of M/s BND Limited in cash, which later amalgamated into M/s Vindus Holding Limited. The shares were sold on the Kolkata Stock Exchange, and the sale proceeds were credited to the assessee's account.The CIT(A) found that the transactions were genuine, supported by contract notes, Demat account statements, and confirmations from brokers and the Kolkata Stock Exchange. The AO's suspicion was based on surmises and conjectures without substantial evidence. The Tribunal upheld the CIT(A)'s decision, stating that the AO failed to prove the transactions were not genuine and that the addition under Section 68 was not justified.2. Deletion of Disallowance Under Section 14A of the Income Tax Act:The AO disallowed Rs. 42,420/- under Section 14A, contending that the assessee had investments likely to earn tax-free income. The assessee argued that it had sufficient owned funds and did not earn any tax-free income during the year. The CIT(A) relied on the Punjab & Haryana High Court's judgment in Lakhani Marketing Ltd., which held that no disallowance under Section 14A could be made if no tax-free income was earned. The Tribunal upheld the CIT(A)'s decision, stating that Rule 8D is a computational mechanism and cannot override the provisions of the Act.3. Deletion of Disallowance Under Section 36(1)(iii) of the Income Tax Act:The AO disallowed Rs. 6,22,958/- as interest on loans and advances, arguing that the assessee did not charge interest on certain loans and failed to substantiate business expediency. The CIT(A) deleted the disallowance for loans to Upinderjeet Kaur, Rajeev Aggarwal, and Surinder Goyal, finding that interest was charged but mistakenly recorded as loans and advances. However, the disallowance for loans to Anju Bhatia and Ishan Aggarwal was upheld, as the assessee could not substantiate business expediency. The Tribunal found no infirmity in the CIT(A)'s decision, as the disallowance was based on factual errors corrected by the assessee.4. Deletion of Addition Under Section 69 of the Income Tax Act:The AO added Rs. 16,10,000/- under Section 69, arguing that the assessee could not explain the source of cash deposits in his bank account. The assessee explained that the cash deposits were from the sale of land, duly recorded in the cash book. The CIT(A) found that the AO did not detail why the explanation was unacceptable and that the cash flow statement was not incorrect. The Tribunal upheld the CIT(A)'s decision, stating that the AO's contention lacked merit and the addition was not justified.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the additions and disallowances made by the AO under Sections 68, 14A, 36(1)(iii), and 69 of the Income Tax Act. The Tribunal found that the AO's findings were based on suspicion and conjectures without substantial evidence, and the assessee had provided sufficient documentary evidence to support the genuineness of the transactions.